|Anadarko Petroleum (APC) is a fairly volatile stock, and that means that swing traders and even a few trend-followers have a keen interest in finding low-risk entry opportunities in this key energy player's stock. Its current upswing, one birthed in the minor cycle low of October 25, 2012, is up about 16% so far and has even managed to take out September's swing high of 76.63 in the process. At first glance, the stock appears to be in fine technical shape, but a closer look at a couple of key indicators and studies is warning in advance that APC's current rally may be closer to its end than it is to its beginning. Here's a closer look now (Figure 1).|
|FIGURE 1: APC, DAILY. APC's current rally will remain intact until it makes a daily close below its current uptrend line. The stock has an extremely bearish, negatively diverging long-term money flow trend; selling could be strong and such a break of support.|
|Graphic provided by: Sentient Trader.|
|First, the good technical news for existing longs in APC:|
1. The stock is still trending very nicely, well above its 36.5-day valid trendline (VTL). This is the upsloping line on the chart and is, in fact, the line in the sand that is defining APC's recent rally.
2. APC's 40-day cycle high time/price projections (red box) is forecasting a high probability of more gains between now and December 25, 2012.
3. The stock is easily beating out the .SPX in terms of 13-week relative strength.
So for the next few weeks, current longs in APC should be okay, provided that they use the trendline shown as a trailing stop (or some sort of a price channel or trailing volatility stop) or begin to acquire put options as insurance.
However, once APC makes it into the red zone and/or makes a daily close below the trend line, all short- to medium-term longs in APC would be well advised to close them out -- hopefully at a nice gain. A prime reason to sell on such a decline is the fact that APC's long-term Chaikin money flow histogram (CMF)(100) has been in a strong negative divergence with price for the past month, which is a sure-fire confirmation that the smart money interests in this stock are already starting to head for the hills, selling their shares to lesser-informed traders who are late to APC's latest rally.
APC's 80-day cycle high projection has nearly identical time/price parameters as its 40-day cycle, yet another tipoff that this current bullish rise is closing in fast on its ultimate (but as yet unknown) peak.
|FIGURE 2: OUTPERFORMING THE .SPX. Anadarko Petroleum (APC) has been outperforming the .SPX over the last calendar quarter and is also stronger than other energy sector components within the .OEX.|
|Graphic provided by: MetaStock.|
|Graphic provided by: MetaStock Explorer.|
|Once APC finally does peak -- probably before Christmas 2012 -- the green shaded box offers the best educated guess as to where the stock will likely seek to put in its next 40-day cycle low. This event is projected to occur before January 10, 2013, with the minimum low being 73.68 and the maximum low being 67.09. APC's 80-day cycle low forecast is calling for an even deeper decline, down to a maximum low of 62.89 by January 29, 2013. See Figure 2.|
Again, because of the extremely bearish money flow trend in the stock, it might pay for traders and investors to anticipate a larger than expected decline in APC as we head into the new year. As far as playing a decline in APC, why not just buy some slightly in-the-money (ITM) put options (with at least two months of time value remaining) after you see a daily close below the top trendline? Use the top of the green price zone as your initial profit target and you might be rewarded with a relatively fast and trouble-free selloff, one that could help you finish out 2012 in profitable style.
As always, limit your trade risk to a maximum of 1% to 2% of your account equity and trade wisely until we meet here again.
|Title:||Market consultant and writer|
|Address:||81 Hickory Hollow Drive|
|Crossville, TN 38555|
|Phone # for sales:||904-303-4814|
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