Before the bell Wednesday, oil and natural gas producer Chesapeake Energy (CHK) reported a rise in its first-quarter profit that sent CHK stock to a technically important 4%-plus rise for the day.
Chesapeake earnings jumped from $102 million last year to $425 million, translating to 54 cents per share, up from 2 cents in the year-ago period. Revenues rose 47% to $5.05 billion, which beat expectations of $4.45 billion. Adjusted earnings did the same, with Chesapeake’s non-GAAP profits coming to 59 cents per share and topping estimates for 48 cents.
In the conference call, CHK significantly lifted its adjusted growth outlook for 2014 from 9% to 12%, compared to its prior outlook of 2% to 4% growth. The company attributed the better growth outlook to “higher-than-expected natural gas liquids volumes.” Chesapeake also raised the midpoint for its 2014 cash flow outlook by 13%, or $700 million, to reflect increased productivity.
Wednesday ended in a 4.44% improvement in CHK stock that came on above-average volume and resulted in a technically important breakout.
CHK Stock Charts
Chesapeake Energy — once a name that made headlines on a daily basis back in the 2007-08 period as it was subject to great volatility and thus a big trader following — has traded in a relatively more muted fashion in recent years. From a technical perspective, however, CHK stock has continued to act well, respecting its various support and resistance levels without too many erratic movements.
Still, in many ways, Chesapeake is a classic example of how a stock’s character changes over time, and the active traders and investors that recognized this change had many opportunities for profitable trades, while those reminiscing of the stock’s wild days likely suffered both financially and emotionally.
On the weekly chart looking back to 2009, CHK stock formed an important higher low in May 2012 that ultimately paved the way for the recent breakout. In early April, Chesapeake Energy finally broke out of a bull flag pattern that had been developing since August 2013.
From a momentum perspective, this could move the stock back into the mid-$30s in coming months.
On the daily chart, Wednesday’s post-earnings rally then broke CHK stock out of a smaller bull flag pattern and past its recent highs. On an intraday basis, Chesapeake on Wednesday quickly dipped below its Tuesday lows, but then just as quickly reversed back up, closing near the day’s highs.
This type of price action is bullish and now favors CHK stock to climb toward the $32 area in coming weeks. From a risk management perspective, any quick reversal of yesterday’s gains would put the near-term bullish case back on ice.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.