Looking for a trade off a long handled hammer? Try Denbury Resources (DNR). (October 30, 2018)
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I want to look at Denbury Resources ( NYSE: DNR ) today. This stock absolutely got filleted here over the last few weeks it, lost over 50 percent of its market cap this month; well over but we are just starting here at 6.00 because I know the math, 6.00 down to 3.00 is 50 percent.
So what are we going to do here? This looks like a pretty good low-risk trade here to the upside. Here’s why: Again, the stock lost 50 percent of its market cap, that’s a lot of selling. Yesterday really looks like it was just a heck of a climax sell-off here and you got volume up to 40 million. And then today, actually this morning, there was a continuation of that into the first part of the morning. Then finally here it started to reverse at about $3.00 or so just maybe an hour into trading and then continued up for the rest of the day.
The point is, if you just look at this on the daily chart this is a big old hammer pattern. You can call it a Dragonfly Doji if you want; it’s really not a Doji because the close is significantly higher than the open on a percentage-wise basis. But it is a hammer pattern that is typically a reversal pattern that is hence hammering out a base.
Here’s is how I would trade this stock tomorrow: IF the stock is up above today’s intraday high, which is 3.38, which is basically just about where it closed, I think you can buy this stock and take it for a bit of a ride. Because it is such a low dollar stock the percentage swings can be pretty big. You really have to keep your stop even below 3.25 or so. You could even, if you wanted to, keep it clear down here below $3.00.
But I would just say the idea is the stock is really, really low within these Bollinger Bands, three standard deviations is clear down here but is well down within these Bollinger Bands so I would expect the next move to be higher. Frankly, if you can get it up to 3.75 or so that is when I would look to exit or at least lighten up. But because this rubber band is stretched so tight you can get a pretty big move to the upside from here.
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