Stock Picks: Buy Apache Corporation and Avalon Communities

The S&P 500 (SPX) nosedived on Friday, February 2, 2018, losing 46.79 points or 2.12% in one day. The massive drop was accompanied by a plunge in RSI, as it shed close to 20 points on the same day. In addition, volume was just slightly above average. This means that capitulation is not yet in sight, so expect selling to continue in the next few days.

While profit taking is the current theme, let’s look at names that are near reliable support levels. Focusing on these stocks reduces our risks while providing reasonable rewards.

APA – Apache Corporation

Apache Corporation is a Fortune 500 company in the field of petroleum and natural gas exploration and production. It is an American corporation with significant operations in the UK, as well as in Egypt. It highlights its commitment to environmental, social, and governance matters whilst delivering top-tier returns through maximum profitable recoveries with minimal costs.

APA has been in a downtrend since it went below its support level of 69 in November 2014. The stock tumbled and went as low as 32.20 in January 2016. The next month, APA bounced and established support at 39, which it used as a springboard to reclaim 69. However, bears stepped in to repel the rally. In December 2016, the stock only went as high as 69. Once it touched that level, APA tumbled its way back down to 39.

Technical analysis show that the stock has successfully defended support of 39. The dramatic increase in volume when APA dropped to this level showed that bulls are ready to absorb the selling pressure. As support and resistance levels are established, we now have entry and exit points that we can use to generate profitable trades.

The strategy is to buy as close to 39 as possible. The stock will most likely consolidate at that level before resuming its ascent. Therefore, you have some time to accumulate positions. Once consolidation is over, it will likely march back up to 69. The entire process can take up to six months.

Weekly APA Chart

Monthly APA Chart

As of February 02, the Apache Corporation stock closed at 42.82.

Summary of Strategy

Buy: As close to 39 as possible.

Target: 69

Stop: A close below 35 negates this trade call.

 

AVB – Avalon Communities Incorporated

AvalonBay Communities Incorporated is a real estate investment trust that develops, redevelops, acquires, and manages over 75,000 apartment units as of January 2017. They deliver outsized, risk-adjusted returns to shareholders with the help of associates – from community maintenance managers to development directors to accounts payable analysts with one goal in mind: “creating a better way to live.”

AVB’s bull run started when it broke above resistance of 100 in July 2010. The stock took more than four years (November 2014) to take out 160. When it did, it quickly established firm support at that level. The stock used 160 as a jumping off point to reach 190, which it did in April 2016. However, bears defended that level, and sent the market back to 160.

Technical analysis reveal that AVB is locked in a wide range between 160 – 190. While the stock went as low as 158.68 on February 2, 2018, bulls came rushing in to defend 160. In addition, the surge in volume when the stock drops to this support level indicates that the stock continues to respect 160. With support and resistance levels clearly identified, let’s use the buy at support and sell the resistance play to grow our investments.

The strategy is to buy as close to 160 as possible. The stock will most likely take time to consolidate at that level before restarting its ascent back to 190. The entire process can take six months.

Weekly AVB Chart

Monthly AVB Chart


As of February 2, the Avalon Communities Incorporated stock closed at 163.96.

Summary of Strategy

Buy: As close to 160 as possible.

Target: 190

Stop: A close below 156 invalidates this trade call.

 

Featured image courtesy of Shutterstock.

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Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.