The petroleum and natural gas exploration and production company organized in Delaware and headquartered in Denver, Colorado, Cimarex Energy Co (NYSE: XEC) seems to be gearing up for a surge as per its latest charts.
#1 IH&S Pattern: As you can see from the daily chart of XEC, the stock has been forming an Inverted Head and Shoulders (IH&S) pattern since the past few weeks. This IH&S pattern is marked in the chart in orange color. An IH&S pattern is a strong bullish pattern and indicates that the stock may move higher in the short term. Typically, after a breakout, the stock corrects back to the breakout level of the IH&S pattern before resuming its upmove.
#2 Channel: As you can see from the daily chart, the stock has been trading within a channel during the past few months. This is marked in the daily chart in blue color. Currently, the stock is near the upper end of the channel. A breakout from the channel could cause the stock to move higher. The stock is also trading above 50-day SMA, indicating that the bulls are currently in control.[hana-code-insert name=’adsense-article’ /]#3 CCI Moving Up: The CCI was below -100 and moving up, indicating possible bullishness.
#4 Double Bottom: A double bottom pattern is being currently formed for XEC.
This is shown in the figure in pink color.
A double bottom pattern is a bullish reversal pattern, indicating that the stock could possibly move upwards shortly.
#5 Bullish Stochastic: The %K line is above the %D line of the stochastic, indicating bullishness.
#6 RSI-Price Positive Divergence: There is an RSI-Price positive divergence on the weekly chart.
The RSI made a higher low while the price made a lower low. This is marked on the chart as blue dotted lines. This indicates that the selling pressure is reducing and the stock might reverse soon.
#7 Bullish Harami Pattern: As you can see from the weekly chart of XEC, there is a Bullish Harami candlestick pattern being formed on the chart. This is marked by the purple ellipse. In the bullish harami pattern, a bearish candlestick (red) of previous day engulfs the body of the latest small bullish candlestick (green). This pattern is considered as a sign of a reversal of the downward trend.
#8 MACD above signal line: In the weekly chart, the MACD line (blue color) is currently above the signal line (orange color), indicating a bullish bias.
#9 CCI moving up: The CCI is currently moving upwards, indicating a bullish bias.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the buy levels of XEC is when it breaks out of the IH&S pattern. This translates to a price of around $102.50.
Note: For those who prefer a speedier entry, you can buy half the intended quantity of stocks at the current price of $97.34.
TP: Our target prices are $110 and $125 in the next 3-6 months.
SL: To limit risk, place a stop loss below $92.50. Note that this stop loss is on a closing basis.
Our target potential upside is nearly 13% to 28% in the next 3-6 months.
- Entry at $97.34: For a risk of $4.84, the target rewards are $12.66 and $27.66. This is a nearly 1:3 and 1:6 risk-reward trade.
- Entry at $102.50: For a risk of $10, the target reward (TP#2) is $22.50. This is a nearly 1:2 risk-reward trade.
In other words, this trade offers nearly 2X to 6X more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down with high volume from the IH&S pattern. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in its sector.
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