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Devon Energy Long Swing Setup Possible

11/30/10 02:14:21 PM
by Donald W. Pendergast, Jr.

With the Standard & Poor's 500 typically putting in a strong year-end performance for the majority of the years since 1980, scouting the market horizon for low-risk swing trade setups might be a good investment of time.

Security:   DVN
Position:   N/A

Shares of Devon Energy (DVN) have had a nice run higher since late August 2010, up by nearly 20%. For those traders who are quick on the draw, this key energy stock may be ready to offer skilled traders a short-term long swing setup that is about as low risk as they come. Here's a closer look.

FIGURE 1: DVN, DAILY. Determining where significant support and resistance levels are on your charts should be one of your first tasks, especially if you are a discretionary trader. Here, a variety of trend and/or support lines help bring these price areas into better focus.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock v.11 CS Scientific expert advisor.
Figure 1, a daily graph for DVN, is simple yet informative enough for skilled traders to make use of. All of the essential ingredients for a solid long swing setup are present:

1.) A confirmed uptrend in force (higher swing highs and higher swing lows)
2. The stock is close to a key support convergence area.
3. Long-term money flow is exceptionally bullish.
4. The stock has above-average relative strength versus the S&P 500.
5. A very effective MetaStock expert advisor (the CS Scientific Hybrid trade screen) is suggesting that the line of least resistance for DVN is still toward higher levels.

Here's how you may wish to play this stock, as this setup either confirms a "go long" suggestion or simply morphs into something less attractive for short-term traders:

Let's face it, these days a lot of traders are already wise to the reality of the .SPX's seasonal tendency to rally strongly throughout December, so at least a few of them are going to be watching the support line near $70.00 on DVN's daily chart. A sharp reversal higher after a tag of that support could be the tipoff that this stock intends to make another run at the recent November swing high price of $73.25.

If you see a wide-range, high-volume reversal higher off of the support line, consider placing a buy-stop a few ticks above the high price of the reversal bar. If filled, place a stop-loss just below the support line at about $69.90 or so and then use $73.25 as your logical profit target. Using a two- to three-bar trailing stop of the daily lows should also help give you an objective way to manage the progress of the trade, win or lose. If the trade approaches $73.00, you may wish to prepare to take off half of your position, trailing the rest if and when the prior swing high ($73.25) is hit.

Less trigger-happy traders might consider scouring through the covered-call scanner in their trading platforms to see if a near-term DVN covered call might also be able to be deployed using this basic swing trade setup as a guideline. My previous Traders Advantage article, "Fidelity Energy Services Top Fund Relative Strength," dealt with the possibility of using covered-call plays in the energy services stocks, so using one in this energy-related issue might also be a timely investment of trading capital.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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Date: 12/07/10Rank: 4Comment: 

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