I mentioned in my market review article how I feel the markets are starting to show some signs of slowing down, so I took advantage of some strength today to lighten up on some of my positions. While I still believe the markets may be headed higher, I would not be surprised with some weakness leading into options expiration later this week. While I sold some stocks into strength, one I decided to keep a full position in is Patriot Coal Corporation (Public, NYSE:PCX). In looking at the chart for PCX, I still see the potential for a strong move higher. This is a case where the possible reward far outweighs the risk.
Notice how despite some volatile moves, PCX has been consistently following a pattern of clearing base after base. Every time it clears a base, it rallies and then holds above the prior base on a retest. PCX recently cleared a resistance level that was established near $22 and has been trading in very tight narrow range candles since then. PCX has not dipped back into the base showing some strength despite the lack of follow through to the upside. A move above its recent high at $23.25 could trigger some buying causing a spike higher. The projected target for the rectangle breakout takes PCX near $29 so the reward is pretty substantial. While it would be preferred that PCX hold above the prior base, a stronger level of support looms below near $19 which coincides with its 50-day moving average.