Trade Recommendation: Buy CA and COG Based on Multi-Year Reversals

The S&P 500 Index (SPX) continues to stay above 2,600 on below average volume. It appears that many usual market participants have yet to return from the holidays. Consolidation at this level is good news for the bulls. Turning the 2,600 resistance into support can serve as the base for the next move up.

We remain bullish as long as the index holds 2,600. Let’s have a look at stocks coming out of multi-year downtrends that have the potential to further boost the index.

CA – CA Inc

The stock went as high as 79.44 in January of 2000 before forming an ugly reversal pattern.  When the stock broke critical support at 32, CA plunged to as low as 7.47 in 2002.  The stock formed support at that level and has managed to post one higher low after the other. It took CA more than a decade to reclaim support at 32. The stock has momentum as long as it hovers above that level.

Technical analysis reveals a large reversal pattern that might give the stock fuel to skyrocket to 60. But first, it needs to breach major resistance at 36. The stock attempted to go above that level recently but it was sent back by bears. It needs more than 16 million shares on the daily chart to even have a shot at breaking that level. The stock has been on a downtrend for so long that many investors have weak hands. However, when the stock breaks outs, it will attract all types of market participants which should be enough to push it to our target of 60.  

The strategy is to wait for the stock breakout at 36 with the required volume. The stock has immediate support at 34 first, 32 next, and then 31.

Weekly CA Chart

Monthly CA Chart

Summary of Strategy

Buy: breakout at 36 with 16 million volume

Support: 34, 32, and 31.

Resistance: 40, 45, and 55

Target: 60

Useless: A close below 31 negates this view

COG – Cabot Oil & Gas Corp

COG just came out of a multi-year downtrend after it broke resistance at 27. It was, however, repelled by bears at its 52-week high of 29.50. Technical indicators show weakness in momentum, and it appears that the stock needs to go on a slight correction in order to justify its next ascent. COG can dip to 27 where it can turn resistance into a reliable support. That should encourage more bulls to join the fray and help get the stock to our target of 44.

The strategy is to wait for the stock to form a base at 27 before placing orders. Watch out for decrease in volume. Anything below five million indicates exhaustion. Keep in mind, the stock may still fall below 27, so we advise you to wait for exhaustion at or above 27.

Weekly COG Chart

Monthly COG Chart

Summary of Strategy

Buy: exhaustion at 27 with less than 5 million in volume

Support: 26.27, 26, and 25.25.

Resistance: 29.50, 32.39, and 35, 39, and 41

Target: 44

Useless: A close below 25.25 negates this view

Featured image courtesy of Shutterstock.

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, 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.