Consol Energy (CNX) is an $8.5 billion coal and gas producer that's showing us another actionable upside trade right now. In Consol's case, the trade to watch is an inverse head and shoulders setup -- another technical formation that's been developing since the market's Aug. 8 decline. We're watching for a breakout above CNX's neckline before it becomes buyable.
The inverse head and shoulders is one of the most well known technical patterns out there -- but it's also one of the most effective. An academic study conducted by the Federal Reserve Board of New York suggests that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant."For traders to replicate that success, risk management is crucial. The deep shoulders on this setup make a protective stop a bit tougher to set -- to combat that, I'd suggest keeping a protective stop at the 50-day moving average. On the breakout, $54 is a conservative upside target.
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