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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Trade in CH Energy

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Busted
Patterns
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Patterns
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Patterns
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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 11/21/2017
23,591 160.50 0.7%
9,615 92.77 1.0%
758 2.01 0.3%
6,862 71.77 1.1%
2,599 16.89 0.7%
YTD
19.4%
6.3%
14.9%
27.5%
16.1%
Tom's Targets    Overview: 11/14/2017
23,700 or 22,800 by 12/01/2017
9,300 or 9,800 by 12/01/2017
800 or 750 by 12/01/2017
7,000 or 6,500 by 12/01/2017
2,625 or 2,540 by 12/01/2017

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

 

Backstory

I got lucky in 2008. My largest holding, CH Energy Group (CHG), decided to make a run for the all-time high toward the end of the year. It didn't make it, but the run up was delicious for my wallet.

According to Yahoo!Finance, the company is an electric and natural gas utility with operations in New York State, serving 372,000 customers in the Mid-Hudson Valley region with a subsidiary tending to the installation and maintenance of HVAC equipment primarily in the Eastern states.

I first bought this stock back in 2004 four times in the 40s and sold it for $51.60 in March 2007 just after price peaked. During that time, I collected the dividend which was high compared to the yield of other utilities and banks deposits.

The Buy

A chart of CH Energy Group (CHG), on the daily scale.

Being overloaded with cash, I jumped in again and bought the stock seven more times since March 2007, the most recent buy was on October 10, at $34.80. The chart shows the date and approximate price.

As a long time owner of the stock, you become accustomed to its personality. You instinctively know when it is cheap and when it is not. When the stock took a pounding along with the rest of the market on October 10, I snapped up more shares. On that date, the stock reached a low for the year, and I didn't want to miss the chance to buy the company at fire-sale prices.

With a long-term holding, I am not afraid to average down (buy at lower and lower prices, dropping the average cost of the shares). If this were a short-term trade, then I do not average down. Often, short term trades do not give the stock enough time to recover, so you take a larger loss when you do sell. Remember that the only way you make money by averaging down is if the stock recovers. Keep the word Enron in mind.

The stock made tall daily swings, following in the footsteps of a volatile market but generally moved higher. When it approached the price of the mid September peak, I knew that the stock would probably turn, based on overhead resistance. I decided to sell, but not all of my holdings, and not all at once either.

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Time to Sell

A stock making a rounded bottom, like this one, often (but not always) forms a cup-with-handle chart pattern. Sometimes the stock just keeps on climbing, going almost vertical. I did not want to sell my entire position only to see the stock continue higher. Thus, as price climbed, I sold the stock six times on or after December 24 (see the red line) but still own it. Even though I dumped more than half of my position, it is still my largest holding. That tells you how overweight I was in this one and that is why I beat the market handsomely in 2008. It also suggests what a concentrated portfolio can do for you when things work out properly. I have been wanting to cut my position size for months now, and this was the perfect opportunity.

I am not recommending that you buy only one stock and put your net worth into it. But I viewed the dividend as safe and it was much better than holding cash (higher yield than the money market funds). I chose the stock to collect the large (at the time of purchase) dividend and also for possible capital gains.

I plan to sell more of the stock in the coming days but still retain a position. I believe this will retrace and form a handle. I do not believe there is much more upside left, but I will collect the dividends while I wait for its next step.

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A chart of CH Energy Group (CHG), on the daily scale.

Aftermath

The chart on the right shows CH Energy with the sell locations mapped. I actually sold this eight times on six days with purchase dates going back as far as March 2007 and gains ranging from 12% to 50% with hold times from 3 months to as long as 1.75 years.

For this stock, 52 seems to be a good place to sell, and I made full use of it. Twice I sold on the day the stock made its highest high.

The stock formed an Adam & Eve double top chart pattern.

As the chart shows, the stock dropped during the race to the March bottom in the general market.

Not shown, but the stock touched down at 37.68 bounced up and formed an ugly double bottom before closing on 52 again in June 2009.

This stock is now my third largest position but I will sell half of it at or near 52 and the other half at a price to be determined. With the global warming environmental mandates coming, this will tax utilities and hurt their performance. As much as I like to receive dividends, I am phasing out my holdings and deploying my assets to other stocks that will likely perform better in the coming 2-3 years.

-- Thomas Bulkowski

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Do molecular biologists wear designer genes?