I'm ready to bottom fish a bit on some beaten-up names. Chesapeake Energy (CHK) and United Natural Foods (UNFI) have made the list this morning, with CHK being a buy and UNFI ready to go on a successful retest of $50. I'm focused on the daily charts for both, since these are reversal patterns looking at shorter-term swing trades.
Chesapeake Energy would really get a boost on a close over $8, but I'm attracted to a few triggers here, beyond just price and pattern. The moving average convergence divergence (MACD) has already crossed over bullishly. This occurs very near to the pricing bottom.
This isn't the first such crossover, but it has continued, which is something I found necessary on a name like this. The Commodity Channel Index (CCI) is hitting highs not seen for months, well ahead of price. The Ultimate Index (UI) has crossover above 50, as has the Relative Strength Index (RSI).
If we combine these with the inverse head and shoulders pattern, we have a price target of $10. There is some resistance above $9, so I would look to take at least a third of a position off into that resistance, and then use the 10-day simple moving average (SMA) as my stop.
The health food side of the retail sector has been decimated recently, but we have a nice bottom in place on the charts now. As long as United Natural Foods can hold $49.75, we have an attractive risk-reward. The chart looks bullish to me over $50, and still attractive over $48.
It has to close under $48 for me to turn bearish. Momentum and trend are picking up here, and with the Force Index green, we are seeing some good volume come in for the bulls.
The biggest hurdle is the 50-day SMA. I'm looking for a small rejection there, pushing UNFI back to $50, but not much further. I would then look to buy the first green bar after the retest.
Otherwise, if we do not get a retest, then I will look to buy a close over the 50 day SMA. The initial upside target is $55, but I think we'll ultimately see a gap fill to $62 here over the next six-nine months.