Here’s how you build a position in Denbury Resources ($DNR) (September 19, 2018)
DNR
I want to look at Denbury Resources ( NYSE: DNR ). This is a stock that just last week I put on our Growth Stock List, which is a list of stocks, typically 10 maybe 15, but I try to keep it to 10 or 12 stocks that have really high growth prospects in revenue and in earnings and also have pretty strong charts. So basically I want to keep people in stocks that are working and are likely to continue to work without having to trade around them every day.
I was looking through MarketSmith over the weekend and I found Denbury Resources so I just thought I would pass it on to non-members as well. I put this on the list back here and it is up almost 6 percent since then, in a nice kind of a really smooth way.
Here’s how you would trade this: If you are already long the stock, people say all the time, “How do I build my position up?” So I will tell you. Everything is a little bit different but there are some standard rules. You are buying it here; it wasn’t the greatest entry. The greatest entry would have been back here when it was just coming out of this squeeze here. But guess what? I didn’t see it then.
I don’t know whether I would have bought it, I like to think I would have, it kind of fits all the criteria. The stock broke out above the upper Bollinger Band in somewhat of a squeeze here. Trading in a pretty tight range; it broke out above the upper Bollinger Band on a little bit heavier than average volume and then continued to move higher. So we didn’t get that. But I felt pretty good about getting it here.
So you take an initial position here and then you just let this work. Don’t get all eager and excited, oh, it’s going to break out to a new high. It hasn’t done it yet and you are not going to make a whole bunch of money between 5.59 and 5.80 so don’t get too excited here and get too big because the stock could pull back to $5.00, it could. So you stick with your small position, and this is really important, think about what you are actually trying to do.
You are not buying the stock at 5.59 or 5.50; you are not buying it at 5.50 so you can sell it at 5.80, even though that would be over a 5 percent profit. No, you are buying the stock at 5.50 HOPING that you get the same kind of reward that the people who bought it at 2.50 got, which is, less than a year later they have doubled their money; nice to be a Denbury bull back here in February.
So that is what you are really looking for. And because of that, you don’t have to go in big right now, you could just wait, just wait it out. Sit with your position; you are going to be hanging on to the stock for a while. Now, if it tanks or something, then you are not going to be hanging on to it for a while. But if the stock is working in your favor let it work, don’t micromanage it. Don’t be like Jimmy Carter picking out the coffee in the White House kitchen. Let somebody else do that. Let somebody else buy the stock and push it higher.
Here, you are in now; you wait for the stock to break out and you can maybe buy a little bit more on the breakout if you want but it is not really necessary. You could, and then at some point here because it’s what it has always done in the past, at some point (you know what I am doing here) the stock is going to rally up and then it’s going to pull back. When it pulls back, IF it finds support, not just on the pullback but if you see it find support, that’s when you buy. So you may be buying more stock at 5.85 or so but you may not be buying it on the way up. You may wait for the stock to pull back and then find some new demand here so that this 5.80, 5.70 level shows it is now support, it used to be resistance now it is support, so this is when you are buying the stock, sometime in the next couple weeks.
I just wanted to walk you through that because there are a lot of people out there who talk about, buy such and such a stock. Stock picking is easy. Making money on it is the tough part and that is what I am trying to show you. I will say it again, it’s true; stock picking is easy, it really, really is. It is not totally simple but it is pretty darn easy. But consistently making money on the stocks that you pick is a different deal. That ‘s the kind of stuff I’m working on right now at Stock Market Mentor.
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