Today’s Big Stock: Petroleo Brasileiro SA Petrobras (NYSE: PBR-A)

Petroleo Brasileiro SA Petrobras is a Brazil-based integrated oil and gas company. The company divides its activities into six segments: Exploration and Production; Provision; Gas and Energy; Biofuel; Distribution, and International. Directly or through its subsidiaries, Petrobras is engaged in the research, extraction, refining, processing, trade and transport of oil from wells, shale and other rocks, its derivatives, natural gas and other liquid hydrocarbons, as well as in activities related to energy, development, production, transport, distribution and commercialization of energy. The company is active in Brazil and in 24 countries abroad, with projects situated on five continents. As of December 31, 2011, the company owned 132 concession contracts for 194 exploration blocks and had a number of subsidiaries, including Petrobras Quimica SA, Petrobras Distribuidora SA, Braspetro Oil Services Company, Braspetro Oil Company, among others.

Please take a look at the 1 yr. chart of PBR-A (Petroleo Brasileiro SA) that I have shown below with my added notations:

 

 

PBR-A has formed a nice Channel (up) chart pattern over the last 7 months. A Channel is simply formed through the combination of a trend line support that runs parallel to a trend line resistance.  When it comes to trend lines, I always tell my students that any (2) points can start a trend line, but a 3rd or more confirms it. You can see that PBR-A has (4) points of Channel resistance (red) and (5) points of Channel support (blue).  Always remember that after the 2nd test of each of these trend lines, the market decided they were important trend lines, not me.  Following the PBR-A Channel can provide you with both long and short trading opportunities.

The Tale of the Tape: PBR-A has formed a common pattern know as a Channel, in this case, an up Channel. A long opportunity could be entered on a pullback to the Channel support, which at this point seems to be around $26. Short trades could be entered at Channel resistance OR if PBR-A were to break below the Channel support.

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