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1 Stock to Buy, 1 Stock to Short: Fuel

Don't add alternative biofuels to the energy portion of your portfolio just yet


As I scanned the charts today with the Trending123 Pattern Scan, powered by Recognia, I came across an interesting juxtaposition—Phillips 66 (NYSE:PSX), a well-known oil and natural gas stock, and Gevo, Inc. (NASDAQ:GEVO), which produces green alternatives to petroleum. Unfortunately that green biofuel alternative company isn’t seeing much success when it comes to its stock price.

Buy the Symmetrical Continuation Triangle

5-16-13-psx PSX has developed a symmetrical continuation triangle over the past 34 days, making this a trade for the intermediate term (six weeks to nine months).

The price has broken upward out of the consolidation period that occurred early this year, suggesting a continuation of the prior uptrend. A symmetrical continuation triangle shows two converging trendlines as prices reach lower highs and higher lows. Volume diminishes as the price swings back and forth between an increasingly narrow range reflecting uncertainty in the market direction. Then well before the triangle reaches its apex, the price breaks out above the upper trendline with a noticeable increase in volume, confirming the pattern as a continuation of the prior uptrend.

Recommendation: Buy PSX for a $77.00 – $80.00 target.

Short the Descending Continuation Triangle

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GEVO has developed a descending continuation triangle over the past 86 days. Not a great sign for a stock that already trades around $1.

The increasingly lower highs and constant lows within this pattern tell us that sellers are more aggressive than buyers, confirmed by a break down through a support level to signal a continuation of the prior downtrend. With its increasingly lower highs and constant lows, a descending continuation pattern indicates that sellers are more aggressive than buyers. The pattern typically forms because a demand for shares is available at a certain price, represented by the lower flat line propping the price up. But when the supply depletes, the shares quickly break down below the bottom boundary line and move lower.

Recommendation: Short GEVO for a $0.50 – $0.70 target.


InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the OpenParabolic Options and Trending123.  Trending123 members receive access to the Trending123 Pattern Scan powered by Recognia free as part of their membership. For more information on which service is for you click here.

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