Energy stocks are finally coming back down to earth after enjoying a huge surge in August. The Saudi Aramco attacks have certainly helped cool off oil companies, but even without the Brent crude disruption, energy firms appeared due for a sell-off.
One such company, Vistra Energy Corp. (NYSE: VST), was featured back in mid-August right as the energy rally was kicking off. Vistra, unlike many of the other companies out there, deals almost exclusively with electricity.
Back then, we set a trade trigger at $23.00 after VST bounced off the lower Bollinger Band (BB) and set a higher low. The following chart was the one we looked at on August 15th.
And since then, VST has soared. Two weeks ago, it topped out just north of $27.00, marking a gain of 18%. An appropriately priced and dated option may have returned almost ten times that amount.
But I’m not talking about VST just to gloat. Rather, it appears as though this “ping-ponging” energy company is about to reverse downwards.
In the weekly candlestick chart above, you can see where we went long, where the stock is currently sitting, and the triple top – a trend reversal signal – that formed two weeks ago.
Also, we have contact with the upper BB. The last time VST hit the BB, it produced a highly profitable, low-stress trade.
And based on this week’s price action, it looks like another one is right around the corner. The current weekly candlestick is trading below the last two, signaling that VST may have enough negative momentum to log a few more bearish weeks after bouncing off the upper BB.
Should VST descend below the low of the current week by a sufficient amount, going short at $25.89 might make sense.
Another attractive feature of VST is that it seems to operate independently of the general market. Regardless of where stocks go, VST marches to the tune of its own drum. With equities looking like they’re about to bounce back from the recent selling, VST could easily continue downwards despite a potential sentiment shift.
And if VST does drop below our trade trigger, it could have a long, long way to go before bottoming out. The only point of strong support lingers around $21.00, or roughly 17% below $25.89.
Wouldn’t that be something? If VST can produce two massively profitable trades back-to-back, this stock might become one of my all-time favorites.
Because in addition to giving us clear setups, VST seems to generate winning trades time and time again.
