Devon Energy http://i.thestreet.com/files/tsc/v2008/photos/graphics/032812_rebecca4.jpg
Devon Energy (DVN - Get Report) is having a good run right now; over the last six months, this $29 billion oil and gas firm has rallied more than 25%. Now, though, shares are consolidating sideways, offering up an "if/then setup" for this stock. Here's how to play it.
Essentially, an if/then setup is a trade whose direction is contingent on price action. In other words, if DVN breaks out above $76 resistance, then buy. Otherwise, ifshares fall below support at $70, then this stock becomes a short candidate. While there's limited directional bias to this trade right now, there are a few clues about DVN's eventual direction.
The first is momentum, as measured by 14-day RSI. The uptrend in RSI has remained intact since October, a good sign that the upward movement in DVN hasn't fizzled out yet. Because momentum is a leading indicator of price, that's a very good sign. The setup leading up to this consolidation resembles an ascending triangle (see the dashed trendline in the chart) -- that could make DVN's current price action just an elaborate throwback to retest newfound support at $70.Even if that's the case, the rules of the if/then trade still reduce a lot of the risk associated with this stock. Devon shows up on a recent list of 10 Stocks Owned by the Best Fund Managers. Follow @stockpickr
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