Trade Recommendation: Buy CXO and COP On Strong Reversal Action

The S&P 500 Index (SPX) went as low as 2,605.52 before bouncing and closing at 2,642.22 on Friday. The price action created a long wick that suggests that market participants are strongly defending the 2,600 support. While this is considered bullish, technical indicators show that the index is in overbought territory, and it is losing steam. We might see some short term consolidation in the next few days to keep the market stable.

As the index continues to show bullishness, let’s have a look at stocks coming out of multi-year downtrends that have the potential to further boost the index.

CXO – Concho Resources Incorporated

CXO crashed in 2015 after it generated an ugly bearish pattern that sent the stock nosediving to  69.94 from a five-year high of 148.61. Nevertheless, the name appears to have forgotten its bearish past as it is now threatening to breach resistance at 148. Technical indicators show that CXO is far from oversold territory with a lot of momentum to power its next move up. In addition, the gap that was created in the first of November has been filled. Taken together, it seems that it’s only a matter of time before resistance at 148 is breached.

CXO needs to print 3 million in volume to have a shot at breaking resistance at 148. A move above 148 with required volume gives us a target of 219. Interestingly, there is no known resistance above 148. The stock has a clear path to our target. Savvy investors and traders alike are most likely looking at the same level as well so there’s a really good chance that market participants will be sucked in and push prices up to our target in a relatively short time.  

The strategy is to wait for CXO to breach 148 on prescribed volume. You can also buy as close to 130 should the stock dip in preparation for its ascent.

Weekly CXO Chart

Monthly CXO Chart

Summary of Strategy

Buy: Breakout at 148 with required volume OR as close to 130 as possible

Target: 219

Stop: A close below 130 invalidates this trade call.

COP – ConocoPhillips Corporation

The stock’s strong uptrend started in 2003 when it moved above 20. Monthly charts reveal that the name managed to post consecutive higher highs and higher lows until it reached 87.09 in July 2014. The stock went on a steep downtrend when it failed to hold critical support at 60. It briefly touched 31 in 2016 and has rallied since.

Technical analysis reveal a large reversal pattern signaling the end of a three year downtrend. The key resistance to breach is 56 with 11 million volume in the daily charts. Take that resistance out and we get to our target of 80. Interestingly, 80 is a major resistance level so it is suggested to take profits as soon as the stock reaches the target.

Reliable support levels can be found at 50, 48, 43 and then 40.

Weekly COP Chart

Monthly COP Chart

Summary of Strategy

Buy: Breakout at 56 with required volume OR as close to 43 as possible

Target: 80

Stop: A close below 40 negates this trade view.

 

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.