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In the most recent issue of the Self Directed Investor (a free newsletter for HUBB software users) I demonstrated how the relative performances of the different sectors are likely to change over the next few weeks and months. The conclusion of the article was that a shift from the financial sector to the energy sector could be highly profitable given the current economic and social conditions. Subsequently, therefore, it’s been a good idea to look for opportunities which would facilitate a change in portfolio allocation to reflect this outcome and this has been something I’ve actively pursued over the last few weeks.
All traders (whether they predominantly use Gann or Option analysis) who have access to ProfitSource can and should employ the methodology developed for the TradingKey course. This methodology is very prescriptive in illustrating what to look for (just fill in the checklist) and has revealed numerous profitable short term trades in the energy sector. One such trade currently approaching ‘ripeness’ is Cooper Energy (COE.ASX).
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COE is not a massively liquid share and is trading well below the $1 mark. Typically this puts it out of bounds for many, however COE displays the characteristics of a technical set up which TradingKey students love to see.
An Elliott Wave continuation trade is the most obvious pattern evident; given by the TAPP, the price retracement and the two oscillators (not shown). The real ‘key’ in the TradingKey course, however, is learning which EW set up is more likely to produce results than others. It’s with this in mind that additional market structures and indicators are regarded. Previous resistance has now become new support providing an ideal niche in which to position stop losses. Simultaneously, the retracement of price into the centre of the channel intimates that the previous bullish support line is under threat of becoming obsolete, with price accelerating towards the TAPP.
On Balance Volume (OBV) clearly shows how the volume of buyers on positive days is sustaining the recent increases in price. It’s not one or two players moving this market, more a groundswell of support which is pushing up price.
The entry can be taken from one of three different triggers all of which vary in terms of their position on a scale of aggressive to conservative. In the chart a standard deviation channel can be seen acting as a primary aggressive trigger – already giving some reason to execute orders.
This trade is currently very much representative of a short term opportunity and it's here that the risks lie. Short term trades look to make profits over shorter moves; hence they offer substantial risk requiring the use of leverage products (such as CFDs) and tighter stops. There is, for want of a better description – less room to maneuver.
For an integrated trader, or one looking to hold on to growth assets for a longer period of time, COE does not fit very well into the portfolio. The range projector reveals a fairly modest profit target in line with the other technical indicators, however the earnings tell a different story. Below you can see annual reported earnings, which have been falling year on year. This could be a very good reason to avoid the position, although from Integrated Investor I note that the earnings are forecast to turn positive next year. I find enough reason to take this trade.
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For those looking to monitor COE, remember, it’s a short term play in a sector that looks to be on the verge of a big move. The trade checks many (but not all) of the Tradingkey boxes and entry still remains to be triggered. COE is definitely one to watch and the TradingKey is definitely a methodology to add to your skill set.
Stay Sharp,
John Jeffery
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