Long Term Trades (Part 2)

In this second part of my Long Term Trades post, I decided to look at DNR. As I said in my first post, I'm looking back at some charts to see where I would have gotten in and where I would have exited. Although I usually use much more than what is shown on the chart, it is a good way to demonstrate that simple indicators such as moving averages are one of the most useful indicators.

Like the stock in my last post, DNR consolidated for about a year before breaking out in April of 2007. It broke out above it's downtrending resistance line (green line), as well as it's trading range (orange lines) that had contained the stock's price for previous 9 months. Looking at the moving averages we can see that they flattened out during the consolidation, and actually started to trend down for a few months. On the breakout, the 40 week moving average was flat while the 30 week was starting to trend up. You could have safely entered the trade at $16, with a stop a little below the breakout level.

The moving averges genneraly held the trend over the next year and a half. There were two times over the period that price put in a wick below the 40 week moving average, but a stop a little bit below the the moving average should have kept you in for most of the move. If you were worried about your position on these violations of the moving average, you could have looked at the relative strength and seen that it was still trending up nicely.

In July of 2008 DNR finnaly broke down, closing the week below it's long term moving averages. Exiting the position at a price of $28 a share would have given you about a 75% gain over the holding period.