One of our favorite patterns here at TTP are Trend Transition patterns. One of our current open positions, GILD, is born of this set up. We do like our Trend Resumption patterns that capitalize on existing trends, however, being able to identify a stock undergoing a Trend Reversal allows us to enter a position early, and if we are right, net very nice profits from the onset of the new trend. As with any trade, this is easier said than done because many times these patterns are laden with false starts but that said, most any set up is prone to failure, this is just the nature of the trading game.
We are currently seeing these types of set ups in the Energy Sector. There doesn’t seem to be any major catalyst for the sector, but on one of the great things about the markets is they are able to discount things way before most of the public can see it. Perhaps this is what is going on with the energy stocks, only time will tell. With that, lets take a look at the charts and see where some opportunities may lie.
OIL/GAS EQUIPMENT & SERVICES– This sector is making a strong move off of 16 months lows along with a tight cross over of the 10 day simple, 20 day exponential and 30 day exponential moving averages which are two key components of a Trend Reversal in progress. I picked up these moving average combinations from Dave Landry years ago and they have proven to be very effective in helping identify these reversal set ups. You can see from the chart below that there was a brief one bar pullback after the MA crossover before the trend reasserted itself. These pullbacks may last several days before a trend resumes and offers a buy point, but one bar is all it takes for the set up to trigger a buy point just above the pullback bar. Sometimes the shorter the pullback the better because it catches traders who are waiting for a longer consolidation off guard forcing them to jump on the train or be left behind. Here is a look at the sector, followed by some stocks to watch.
EMES- As for individual stocks, Emerge Energy is a good example of this set up. Although this stock already triggered a buy on Wednesday 9/20, it should be kept on your list of long candidates should it continue to carry out a longer term trend as it can offer an eventual Trend Resumption set up. It has asserted itself off 15 month lows and printed our MA crossover. We had our pattern qualifying pullback on Friday 9/15 and the stock triggered a few days later when it traded just above that bar. Here is a look.
SPN– Sometimes we have a combination of technical factors that may increase our odds of success. With Superior Energy we will first take a look at a weekly chart that shows a possible long term double bottom.
Now lets look a little closer at the daily chart that shows the afore mentioned factors for a possible Trend Transition. SPN shows these same qualifiers, however, we must note that the MA crossover is not quite as tight as we may like to see. This may not have necessarily stopped us from making the trade but we do tend to be a bit demanding at times on our set ups. That said, the weekly double bottom may have been enough of an additional factor for us to take the position. As we grow as traders, this is the type of discretion that we can develop that helps us raise the odds of our success.
Here are a couple more stocks to keep a watch on that have not triggered yet but are worth putting on your watch list.
BHGE- This stock would qualify as an IPO breakout trade similar to our WTTR trade we just opened. Watch for a breakout above the $37.50 area.
NR- Newpark Resources is ahead of the game already posting two years highs after registering a breakout on 9/12. Patiently wait for a trend to continue to develop over the course of the next couple weeks, if that materializes, watch for an opportunity to jump on board on a Trend Resumption pattern after a pullback.
That’s all for now. Continue to keep your eye on this sector for possible opportunities. We will be back with another article by Monday highlighting the E&P companies within the Energy Group.