In This Trading Market, I Think It's Time for a Trading Sell in Chesapeake Energy

02/03/2015 8:25 pm EST


Jim Jubak

Founder and Editor,

This stock has moved up 30% on what MoneyShow's Jim Jubak believes is a short-covering bounce in the price of oil, so even though he's selling his shares as of today, February 3, he'll be looking to re-buy if it turns out he's correct.

I don't do a lot of short-term trading in my online portfolios. Over the years, I've found that having to post so far ahead of the actual trade, and then with such limited ability to respond to short-term market moves, doesn't produce the best results.

Occasionally, I see a trade set up that I'd like to bring to your attention by posting it as an actual buy or sell in the portfolios.

That's what I'm doing with my Jubak's Picks portfolio position in Chesapeake Energy (CHK) today. The stock has moved up 30% from its December low on what I believe is a short-covering bounce in the price of oil. That's taken the share price above the 50-day moving average at $19.44 and to the top of the Bollinger Band at $20.98. The stock can move up further from here, of course, but to reach its 200-day moving average at $23.90, for example, it would have to move even further into overvalued territory above the top of the Bollinger Band.

The shares closed at $21.01 today, February 3. Selling at that price would give me a 30% gain from the December low but would still be a 4.5% loss from my June 7, 2013 purchase price. The stock is trading well below its 52-week high of $29.92 and the $24.16 local high on November 21, 2014.

This is a trade. I'll be looking to re-buy these shares if I turn out to be correct and this advance in the energy sector is actually a bounce instead of a bottom. I would like to own shares of Chesapeake Energy for the recovery from an actual bottom on the company's huge position in US shale geologies.

There is, of course, always the chance that this trade is mistimed and that Chesapeake will do nothing but advance from here. The damage to my portfolio from that is somewhat limited since I've got a very large weighting in my portfolios toward energy. In other words, there are lots of other stocks to pick up the slack if the sector has indeed bottomed.

If you disagree with this trade-or even if you agree-remember that one of the purposes of these portfolios-and these buys and sells-is to challenge you to think about what you own and the direction of the market. Buy, sell or hold, the point is to know what thinking is behind your decision.

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