Chesapeake Energy (Thomson Reuters symbol CHK) Business Summary:
Chesapeake Energy Corporation is a producer of natural gas, oil and natural gas liquids (NGL) in the United States. The Company operates in two segments: Exploration and Production, and Marketing, Gathering and Compression. The exploration and production segment is responsible for finding and producing oil, natural gas and NGL. The marketing, gathering and compression operating segment is responsible for marketing, gathering and compression of oil, natural gas and NGL. The Company owns interests in approximately 45,100 oil and natural gas wells that produced an average of approximately 729 thousand barrels of oil equivalent (mboe). The Company also own oil and natural gas marketing and natural gas gathering and compression businesses. As of December 31, 2014, the Company held an interest in approximately 45,100 gross productive wells, including 33,600 properties in which it held a working interest and 11,500 properties in which it held an overriding royalty interest.
Superior Profit Analysis:
I was looking to buy a stock for Longer Term Investment. That is, I was looking for a large company and has dropped significantly and then starting to stabilize or may be even starting to go up. CHK caught my attention.
In last five years CHK has dropped 81%. And in same period S&P500 has gone up 61%.
Narrowing the period to one year, we see that CHK has dropped 77% while S&P500 has remained virtually unchanged.
This gives us a stock that is large and has dropped significantly.
And by no means it is a speculative stock. It is a large company and is part of multiple major indices including S&P500, S&P500 Oil and Gas Exploration & Production Index, Dow Jones Index etc.
We have to now see if it is showing sign that it may go up.
We use Hop On template for that.
On 16th Dec there was a Bullish Headwind signal (A) in CHK Hop On Daily chart.
This signal does not always guarantee that the stock will go up. In severe downtrend, the Headwind keep getting violated – and probably signals weaker days ahead. As happened with previous seven such Bullish Headwind signals (B to H) in CHK. In each of those seven cases the stock dropped further.
During the same downtrend of CHK, there were 5 Bearish Headwind Signals (I to M) and one could reap substantial profit by taking Short position at those points.
Let us now come back to the latest Bullish Headwind signal and zoom in on that part.
The latest Bullish Headwind signal (A) looked slightly different from the last seven such signals. This is the first time where after Bullish Headwind, the stock could hold on to its price level and go slightly higher for next ten days
It gained by more than 26% in those ten days. This kind of appreciation did not take place in the last series of Bullish Headwind signals. This difference from previous Headwind signals piqued my interest. And I decided to keep an eye on this stock.
On 29th Dec CHK went up by 12.5% with High Activity (N) and Closed at the very High of the day. That was a Bullish sign of significance.
Next day, 30th Dec CHK Opened lower (O). However, the Memory Support held the price and it Closed higher than Open.
From a technical analysis point, I decided to take a Long position on CHK. With Stop just below the Support Memory (P) on a Closing basis.
What would be the exact Stop? I decided to allow the Stock to go to maximum Low of 3.75 – which is decided using Protection signal from Hop Off Template (not shown here). And could potentially close it anywhere below 4.1 – which is just below Memory Support i.e at level P.
What about Target? I decided to take initial profit at Upper Boundary (Q), which also happened to be the level of Slow Direction line – which is still in a downtrend.
This set up gave an acceptable Reward Risk Ratio. Depending on exactly where I was going to book small loss (if at all I needed to book loss of course !); the Reward Risk Ratio came between 1.3 to 2.5. Not an absurdly high value. However, considering that if the stock moved in my direction, I was going to hold at least half of the position much beyond 5.5 initial target – which meant a much bigger Reward Risk Ratio on overall position, I decided in favor of going for the Long position.
For actual entry, I used the Fine Tune Template.
I was ready to enter the position on 31st Dec. And as it went above Early High (R), I took the Long position using Stock.
Was there any other factor that I considered? Yes. Indeed.
I tend to invest in a small set of stocks and get used their movement / trend as well as major news surrounding the stocks.
CHK is in a sector that was hugely under performing the broad market just as CHK was doing that. And as CHK seems be stabilizing, other stocks in the same sector seems to be stabilizing as well – at least not continuing to decline for the time being.
Dow Jones US Oil and Gas Index (shown below in Hop On template) also displayed a Bullish Headwind on 14th Dec (S) and has not declined since then.
It is also worth noticing that legendary investor Carl Icahn is loading up on CHK and similar stocks (including Freeport McMoran FCX – more on FCX came in our next investment !).
Icahn Associates is actually the second largest shareholder in CHK at this time holding 10.98% of CHK.
Also, I cannot help noticing the fact that among the top five investors, 3 are “Activist” – probably intending to get rid of corporate inefficiencies (in their view). Traditionally, that had been a good news for the Stock price more often than not.
Last investment Carl Icahn made in CHK made him significant profit (in 2011 Carl Icahn stold an earlier stake he held in CHK for roughly 400 Million US$ profit). Let us see how CHK does for him (and for us) this time.
It may be noted that we bought CHK at a much better price in this round than Icahn Associates – being on the lookout for stocks that have declined heavily and then using the Headwind signal and subsequent holding of price above Support Memory.
This is how we like to use Superior Profit charts to made and execute our investment decisions. While being aware of the happenings in the market, sector/industry and the specific stock related events.
I have placed the profit taking order for half position in market as Good Till Cancelled order – so it will exit automatically at the initial Target if CHK reaches there. No further action needed from my side on that..
I will watch it for Closing below my Stop level. And if does so, will exit with small loss at the preplanned level.
We now simply watch how the investment unfolds. We don’t plan to deviate from the exit plan we have already made.
That is our standard way of investing in Superior Profit Way.