This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

U.S. BioEnergy Failing to Find the Green

U.S. BioEnergy's (USBE) stock price has not been a positive recipient of the green initiative that continues to sweep across the nation. After a quick pop in 2006 to $17.70, the stock has been in a volatile downtrend since its retest of $16 in April 2007.

While I normally do not base my short trading decisions on fundamental analysis, it appears that investors who are interested in ethanol companies are more focused on the two major ethanol producers rather than taking the speculative approach of investing strongly in potential success stories.

Investors' appetite for risk in this group appears low, and this is being reflected in the stock prices of some of the smaller players.

Since the test of $16 in April, distribution pressure has been strong in shares of U.S. BioEnergy. This pressure appears to abate as the stock price approaches $10, but a descending triangle pattern is now forming. This type of technical pattern forms when investors try to support a price at a particular level, but are unable to attract new buyers as the price appreciates.

When stocks rally but volume does not pick up on the buy side, tests of resistance usually lead to a retest of the lows. As each new reversal from support leads to a lower high, a descending triangle forms.

This technical pattern tends to be bearish because investors become less confident to buy resistance. They are confident to buy support, but not resistance. The bears will likely take control if the most recent support of the descending triangle fails to hold.

If support breaks, investors who are long U.S. BioEnergy would most likely sell shares in order to minimize their capital loss, which in turn would create even stronger distribution pressure.

The ideal setup for this trade would be an entry at $11.20, with a stop at $12.25. The first profit target will be placed at $10.15 to satisfy a 1-to-1 reward/risk ratio, and partial profits could be taken here.

The final profit target will be determined if the price trades below $9.80. If shares of U.S. BioEnergy move under $9.80 without first offering an entry, this trade setup is no longer valid.

Shares closed at $10.52 Monday.


U.S. BioEnergy (USBE) -- Daily


Update on a Current Pick

Odyssey Healthcare (ODSY) traded below $9.55 before offering an entry at $10.25, invalidating the short setup. So this name has been taken off the Watch List.

At the time of publication, Schumacher had no positions in stocks mentioned, although holdings can change at any time.

Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,387.21 -291.49 -1.65%
S&P 500 2,029.55 -27.54 -1.34%
NASDAQ 4,681.4970 -90.2660 -1.89%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs