A momentum growth stock could be flashing a bullish signal.
Cheniere Energy (LNG) is the biggest player in the rapidly expanding natural-gas export business. It’s been consolidating after a big rally in the first half, and now a “cup and handle” pattern may suggest further gains are coming.
The “cup” consists of relatively long and sideways basin-like movement. The “handle” is a shorter phase of consolidation with a higher low above the cup. Famously described by Bill O’Neill in How to Make Money in Stocks, the pattern is associated with continuation of longer-term upward momentum.
Traders often look to buy such stocks as they exit the handle phase — exactly what LNG may be doing now. Aside from the look of its chart, the company also satisfies the other requirement of a cup-and-handle stock because it’s growing fast. Revenue increased 24 percent last quarter and is expected to rise more than 30 percent on a yearly basis in 2019.
The spike in U.S. natural-gas production and exports are driving the trend. It took years to complete major projects like LNG’s Sabine Pass terminal in Louisiana, but now they’re operational and experiencing breath-taking growth. U.S. Energy Department data, for instance, shows that 16.4 billion cubic feet were shipped abroad in June 2016. A year later, it was 52.4 billion, and this year reached 73.5 billion.
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China is a key buyer — and not only because it needs the energy. Beijing’s also under pressure to reduce its huge trade surplus with the U.S. Recent headlines have suggested China may tax American gas in retaliation against President Trump’s tariffs. But some experts say investors in the Asian country have sunk too much money in the project for business not to move forward.
In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. LNG is showing a classic pattern for a growth stock. Traders may want to keep an eye on it in coming sessions.