This article on shorting Chevron is a follow-up from my previous post on finding stock trading inspirations. In my last article, I've shared how I zoomed in systematically from a whole list of 30 over stocks down to one particular stock of interest. The main reason for doing so is to be able to get extra edge over random trades. Trading involves a large part on probability. And every edge you gain stacks up to make a better trade. Today, I'll expand further from my previous closing and elaborate more on the entry.
Review Market Strength
Dow Jones Index 1 Year Chart
Looking at the Dow Jones Index 1 year chart, the index has hit a double top with the first top formed in Nov 2015. The second top was formed in Apr 2016. Stock price is on a steady decline since Apr 2016. Drawing a trendline from Feb 2016 across to Apr 2016, you can also see that the index has broken it's near term upward trend. Another immediate short term support indicated by a light orange line has also been broken since mid May. With these supporting indications, chances are that the market will head south further in the near term, hence I am bearish in the short term.
Chevron 2 Year Chart
If we look at the Chevron long term 2 year chart, you will notice that Chevron has actually bottomed out sometime in Aug 2015 last . It started it's recovery in Jan 2016 this year. This is a critical point because Chevron could be making a recovery from the recent oil price recovery which is very volatile at during this period. At the same time, there is a good chance of a correction from it's prior run up. You may not see it very clearly from this chart, but the stock price has actually broken slightly through it's short term upward trend indicated by the blue line. In the next chart, I'll reveal in further details on its short term movements. This price break on the downside is not conclusive because it is not a strong break but rather inching down which may lead to a side ways movement.
Chevron 6 Month Chart
Zooming in to the 6 months chart, you can now see that Chevron stock price has broken it's first immediate support indicated by a light blue horizontal dotted line. This is a first sign of bearish movement. On top of that, round numbers like 100 are usually strong support regions as well. Having closed below $100 at $99.79, this is a second indication of an imminent short term price drop.
The next support region will be the resistance created from the prior high indicated by the red dotted line priced at about $98.
The following support region will be the next resistance created from again the prior high indicated by the green line priced at about $93.80.
Chevron's stock price has triggered shorting opportunity on 19 Apr 15. If plan works out well, the price should break $98 and head further south toward $93.80 which will be the profit target at this point. Monitor closely at $98, and react accordingly to lock in profits should the share price turnaround. Keep a close watch on the overall market using DJI for any indications for a plan change.
Was searching the internet on similar trades and found this Chevron Best Short Idea 2016 from SeekingAlpha. In terms of idea, it looks right but timing wise was way off. Guess my point is that if you've seen my earlier article dated 7 May, I did not rush into the trade. I waited for the trigger to occur before initiating any trades.
Position sizing is also another critical aspect of trading to better manage risks and profitability, but I'll talk about it another time. Stay tuned.