Energy stocks have been a big outperformer versus the S&P 500 since mid-March. This is at least in good part due to a rally in the price of oil, which is also putting inflationary pressures back on the table. One falling star stock that has caught my attention as a result is Chesapeake Energy Corporation (NYSE:CHK). While CHK stock is by no means a direct play on the price of oil, this laggard may see a pop if we see continued buying pressure in oil and energy stocks as a whole.
When Chesapeake reported its latest batch of earnings last week on May 2 it reported better then expected bottom line results and continued to reduce its debt. Although the stock fell after the report, it has since recovered and continues to grind out for a potential breakout on the charts.
As a side note, my general rule is not to “trade” stocks trading below the $10 mark because in my experience such stocks are somewhat more prone to adverse stock movements. So, why “break my rule” in this case of CHK stock? For one, the company has just reported earnings and any “bad news” for the near term may now have been baked in. Second, as per the “correlation” discussion above, the more buying pressure we see in the price of oil and other commodities, the more participation we should see from energy stocks broadly speaking.
CHK Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
For some perspective, on the multi-year weekly chart we see that the trajectory of CHK stock has been decidedly to the downside with little to no hope of any sustainable rallies.
All of the moving averages are pointing lower and while momentum has stopped increasing to the downside, any bounces in price have been short lived.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart we see that after falling hard again in the second half of January/first half of February, the stock slipped into a sideways consolidation phase that it remains in to date. While any breakout to the upside and out of this range has yet to occur, a push and hold above the $3.30 area on a daily closing basis could open up a next upside target around the red 200-day moving average in the high $3.60’s. Any strong bearish reversal from there is a stop-loss signal.
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