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.
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
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
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