One To Watch: Cheaspeake Energy(CHK)

Posted by barkand on April 13, 2011 under Bollinger bands | Be the First to Comment

After a breakout from around $23 last December, Cheasapeake Energy has been in a holding pattern at $34 for the last six weeks. Because of the lack of movement, the Bollinger bands had contracted to their narrowest width in more than six months. You can see the band width plotted below the main chart. It is even more striking when you consider that stockcharts.com calculates band width in points and not percentages. A width of $2 when the price in is $34 should be considered more narrow than when the price was lower.

And this Bollinger band squeeze often portends a sharp move – either up or down. But which way? The market doesn’t like to reveal its secrets. In these situations, the market often goes the “wrong” way first before reversing. Yesterday, CHK fell below its recent trading range and below the lower Bollinger band.

So, for now, we do nothing. But we will be watching for signs that it wants to turn around a go higher.