Petroleo Brasileiro Petrobras SA (NYSE: PBR)

Petróleo Brasileiro S.A. Petrobras operates as an integrated oil and gas company in Brazil and internationally. As of December 31, 2013, the company had proved developed oil and gas reserves of 7,605.8 million barrels of oil equivalent (mmboe) and proved undeveloped reserves of 4,934.5 mmboe in Brazil. Petróleo Brasileiro S.A. – Petrobras was founded in 1953 and is headquartered in Rio de Janeiro, Brazil.

Take a look at the 1-year chart of Petróleo (NYSE: PBR) below with added notations:

1-year chart of Petróleo (NYSE: PBR)

After a consistent decline in December, PBR has been trading sideways over the last 2 months. During the sideways move the stock has formed a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern.

PBR’s rectangle pattern has formed a resistance just below $8 (blue) and a $6 support (red). At some point the stock will have to break one of the two levels.

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The Tale of the Tape: PBR is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $6 or on a breakout above $8. The ideal short opportunities would be on either a break below $6 or on a rally back up to $8.

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

Follow me on Twitter: @cmtstockcoach