The dividend was suspended — bad news, right? Not really. Here’s my trade on Chesapeake Energy (CHK) (January 22, 2016)
SP-500 SSO SP-500 T2122 T2108 DJ-30 DJ-20 XOIL.X DJ-20 COMPQX MDY IWM XHB XOP XLE OIH
I’m looking at Chesapeake ( NYSE:CHK ) and this is why: Really bad news, the company reported that they’re suspending their dividend. You can see what happened to the stock, it gapped up (seriously), it gaped up, and then fell back and closed a whopping 4 pennies below Thursday. This is why I’m looking at this stock: When traders or investors first thought is, “Oh, the company cut their dividend.” You think that’s a BAD thing. Look at Kevin O’Leary, he’s not going to own a stock unless they pay a good dividend. This definitely wouldn’t be his stock. But here’s the deal, when a company in the energy patch, in the oil patch here, when these companies cut their dividends, and Chesapeake ( NYSE:CHK ) is a big company, but the stock is getting real small; when they cut their dividend it’s actually good news, because FINALLY they’re saying, “You know what? We’re not going to give our cash to the shareholders. We need the cash. We need this extra 170 million annually so that we can survive. We want to keep our company solvent.”
So that is why I’m looking at this, frankly, and I think 2.75, that’s a meaningful low. Because they came in here, dividend in tact. Up here, dividend NOT intact. So what I would suggest you do, if you’re liking this stock, you look at 2.75 as the inviolable low. Now, that’s 75 cents down from a $3.51 stock so that is NOT exactly a tight stop, that’s like 25 percent or so. What I’m saying is, you wait, see how this trades, but take some of this stock if you like it. Take some stock if you want to be in this sector at all. And then only ADD TO that position when the stock trades (and this will surprise some of you), only add to that position when the stock trades above Friday’s OPEN, which is 3.82. And then add some more if or when the stock trades above Friday’s HIGH, which is 4.15. I don’t want you buying this on the way down. You want to actually be buying it on the way up. I know that’s different from what you hear in other venues, but this is just what works for me.
By the way, I learned this from William O’Neil. I wasn’t his personal student, I just subscribe to his newspaper and read his books, and that’s what you should be doing too. So just buy this as long as it is not falling below here, I don’t think it will. Try to get some down a little bit lower, but look at Friday’s open and Friday’s intraday high as to add to levels.
Free Chart