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  • Writer's pictureTrader Stewie

$APA Trade: STEP by STEP Analysis!

Hey folks!

Wanted to do a quick educational post on the recent $APA trade and the rationale behind that trade!

Last week, we saw some mild and healthy looking pullbacks in the energy sector. I characterize "healthy pullbacks" as very low volume drawdowns in a stock's price after a recent rally phase to keep it as simple as possible. The less the stock gives back during a digestion or pullback phase, the better!

I use $OIH and $XLE as a guide to see how the overall health of the action is in the Energy sector and then zoom into individual energy stocks which I track in the The 'Power Earnings Gap'(PEG) watchlist:

So, let's get started discussing that recent $APA trade!

Going into Thursday April 7th, $OIH and $XLE had made some pretty healthy looking digestion patterns as you'll see in the two charts below: $OIH digested sideways for a few days, in and around the 20 day MA(Moving Average). I'm always interested to see how a recent strong uptrend acts once it starts to pullback or go into a digestion phase. If it tests and holds the 20 day MA, then my interest in that chart grows exponentially! Because it tells me that buyers are still motivated and still engaged! Notice how $OIH began to fall down through the 20 day MA on Thursday and then started to bounce/rally to recapture the 20 day MA! That's hugely important because we can now see a HAMMER reversal candle forming at the 20 day MA.

Same thing can be seen in $XLE! A quick break below the 20 day MA and then after 2PM on Thursday, we began to see algos begin to swoop in and aggressively buy Energy sector stocks en masse!

In the meantime, $APA was testing the 20 day MA after pulling back 3 days in a row. Notice the volume on that 3 day pullback; extremely low volume!! This is essentially a HOLY GRAIL setup!

And now let's check out the INTRADAY charts on $APA and $XLE below from last week to dive in and take an even deeper view of the action and rationale behind the $APA trade:

Went long $APA at $40.50 once I noticed a '2B Reversal' in $XLE, $OIH and now in $APA!

Put a stop slightly below the 2B Reversal lows.

2B Reversals are one of my favorite patterns which I actively look for, especially when they take place near the 20 day MAs on daily charts:

I hope you found this post helpful and educational!

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