Today’s Big Stock: Stone Energy Corporation (NYSE: SGY)

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Stone Energy Corporation is an independent oil and natural gas company. The company is engaged in the acquisition, exploration, exploitation, development and operation of oil and gas properties located primarily in the Gulf of Mexico. Stone Energy is active in the Appalachia region and has development operations in the Marcellus Shale. As of December 31, 2010, the company’s estimated proved oil and natural gas reserves were approximately 473.9 billions of cubic feet equivalent. During the year ended December 31, 2010, the Company acquired an approximate 26,000 net acre leasehold position in Appalachia.

To review Stone Energy’s stock, please take a look at the 1-year chart of SGY (Stone Energy Corporation) below with my added notations:

SGY had created a couple of short-term price levels over the last 2-3 months. First, SGY had formed a clear resistance at $30 (navy). In addition, the stock was climbing an up-trending support level (blue) during that same period of time. These two levels combined had SGY stuck within a common chart pattern known as an Ascending Triangle. Eventually, SGY would have to break one of those (2) levels. On Friday, SGY broke out above the $30 resistance, which should signal higher prices for the stock.

The Tale of the Tape: SGY recently broke above its $30 resistance. This level should now act as support if the stock pulls back. A long trade could be made on a pullback to the $30 level, with a stop placed under that level. A break back below $30 would negate the forecast for a move higher and a short trade should be considered.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT