I added Comstock Resources (NYSE:CRK) in my stock trading watch list today. The NYSE stock is trading at 16.80 dollar per share after testing the support level at $14. Technical analysis says that a previous resistance level can act as a support level in the future and that is the case at monthly CRK stock chart. The stock price bounced off a level that used to be a resistance level back in 2000 and formed an excellent doji candlestick. That kind of candlestick indicates a possible trend reversal and given the double bottom and bullish candlestick pattern at the daily stock chart, CRK stock might be ending its downtrend.
Buying one more energy stock won’t harm my portfolio’s diversification. When I decided to buy another stock from the energy sector, McDermott International, there were enough signals to justify the purchase of a couple of hundred MDR shares. Now, Comstock Resources is the second stock I’m thinking to buy from the energy sector. I may be trading long a downtrending stock, but profits can be made from a possible pullback, at least up to the moving average at the monthly stock chart. Therefore my first profit target will be set at $25. The recent support level will help me set the stop loss order close to $13, giving CRK stock enough room to probably retest the support level. The additional dollar below the support level is derived from the Average True Range (ATR) indicator, which is about one dollar at this time. Risking 4 dollars to win 8 gives a 2-1 reward-risk ratio, which is usually my personal minimum when it comes to stock trading the US stock market.
What happens if the stock shoots higher than the moving average? Well, depending on the price action at the moving average, I might hold the position, until a bearish reversal signal appears at the shorter time frames, say for instance daily or even hourly stock charts. I’ll then exit 70 or 80% of my position and let the rest catch a longer term uptrend, in case Comstock Resources stock decides to reach out for the all-time high at $90 in the years to come! For the time being though, I don’t know if buyers can control the market. I’m pretty sure though, that traders who have been short at CRK stock the past months will be closing out some of their positions the following days at this crucial support level. When I buy CRK stock I will be adding more buying power and if other traders who trust technical analysis in their stock trading actually make the same decision, the pullback can eventually be strong enough to touch the moving average. If not, the stop loss is there to minimize the losses.
Disclaimer: I’m not long CRK, but looking to buy CRK stock.