Chart of the Day: BP at £520, Here We Are
Despite being an oil giant, BP’s ( LON: ) third-quarter earnings were lower than the previous quarter. The result beat analysts’ expectations, as wholesale oil prices were lower. The London-based company’s profits more than doubled last year’s $3.3 billion in the quarter.
All that extra pocket money boosted management announced $2.5 billion in new stock buybacks, bringing total stock buybacks this year to $8.5 billion.
However, there are dangers on the horizon. US President Joseph Biden is threatening oil majors with higher taxes and cuts to lower prices if they don’t increase production. However, oil companies are expected to increase production in recent years unrealistic. Hopefully, Biden’s threats are just that, an attempt to win votes for the Democratic Party ahead of the US midterm elections.
The stock completed the H&S tracking model. The measurement implications and volume characteristics are the same as inversion. The difference is that the continuation variety develops between the trends, rather than the opposite.
Thus, volume supported the upward direction of the pattern, increasing when the price was falling and decreasing when the price was rising. However, the price breakout was not confirmed by the increase in volume. Furthermore, we can see that overall volume has declined since March, contradicting the price advance. Conservative traders will notice this divergence.
On the positive side, the 50-week moving average (WMA) crossed the 200 WMA as price rebounded at the head of the pattern. This weekly Golden Cross is the first since March 2017, and the price has increased by 30% since then.
The lowest part of the neckline measures £48.50. So from the £472 point, a £48.50 move results in £520.
The assumption is that the same interest that drives the pattern will be caught in a chain reaction in the direction of the herd and will therefore take the same amount of time as the pattern to spread. The pattern was around two months, and traders should therefore plan to enter the trade if they want to wait for that duration to reach the target.
Conservative traders should wait for a return to the bottom of the ascending channel or for an upward breakout, followed by accumulation.
Moderate traders would be waiting for a reversal move that confirms neckline support.
Aggressive marketers it could include a long depending on their plan, which should include time, budget and temper. Here is a generic example for learning purposes:
Trade Sample – Aggressive Long Position:
- Entry: £475
- Stop loss: £465
- Risk: £10
- Target: £515
- Prize: £40
- Risk-Reward ratio: 1:4
Note: The author currently does not own any of the tools mentioned in this article.