Monday, March 8, 2010


PBR looks like it could be setting up nicely for a trade to the long side. Lets take a look at the price action and turn to the charts:

Sector: Energy > Industry: Oil and Gas - Integrated

Current price: $44.62

On the top chart you are looking at the 1 year daily chart. Notice that until recently PBR was in an identifiable uptrend. This uptrend was breached when PBR crossed below about $45 (where the last higher low was put in). It had a nice run from 25.89 to 53.46 and a pull back is to be expected. If PBR can cross back over 45 then I think it can resume its uptrend.With an entry around $45 and an a target price back up to around $49.

Next lets talk about the bottom left chart. We are looking at a 20 day 30 minute time frame as we drill down on the stock. Notice that PBR gaped up from about 44 which you can see was a minor level of resistance, so we may be able to use that as support now.

Now the third chart is a 5 day 15 min chart. I am looking at this more micro chart to see where the best price is to get in. A lot of time I try to anticipate a move only to get shaken out because I was not in at the right price, but the idea was right. Or I get in early experience a pull back and at the first sign of green on the position I take profits which is why I think I hardly reach my profit potential in many of my positions. So I think that the best way for me to play this position is to either wait for a test of that 44 level and possibly down to 43.50 or for price to confirm the uptrend by taking out the recent high of 45.14 which is also around resistance of 45 on all time frames. I am leaning towards the latter.

So lets formulate the plan:

Entry: 45-45.25 (Really looking for a breakout of 45-45.15)

Stop: 44.28 (Last higher low put in 15 minute chart, will move up as new higher low is put in to trail my stop)

Target: 49

Position: 5 April '10 45 calls @ $1.85 or better (at 45 option pricing model says they have a theoretical price of 1.82). They are currently trading at $1.59

Lets take a look at the risk profile and price slices of PBR:

Holding Period: 2-3 weeks

Upcoming Fundamental catalyst's: Earnings on 3-10-2010

Since earnings are right around the corner I may wait to see how the stock reacts to earnings even if it hits my entry price.


  1. I did get in on this one. The chart is setting up similar to that of the recent breakout of RIMM from the 72 level that took it close to 75 in a day. It may take a few more days to happen. The only thing I am concerned with now is that earnings are tomorrow which could blow my risk estimates out of the water. So I may look to go and buy some protection tomorrow before the close as they report after the bell tomorrow.

  2. Now moving stop up to 45.96, currently trading at 46.48. Trying to be prudent with the management of this position.

    I am considering buying Apr 44 puts to take position into earnings. post an adjustment blog post with new price slices and P&L estimates.

  3. Based on the original analysis with my stop at 44.28 I was risking about $166 to make $1300 if it hit my target of $49 or a Risk:Reward of 1:7.8. I posted a little earlier that I was thinking about buying some puts into earnings to possibly hold the position but the more I played with the inputs (unknowns) the more I felt that booking the for sure profit was the prudent thing to do. As I mentioned on the last line of the post I was concerned since the initiation of the positions due to the upcoming earnings release today after the bell.

    To mitigate risk and to help myself sleep better tonight I decided to close the position out for a for sure gain of $415 gain, with the initial risk set at $166 that is a 2.5:1 risk:reward ratio. It exceeds my minimum of 2:1 laid out in my trading plan, so I am happy to book the profit. It also moved faster than I thought it would. If earnings are a non-event I may look to re-enter the trade to try and capture the rest of my targeted move to 49.

    If earnings were not right around the corner I would feel more comfortable holding this trade and making the adjustment with the puts I posted earlier.

  4. Looks like my timing was pretty lucky. I sold at the highs for the day.