Monday, October 25, 2010

The G20 Seoul Summit Trade

G20 Seoul Summit Central Bank Governors Finance Chiefs
Trying To Avoid Currency Devaluation They Say

First my stock trade for this week is a short sell on Chesapeake Energy, even though it looks for now like equities may continue up, and the dollar down. I’m betting on continued downtrend that Chesapeake has been in for over a year now. In case of a reversal, stick to stop loss and in case of profit use money management stops to lock in and book your profits. See below for more information on that. Now more on the recent G20 meeting in Korea last weekend.

The G20 group of global finance ministers and central bank governors promised to avoid weakening currencies more to lift exports and decided to wait for another G20 meeting next month to choose whether to put further pressure on member China to allow a faster price rise in the Chinese Yuan.

They’re trying to calm fears of a global trade war resulting from using cheaper currencies to spark growth, and reduce the current trade imbalances present between countries right now. The meeting failed to give a signal to a reversal of weakness of the US Dollar to try to give some strength the green-back.

What will the Federal Reserve do in its next meeting that will give direction to equities and the USD? More quantitative easing stimulating the economy and stocks, and depreciating the US Dollar more? Or will the market disregard further QE, and pull a reversal?

I suggest the existing trend of dollar down, and equities grinding slowly up some more is still intact for now. I can’t see anything that’s going to stop people from continuing selling dollars for now, but with the US Dollar in extreme oversold territory there could be a reversal coming.

My Stock Pick This Week

Is what you might say is a contrarian equity short sell on Chesapeak Energy to an otherwise current uptrend in the broad market right now. With the market leading financials not looking so good last week, this could possibly be signaling the future direction for the market.

Energy prices have been up lately and Chesapeake has received a lot of new investment money from China for their shale-gas projects. Will this help Chesapeake in the near term? I doubt it. The Gulf of Mexico drilling moratorium did some collateral damage to Chesapeake’s balance sheet causing them to sell parts of their oil and gas plays in an attempt to raise more cash and become more financially stable.

CNOOC China has invested about a $1 billion minority stake in a joint venture in Chesapeake’s Eagle Ford shale-gas project in Texas. CNOOC is China’s third largest oil company, and Chesapeake is also bringing in more Chinese investment into its large Marcellus Shale project in Pennsylvania. China National Offshore Oil is investing in about $2 billion in Chesapeake which is currently the largest China USA oil and gas deal to date.

China wants to develop its shale-gas extraction program to reduce its carbon foot-print which they are not an expert in and Chesapeake is as it’s the pioneer of the industry. Shale-gas is currently almost 20% of US gas production right now. In the years to come, that should increase exponentially. Experts are expected a rise in Chesapeake shares with all this “good news”.

In my opinion, Chesapeake needs some financial assistance to their balance sheet right now and their current downtrend in stock price still looks intact. This looks to me right now as a low-risk high-reward short sell, and buy back later on if and when they get the balance sheet back to financial good health.

Sell Short Chesapeake Energy – Ticker CHK

Sell Entry: 22.00 to 21.00

Stop-Loss: 23.50

Take Profit Areas: Anything down to 15.00.

Chesapeake Energy Company Profile

Chesapeake Energy Corporation, together with its subsidiaries, produces natural gas in the United States. The company focuses on discovering, acquiring, and developing conventional and unconventional natural gas reserves onshore in the United States, primarily in its six natural gas shale plays: the Barnett Shale in the Fort Worth Basin of north-central Texas; the Haynesville and Bossier Shales in the Ark-La-Tex area of northwestern Louisiana and east Texas; the Fayetteville Shale in the Arkoma Basin of central Arkansas; the Marcellus Shale in the northern Appalachian Basin of West Virginia, Pennsylvania; and New York and the Eagle Ford Shale in south Texas. It also has operations in the Granite Wash Plays of western Oklahoma and the Texas Panhandle regions, as well as various other plays, both conventional and unconventional, in the Mid-Continent, Appalachian Basin, Permian Basin, Delaware Basin, south Texas, Texas Gulf Coast and Ark-La-Tex regions. As of December 31, 2009, the company owned interests in approximately 44,100 productive wells; and had proved reserves of 14.254 (22,900 net) trillion cubic feet of natural gas equivalent. The company was founded in 1989 and is based in Oklahoma City, Oklahoma.

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Click the Chesapeake Energy stock chart below for a larger view.

Chesapeake Energy Stock Chart