For investors using technical analysis to find possible trades, a common method looks for stocks that show both good technical condition and are positioned to move out of a period of sideways trading. This method seeks to join an ongoing upward price move by buying after the stock has rested, built energy, and is set to continue higher. An organized way to do this uses tools that grade a stock's general technical condition apart from the state of its present price chart formation. This two-part grading method helps sort the market for stocks that are both in a good upward move and present a defined, lower-risk chance to buy.
CANADIAN NATURAL RESOURCES LTD (NYSE:CNQ) recently appeared from this kind of filter, showing a mix of high technical and setup grades that calls for more attention from investors focused on technical methods.
Technical Condition: The Base for a Trade
The start of any strategy to trade a breakout requires confirming the main price direction is positive. A stock needs to show continued condition across various time periods to be seen as a possible choice. Canadian Natural Resources shows exactly this kind of basic condition.
Based on its ChartMill Technical Analysis report, the stock gets a solid Technical Grade of 8 out of 10. This grade measures the stock's technical condition by reviewing items like relative condition, price direction, and moving average agreement. For a breakout method, a high grade is key because it shows the stock is already in a verified upward move, raising the chance that a breakout will result in further gains instead of a failed move.
Important technical good points for CNQ include:
- Positive Price Direction Agreement: Both the long-term and short-term price directions are graded as positive, showing steady buying across different time frames.
- Good Moving Average Backing: The stock is priced above all its main simple moving averages (20, 50, 100, and 200-day), and each of these averages is rising. This layered agreement of support levels is a clear mark of a sound upward move.
- Nearness to Highs: CNQ is now priced close to its 52-week high of $35.12. While its relative condition matches the wider market, trading near highs can show a stock is being bought and has moved past earlier selling.
This technical setting is necessary. It answers the first question for a trader: "Is this a stock I want to own?" A high Technical Grade suggests the energy is with the buyers.
Setup State: Finding the Buy Point
A strong price direction by itself is not a buy signal. Buying a stock that has just made a big, stretched move can lead to quick declines. The second, equally necessary part of the method is timing, which is where the Setup State Grade matters. This grade judges how "narrow" or contained a stock's recent price movement has been, searching for times of low movement that often come before a notable price change.
CNQ gets an 8 out of 10 on this Setup Grade, showing a very good contained pattern. This answers the trader's second question: "When should I buy it?"
The technical report points out several items adding to this high setup grade:
- Recent Containment: The report states that prices have been contained lately, which could offer a good chance to buy. Over the last month, CNQ has traded between about $31.49 and $35.12.
- Set Support and Resistance: A clear resistance area is seen just above the present price at $34.67, made by a mix of trendlines. In contrast, a nearby support area sits between $33.49 and $34.06, formed by moving averages and trendlines. This makes a set trading area with clear levels for a possible breakout and stop-loss setting.
- Present Location: The stock is trading near the top of its recent area, meaning it is testing the upper limit of its containment. This location is common just before a possible breakout try.
For a technical trader, this setup is interesting because it offers a clear, rule-based plan: think about buying if the stock can clearly move above the $34.67 resistance, with a protective stop-loss set just below the support area near $34.06. This formation allows for a managed risk scenario, which is a key part of organized technical trading.
A Complete View
It is useful to note that the study also gives a neutral view on the stock's relative condition. While CNQ has done better than 72% of all stocks over the past year, this condition is noted as coming mainly from its recent move. Inside its industry (Oil, Gas & Consumable Fuels), it is a middle performer, doing better than 65% of its 209 peers. This setting is important; the technical setup is interesting within the present move, but it is not happening in a stock that is a clear industry leader, which could affect the size and belief in the trade for some investors.
Finding Other Chances
The filter process that found Canadian Natural Resources can be used each day to find new possible breakout setups. By filtering for stocks with high Technical and Setup Grades, investors can methodically search for chances that fit this trend-based, breakout method.
You can see the present list of stocks that fit and use this filter yourself on the Technical Breakout Setups page.
Disclaimer: This article is for information only and is not investment advice, a suggestion, or an offer or request to buy or sell any securities. The study is based on technical data and automatic grading models, which can change. All trading and investment choices have risk, including the risk of loss. Past results do not show future results. Always do your own study and think about your money situation and risk comfort before making any investment choices.
