ANR Long Trade Setup

ANR daily April 15th

ANR daily April 15th

ANR (Alpha Natural Resources) will trigger a long entry on any move above 1.09 with the sole price target of T1 at 1.38, providing a 25.5% gain if hit. The suggested stop will be on a move below 1.01.

Waiting for a move above 1.09 would take prices above this downtrend line/falling wedge pattern as well as minor horizontal resistance defined by the recent highs in ANR over the last few weeks. Although a break of the downtrend is likely to spark a rally, waiting just a few more cents for that horizontal resistance to be cleared helps to reduce the chances of buying into a false breakout.

So far today, USO has made a solid breakout above its similar large bullish falling wedge pattern that was highlighted in yesterday's Market Analysis & Trade Ideas video. Should today's breakout stick with the recent uptrend in crude oil continuing, there are several beaten down coal stocks on my watchlist that look poised to rally, ANR being one of those.

With ANR being a low priced (1.00ish) stock in a sector/industry with very precarious fundamentals, a downward adjustment to a position in ANR is prudent, assuming that this high-risk, aggressive trade is appropriate for you own unique risk tolerance and trading style to begin with.

Although this trade has a profit potential of over 25% with a R/R (risk-to-reward) ratio of 3:1, one should always be aware of the additional downside risks in trading low-priced stocks with precarious fundamentals as large, news driven downside gaps are always a possibility.

Examples of this might be the announcement of a cash-flow injection from an outside source that results in a share dilution or even worse, a bankruptcy filing. As is most often the case, such announcements are almost always made outside normal trading hours, therefore, resulting in opening gaps that can blow right past a stop-loss order.

Although such risks can be mitigated through the use of put protection (typically a costly form of insurance on such low-price, low-volume stocks as ANR) such insurance will considerably reduce the profit potential. Best to just keep you position size at a level where you won't suffer irreparable or substantial damage to your portfolio/trading account should the worst case scenario materialize. The above average profit potential (25%+) would still result in a decent total gain (in net profit or dollar terms) even on a position that was reduced to a third of one's typical position size.  (click to learn more about beta-adjusted position sizing).

Click here to view the live, annotated chart of ANR

Apr 15, 2015 12:43pm|Categories: Uncategorized|Tags: |Comments Off on ANR Long Trade Setup