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Chart Of The Day: BP At £520, Here We Come

Published 02/11/2022, 13:18
Updated 02/09/2020, 07:05

Although oil giant, BP (LON:BP) reported third quarter earnings were lower than the previous quarter. The result beat analysts' expectations as the wholesale oil price was lower. The London headquartered company's profit more than doubled on last year's $3.3 billion profit for Q3.

All this extra pocket money prompted management to announce a fresh $2.5 billion share buyback bringing the total share buyback this year to $8.5 billion.

However, there are risks on the horizon. US President Joseph Biden is threatening oil majors with higher taxes and restrictions if they don't increase production to bring down prices. However, expecting oil companies to increase production after demonizing them for the last few years is unrealistic. Hopefully, Biden's threats are just that, an attempt to win votes for the Democratic party ahead of the US midterm elections.

BP Weekly

The stock completed an H&S continuation pattern. The measuring implications and volume characteristics are the same as for a reversal. The distinction is that the continuation variety develops amid, rather than the contrary, the trend.

So, the volume did support the upward-aiming direction of the pattern, rising when the price fell and diminishing when the price rose. However, the price breakout wasn't confirmed by a spike in volume. Also, we can see that overall volume has declined since March, contradicting the price's advance. Conservative traders will note this divergence.

On the plus side, the 50-week moving average (WMA) crossed the 200 WMA as the price bounced on the pattern's head. This weekly Golden Cross is the first since March 2017, and the price has increased as much as 30% after that.

Target

The lowest part of the neckline to head measures £48.50. So from the £472 breakout point, a £48.50 move hits £520.

Timing

The assumption is that the same interest driving the pattern will get caught up in a chain reaction in the herd's direction and will therefore require about the same time as the pattern to unfold. The pattern was about two months long, and traders should consequently plan on entering the trade if they are willing to wait for that duration to reach the target.

Trading Strategies

Conservative traders should wait either for a return to the bottom of the rising channel or for its upside breakout, followed by accumulation.

Moderate traders would wait for a return move that confirms the neckline's support.

Aggressive traders could enter a long according to their plan, which should incorporate their timing, budget, and temperament. Here is a generic example for learning purposes:

Trade Sample - Aggressive Long Position:

  • Entry: £475
  • Stop-Loss: £465
  • Risk: £10
  • Target: £515
  • Reward: £40
  • Risk-Reward Ratio: 1:4

Disclaimer: The author currently does not own any of the instruments mentioned in this article.

Latest comments

Note that in the UK, BP shares are about £4.85 per share or 485p
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