CHK DAY TRADE SETUP – VWAP BOUNCE, STOP AND GO FOR 3.6 : 1 MAX GAIN RATIO

Chesapeake Energy Corporation’s stock (CHK) has been rallying for the past few days, coinciding with the current rebound of oil prices. This morning, it made a strong bounce off the VWAP that provided traders with a maximum gain-loss ratio of 3.6 to 1. See my analysis below.

CHK - Winning Day Trade Setup - VWAP Bounce, Stop and Go - 04-24-2020

ACCOUNT OF EVENTS

The setup occurred on Friday, April 24, 2020.

At 6:30 AM PT I checked overall market performance and saw that there was positive bias, with the Dow Jones Industrial average up around 0.77 percent.

Next I went over to CNBC for any news that could have help me in today’s trading decisions. The headline read “Dow futures jump 150 points as oil continues rebound from historic lows.” With that in mind, I was hoping to see see some oil stocks in the morning’s top gainers.

Sure enough, I see CHK in the top five list on Finviz, up 26 percent with over 300,000 shares traded. I placed particular interest on this stock not only because of the positive news surrounding oil prices, but it was also a top performer yesterday, during which I was able to capitalize on in the late morning. It has been my personal experience that a stock that is on the radar for a second consecutive day usually provides opportunities for additional gains before it fades.

I checked for recent news specific to CHK. A negative sounding headline registered yesterday afternoon. It read “Chesapeake Adopts Poison Pill After Shares Drop on Oil Rout.” Given how the stock had been performing well recently, I open the article to obtain more details and see if I was entering into a bad trade. The article stated that the company took actions to “thwart any takeover attempts.” This can actually be positive news for some shareholders. The ambiguity of the news, lead me to place more weight on the general news regarding the oil price rebound.

The stock did a short bounce off the VWAP during the first few minutes of trading but quickly sold off a bit below it by 6:49 AM PT. but it reversed off this low just as quickly and closed back above the VWAP by 6:54 AM PT. Not completely convinced that the upward movement would continue, I decided to let the setup develop a little more.

I didn’t have to wait long. CHK tested the VWAP for 2 minutes before making a strong push up, touching $37.00 at 6:57 AM PT. It then pulled back during the next minute, testing $36.00. Seeing these resistance and support levels at the whole dollar levels, I quickly put in a buy stop market order at $37.01, with an intended stop loss at $35.99. I went for a 2:1 gain-loss ratio and calculated my target limit at $39.05 [ (($37.01 – $35.99) x 2) + $37.01) ].

At 7:00 AM PT the stock made a strong break above $37.00, filling my order. I quickly went to my open position and added my stop loss and limit levels with an OCO (Order Cancels Order) condition.

CHK continued the upward move with little hindrance, reaching my target at 7:07 AM PT and topping out at $40.69 by 7:09 AM PT.

NOTABLE DATA POINTS

Date: 04-24-2020

Day of week: Friday

Approximate market performance at open: Dow +0.77%, S&P 500 +0.67%, Nasdaq +0.48%

Company name: Chesapeake Energy Corporation

Symbol: CHK

Sector: Independent Oil and Gas

Recent news date: 04-23-2020

Recent news headline: Chesapeake Adopts Poison Pill After Shares Drop on Oil Rout

Approximate performance before buy signal: +27.43%

Approximate volume before buy signal: 1,471,358

Float: 8.86 million shares

Setup: VWAP bounce, stop and go

Buy signal time: 6:58 AM PT

Entry time: 7:00 AM PT

Maximum exit time: 7:09 AM PT

Entry wait time: 2 minutes

Exit wait time: 9 minutes

Order type: stop market buy

Entry price: $37.01

Stop loss price: $35.99

Maximum exit price: $40.68

Maximum gain-loss ratio: 3.6 to 1

Did I trade this setup? Yes

 

CHK DAY TRADE SETUP – VWAP BREAKOUT AND BULL FLAG FOR 3.83 : 1 MAX GAIN RATIO

Chesapeake Energy Corporation’s stock (CHK) made some large swings today, flying high during the first two hours, selling off violently far below the VWAP, then making an upward grind through mid morning. A late morning powerful breakout above the VWAP, and a mild break above a bull flag consolidation provided an excellent opportunity to make a potential 3.83 to 1 gain-loss ratio.  See my analysis below.

CHK - Winning Day Trade Setup - VWAP Breakout and Bull Flag - 04-23-2020

ACCOUNT OF EVENTS

The setup occurred on Thursday, April 23, 2020.

The markets at large experienced high volatility. It’s days like this that I get especially excited about trading during late morning, as I can usually find stocks making powerful breakouts.

In particular, I’ve been noticing lately that VWAP breakouts often occur during the 11 o’clock AM hour PT.

At 10:59 AM PT I took a look at CNBC to get a quick snapshot of general market conditions and any news headlines that may influence my trading decisions.

Indeed, the news outlet acknowledged the high volatility today, with overall market performance being flat. A headline at the time read “S&P 500 turns negative In volatile session as investors evaluate Gilead virus treatment, oil rebound.”

Then I checked Finviz for the day’s top gainers. CHK was on the list. Finviz has it categorized in the Independent Oil and Gas sector. In the past I have seen stocks in this sector surge up when a positive news headline regarding comes out. In addition, while there was no specific news on the company for the day, there was negative news that came out last week regarding the company halting its dividend. I’ve been noticing that this bad news then good news sequence often results marked upward swing rise of a company’s stock price.

I examined CHK’s chart. It had been on an hour long upswing, recovering from a sell off and nearing the VWAP, which was at $26.07. I waited for the stock to pull back and consolidate before committing to a buy order.

The stock hit $25.99 at 11:05 AM PT. It persisted at this level for several minutes, then pulled back between 11:11 AM and 11:12 AM PT it tested support at $25.50. This confirmed my buy decision and I put in a buy stop market order at $26.11 with a stop loss at $25.49. Since I wanted a quick win I wanted to go for a 1 to 1 gain-loss ratio, I calculated my target limit order to be $26.73 [ ($26.11 – $25.49) + $26.11 ]. I added my stop loss and limit prices to my existing order by adding an OCO (Order Cancels Order) condition. That way, my risk and reward would be automatically managed when my buy stop order got filled.

CHK traded in a narrow range for several more minutes before breaking above the VWAP and hitting my buy stop price at 11:28 AM PT. It quickly hit my target and I was out by 11:32 AM PT. It continued upward, peaking out at $28.48 at 11:45 AM PT.

While I am happy that I made a winning trade, a part of me is kicking myself for not seeking a greater gain. I’ve read countless times that day traders should seek at least a 2 to 1 gain-loss ratio if we are to have long term success. I suppose it was fear of missing out that got the better of me. I will surely work on resolving this.

NOTABLE DATA POINTS

Date: 04-23-2020

Day of week: Thursday

Approximate market performance at 11:00 AM PT: Dow +0.38%, S&P 500 +0.14%, Nasdaq +0.03%

Company name: Chesapeake Energy Corporation

Symbol: CHK

Sector: Home Furnishings and Fixtures

Recent news date: 04-17-2020

Recent news headline: Struggling Chesapeake Energy halts dividend

Approximate performance before buy signal: +28.79%

Approximate volume before buy signal: 5,520,759

Float: 8.86 million shares

Setup: VWAP breakout and bull flag

Buy signal time: 11:11 AM PT

Entry time: 11:28 AM PT

Maximum exit time: 11:45 AM PT

Entry wait time: 21 minutes

Exit wait time: 17 minutes

Order type: stop market buy

Entry price: $26.11

Stop loss price: $25.49

Maximum exit price: $28.48

Maximum gain-loss ratio: 3.83 to 1

Did I trade this setup? Yes