Shares of Green Plains Renewable Energy (GPRE) - Get Report , the nation's third-largest producer of ethanol, have been under price consolidation for the past seven months, and a breakout from that basing action could fuel the start of a rally.
The stock price of this renewable energy company has a very close relationship to the price of conventional energy producers, as reflected relative to the energy select SPDR (XLE) - Get Report fund on the correlation coefficient graph. On the weekly price chart, the XLE can be seen been pulling back in a series of dark candles this year, but for the past two months Green Plains has held above its $22.00 level, in bullish divergence to the broader energy sector. Chaikin money flow is improving this month and attempting to cross above its 21-period average, and the relative strength index is above its center line, reflecting positive price momentum.
On the daily timeframe, the price action in GPRE this year has formed a symmetrical triangle or wedge pattern. This range contraction suggests a potentially volatile resolution and there are several indications that suggest the break may be to the upside. The stock closed above its two 200-day moving average on Friday and is retesting the triangle resistance line. Daily moving average convergence/divergence, which is overlaid on a weekly histogram of the oscillator, has been tracking higher on both timeframes for the past two months. The stochastics indicator has jumped out of an oversold condition and moved above the 80 level. Accumulation/distribution crossed over its signal line in February and has held above that rising average, and Chaikin money flow is in positive territory.
The pattern price objective is measured by taking the height of the triangle and adding it the breakout level, and it targets back above the 2016 high. Great Plains is a buy after a candle close above the $25.00 level, using a trailing percent stop.