Everything is alright, until it’s not. An oversimplification, of course, but this market has been looking for a reason to have a correction, even if only slight, as the S&P 500 Index and other indices have stubbornly consolidated in a wide range since July.
Now, with Deutsche Bank looking to play the villain, investors and traders have a reason to sell. Of course, this is timed perfectly with the beginning of October, but that’s another story.
Today’s big stock charts looks at the odd bullish trading opportunity in the energy sector with the United States Oil Fund LP ETF (NYSEARCA:USO), Chesapeake Energy Corporation (NYSE:CHK) and a bearish trading opportunity in Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA).
United States Oil Fund LP ETF (USO)
News from the OPEC meeting earlier this week shot oil prices higher as the market initially responded to the agreed-upon production caps. Speculation about the details of the agreement sent doubt through the energy sector. Traders in the oil pits continue to trade off of the fundamentals, despite the pessimistic view taken by much of the market. The combination of pessimistic sentiment and strong technical moves are always the sign that a stock, or exchange-traded fund in this case, is ready to climb the Wall of Worry.
Charts show support for USO shares at the $10.50 level as a confluence of trendlines is present just below that price. The trio of trendlines includes the 20-, 50- and 200-day moving averages, all of the key trading trendlines.
From a volatility perspective, the USO shares are threatening to break their top Bollinger band, which would accelerate the move to the upside for the United States Oil Fund LP ETF. From a short-term perspective, USO shares are set to move to the $11.50 level before seeing some selling. From there, we’ll expect a slight pullback from overbought conditions followed by another step higher to the $12.50 mark.
Chesapeake Energy Corporation (CHK)
Traders’ knee-jerk reaction to doubt on the production caps was more prevalent in the trading of energy companies. Chesapeake Energy is a great example of this, as the company’s shares reversed lower, testing support at the $6 level.
Closing at $6.12 last night, Chesapeake Energy shares are in place to see support from their 50-day moving average. In addition, the round-numbered properties of the $6 level should also help to lend support to shares.
Bearish volume was extremely heavy on Thursday, identifying the potential that the shares have created what we refer to as a “selling vacuum.” This is similar to an oversold situation for a stock where a slight bit of buying will start to fill the vacuum left as all of the sellers have temporarily offset the buy/sell balance of the stock. The situation often results in a new wave of buyers sucked into the stock.
Short-term charts suggest that Chesapeake Energy will likely make a run at the $7.50 level.
Ariad Pharmaceuticals, Inc. (ARIA)
We wrote about Ariad Pharmaceuticals last month as a bullish opportunity as the stock had gone parabolic. The stock is trading 35% higher than they were when we identified the shares as a technical buy and now have extended themselves into a short-term bearish situation.
Shares of Ariad Pharmaceuticals have become extremely overbought according to their RSI readings. These readings have been in this territory since Sept. 16, but now the trend in shares is turning, indicating that the profit-takers are likely to move the stock lower.
Ariad Pharmaceuticals does have some support below, but the stock will likely decline 13% to the $12 level before realizing any of that support. From a longer-term perspective, Ariad Pharmaceuticals remains a buy, but the stock is presenting investors with an opportunity to lock in profits and rebuy the shares at a lower price, which is how you beat the market!
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
