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Three Stocks Showing Buying Opportunities in Sideways Market

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A technical look at the charts of Pinnacle Entertainment, Sempra Energy, and Tanzanian Royalty Exploration.

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While the indexes have been basically flat since mid-February, there have been plenty of weekly charts setting up in basing patterns that catch my eye. Sideways consolidation is one of my favorites for burning off the froth of a hot trending market, as it allows a pasue in the action from which constructive bases are formed. The following are a few weekly chart patterns that caught my eye, and the names were subsequently added to the portfolio.

Pinnacle Entertainment (PNK)


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Pinnacle Entertainment is an operator of several casinos and one horse track. The chart of PNK is a wonderful example of how a large base can provide potential outsized opportunities once a break occurs. Take note that PNK has two separate trendlines converging on the weekly chart, making resolution of this pattern appear imminent.

A trendline going back to January 2010 has provided solid support from the $7 level up to around $13.10 currently. Add in the fact that a rising 50 week is underneath, and these two areas provide a good reason for buyers to step in with subsequent buying power. As far as overhead resistance, take a look at prices going back into mid 2008, and it is clear that PNK is close to clearing a major level.

On a weekly close, if PNK can hold and then retest the $14.60 level, it should provide enough support to launch a massive run higher. There will still be some minor resistance at the $15.60 level from January 2011, but not enough for traders to hesitate taking a new position here. I am currently long PNK from $14.69 with a $12.70 stop.

Sempra Energy (SRE)


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The next weekly pattern that attracted my eye is the one forming in Sempra Energy. I must admit that I initially found myself attracted to SRE based on my interest in alternative energy sources, and SRE has several different divisions to address this potential. But although I like the "story," I would not be in this name if the chart was sharing with me a conflicting story. As it is, the two line up.

Going back to early 2007, SRE has a descending trend line break in late April 2011. To my eyes, this is a significant turning point in the technical attributes of SRE. While I have positioned myself with a stop below March lows (at $50.00), traders wanting a tighter stop could use the area of the trend line break. (This would be around $52.80 for a stop.) Clearly, if the general market deteriorates from here most equities will get hit. I want to watch how SRE reacts in that environment, as it held up nicely throughout the May sell off.

Tanzanian Royalty Exploration (TRE)


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The last pattern I want to share with readers is completely different from the first two above. While all three are coming out of multi month basing periods, take note of how Tanzanian Royalty Exploration Corp (TRE) is attacking 2007 highs. With the first two charts, there still may be traders looking to get out at "break even" as the charts move higher and higher. This selling pressure may possibly slow the potential move of these two names.

TRE is different in that it recently took out the 2007 highs, and now only has to contend with resistance before this time. While stocks do not have memories, traders surely do which is why I am always cognizant of support and resistance levels. There is nothing magical about these areas, but merely the emotions of traders coming to the surface around key turning points. With TRE embarking on a clean break to multi year highs, there should be smooth sailing ahead assuming that a bear market does not rear its ugly head and take the majority of names with it on a slide. I am willing to give TRE plenty of breathing room, and have a stop at $6.00 while position sizing accordingly.

There are many patterns a trader can play. Perhaps the most important aspect of any trading strategy is money management. Follow that up by understanding what the major averages are telling you, and you have the basis for understanding the individual charts. At the current juncture, the averages are under some heavy pressure to the downside, so my plan tells me to not being adding a ton of long side exposure. However, if the bulls can step back in and show some power, then names like these should be breaking from tight bases and provide decent risk reward. They are worth keeping on your short list going forward.
Positions in PNK, SRE, TRE

 

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