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Chesapeake Energy Stock Is Circling the Drain

The price chart's message is clear, stay far away from this widowmaker

If you’ve come in search of good news for Chesapeake (NYSE:CHK) stock, then move along. All that lies below is a hard dose of reality, a reading of the messages being broadcast on CHK stock’s broken price chart. Let’s just say the embers of optimism have long cooled and I have no hope to hand out.

CHK Stock: Chesapeake Energy Is Circling the Drain
Source: Casimiro PT /

But it’s not for lack of trying.

Sometimes price charts provide the bandwidth to spin a bullish or bearish tale. This is not one of those times. There simply isn’t enough evidence to warrant bottom fishing here. I can understand the appeal, though. At 60 cents, Chesapeake stock’s ultra-low price tag beckons to bottom fishers like sirens to a wayfaring sailor. But it’s a song best ignored.

Weekly CHK Stock Chart

Weekly CHK Stock Chart
Source: The thinkorswim® platform from TD Ameritrade

We begin, as usual, with a big picture view of Chesapeake’s demise. It has been years in the making and punctuated by numerous recovery attempts. And the rebounds have proved futile, yes, but impressive nonetheless. It is these prior bullish booms that make buying CHK down here so tempting. The possibility of a 50% to 100% (or more!) rally is real. But so too is the chance that the stock gets cut in half yet again.

And that’s why I prefer to let the chart tell me when optimism is warranted, rather than a cheap stock price.

The weekly trend saw a surge in momentum during its last downswing, aided by a terrible earnings report. The subsequent snapback, which carried Chesapeake stock into year-end was summarily stuffed, resulting in the beat down we find ourselves in the midst of right now.

The read here is easy. Remain bearish until we break above weekly resistance at $1. That could spark hope of a sustained recovery, or at least a trade-worthy uptrend.

Daily Stock Chart

Daily CHK Chart
Source: The thinkorswim® platform from TD Ameritrade

As usual, the daily view echos the weekly but with more detail. The price is trending beneath falling 20-day, 50-day and 200-day moving averages. It has a date with support at 55 cents and may well fall below it to continue the downtrend. A push above $1 would carry shares back above the 50-day and 20-day moving averages, adding credibility to the call for short-term bullishness. I could see a quick run to $1.25 if $1 gives way, so there’s your trade setup if bulls ever find their horns.

I suspect it will take a while if it happens at all.

As for shorting the stock, I’d avoid that too. The stock is too oversold here and fast approaching potential support at 55 cents. The potential reward versus risk isn’t there right now. Until a better setup arrives, I suggest watching the action from afar.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!

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