BAS stock was the eighth top gainer since market’s open yesterday gaining 4.45% on previous close, failing though to print a new high. Plenty of reasons however to buy Basic Energy Services shares today, due to the piercing line candlestick formation right on the support level (same indicator when I bought AGO stock a month ago), verifying the up trend line at the same time! BAS stock would have been an excellent stock pick in early September (first green arrow) when another bullish candlestick pattern indicated a reversal of the short-term down trend. Traders would have bought at 11$ and sold at $13 at the bearish reversal pattern (red arrow).
Swing trading relies mainly on price action, neglecting most of indicators of technical analysis other than the candlesticks themselves or moving averages. In this candlestick chart of Basic Energy Services swing traders will surely notice the support and resistance area at about $10.50, the bullish trend line and the candlestick patterns at major swing points. BAS stock price bounced off the 200-moving average and given the 50-day EMA is still below that moving average, one would argue that the stock is in a down trend, therefore we should look to enter at bearish signals. Yet the monthly chart indicates that BAS shares are trading close to their all-time lowest price, a sign that buyers eventually will take control of the market, possibly boosting the BAS stock price to $30 once again, just like they did in 2010.
I would wait for a new 3-day high before buying BAS shares. If the next candlestick’s close is higher, a bullish reversal formation will be complete. So, anything above $11.45 I would consider it a buy signal. Be careful though; a big gap up or delaying to buy at that price range would seriously hurt the reward-risk ratio of the trade. For example, if market opens at $12, there’s not much room up to the previous resistance level ($14) and we will need to set a loose stop loss risking more cents per share. But if we buy at $11.45 or lower and set a stop loss at $10.40, we risk one dollar for a likely 2$ reward.
Stop loss will help us cut our losses if we are wrong and initially we will make use of the support and resistance range as discussed before. Upon initiating the trade, we should move the stop loss up to the buying candlestick’s low, reducing the trade’s risk. If the stock resumes trending up, the stop loss must be set at breakeven level for a risk-free trade. Afterwards, use a trailing stop (such as the 2-day low) to pick the exit point. Should the stock price rises to $14 (resistance), sell half of the position and let your winner run.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BAS over the next 48 hours.