Long In The Tooth?
Shares in energy companies surged
Tuesday along with soaring oil and natural gas prices. But I’m a little
skeptical of the light trade behind these moves.
One of the better looking profiles
came from Apache
(
APA |
Quote |
Chart |
News |
PowerRating) jumped 5 5/16 to to a new high 69 7/16, clearing a
cup-with-handle base. The stock’s relative strength line also pulled into record
levels. However, volume came in at 1.2 million shares, shy of its 50-day moving
average of 1.5 million shares.Â
On breakouts, I want to see strong
volume relative to the stock’s usual trade. However, this is not always easy to
see, particularly if the breakout occurs in the early session. Any trader can
buy in such situations, only to see volume end the day at mediocre levels. In
such cases, I tend to stay in the stock, provided the price is holding up and,
of course, above my stop. For more on this aspect of trading, see my lesson,
To Spot Significant Volume Intraday.
There is certainly lots of group
confirmation in such stocks as Anadarko Petroleum
(
APC |
Quote |
Chart |
News |
PowerRating) and and EOG
Resources
(
EOG |
Quote |
Chart |
News |
PowerRating), which like Apache have benefited from a cold snap across much of the U.S., driving up demand for oil and natural gas. Oil for
delivery in February jumped 46 cents at $26.64 a barrel on the New York
Mercantile Exchange. Natural gas prices climbed 22.6 cents at $9.805 per million
BTU.
However, this group move is starting
to look a little long in the tooth. Anadarko is working on its third base after
a failed basing attempt. (Valid bases and current basing attempt are underlined
in black in the following chart. The failed basing attempt is underlined in
red.) Third- and fourth-stage bases are prone to failure. Note also the mediocre
volume behind Anadarko’s 10.9% price move on Tuesday. You can keep playing the relative strength here, but stay alert to signs of distribution.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.