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Continental Resources On The Move

02/27/12 10:31:04 AM
by Billy Williams

Basic materials and commodities are experiencing a boom while the rest of the market remains lackluster. One stock is showing great strength and is on the move, so don't miss out.

Security:   CLR
Position:   Buy

For the last decade, natural resources have experienced a boom compared to equities, which have declined in comparison. Now, the Federal Reserve has announced that it intends to keep rates low for the next two years. Further, inflation is likely to rise even higher with the Fed's printing presses working overtime and printing more dollars. This translates into more pressure for consumers as the dollar declines in the face of rising resource costs and the middle class going up against anemic purchasing power that grows weaker each day.

In light of these facts, it is vital for the astute speculator to look where the strength lies in the market and tailor an appropriate trading strategy to take advantage of this reality.

FIGURE 1: CLR. CLR has had a big run to repair the damage from the market meltdown of 2008. Now, it's at an all-time high with no overhead resistance to slow it down from becoming a leader in the next rally.
Graphic provided by:
Part of trading successfully is finding the right pond to fish in, and that means going where the action is or where market strength is displayed. For market strength, natural resources as in metals, sugar, coffee, cotton, basic materials, and energy, to name a few, are where the strength is in the form of bullish price movement and where the action is.

Specifically, energy is on the rise with independent oil and gas operators leading the way, as the market looks to crawl upward in the current rally. There are stocks that have exhibited solid price movement as well as compelling fundamental and technical criteria to be considered as strong long candidates.

FIGURE 2: CLR. CLR bottomed in October 2011, forming a cup-and-handle formation, with the handle portion forming in the 0.382 Fibonacci retracement zone. This could mean that price goes on to a price target of $112, making it a solid candidate for pullback trading along the way.
Graphic provided by:
One of them, Continental Resources (CLR), is engaged in the exploration and production of crude oil and natural gas primarily in the northern, southern, and eastern regions of the US. At the end of December 2010, it was estimated to have proven reserves of 364.7 million barrels of oil equivalent, with estimated proved developed reserves of 140.4 million barrels of oil equivalent. The company had interests in 2,726 wells and served as the operator of 1,888 of these wells.

As the demand for energy heats up and competition for companies that have hard assets on their balance sheets becomes even more fierce, CLR has proven quarterly earnings growth that continue to please its investors as stock prices continue to trade higher on stronger volume. The result is a large cup-with-handle pattern that has formed during a modest pullback to its 0.382 Fibonacci retracement level before resuming its uptrend and is currently 20% plus past its $73.08 buy point. See Figures 1 and 2.

Price targets for the current chart pattern is around $112, and since price has now overcome the overhead resistance for this stock, it is now trading at all-time price highs, giving it more wind to its back as it looks as if it will continue on to this projected price target.

Since this stock has already traded through its buy point, you want to play this stock by looking for pullbacks in price where you can place a buy order of the price bar that sets a intraday low below the two preceding trading days' lows. If the buy order is triggered, then you can be assured that the bulls have taken back control on a short-term time frame and resume the trend's direction in the dominant trend on the larger time frame. But be sure to be cautious in the interim as price approaches $112 where it is likely to take a breather and adjust your position accordingly.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

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