City Pub Group LON:CPC has had a rough 2020. The pandemic hit the hospitality industry hard and national lockdowns meant zero revenue for several months (with many of the costs still needing to be paid).
However, the share price has now recovered significantly from the lows of sub 50p.
The stock currently trades at 130p.
City Pubs Group raised £22 million (before expenses) at 50p per share and so is in no need of any ‘keep the lights on’ placing.
Looking at the chart we can see the stock is above all moving averages. The 200-ema is pointing upwards and the bottom arrow shows the volume increase in the stock signifying demand.
Demand is important in a stock because if there are no clear signs of buying then it’s unlikely the price will move north.
We can see a period of sideways trading from around February as the stock consolidates. Buyers and sellers are evenly matched within this price range.
If the stock breaks out of the 144p level I believe a long trade with a stop below the recent lows would offer a nice risk/reward trade.
Looking closer, we can see a wedge forming in the stock as it closes in on its equilibrium point.
For a cheat trade, you could trade the breakout of this wedge and double up if the stock breaks the recent high.
I prefer to buy only when stocks break out, so in my opinion this would be pre-empting the trade.
But the benefit is you get a lower entry price and can risk less on the trade.
Some people prefer to trade this way but any decisions should be backed by data. I know breakouts work and this is why I focus on them.
Not all of them work, of course. But over time, my risk management and position sizing will allow my edge to play out in the long run.
It’s worth mentioning that should there be any unexpected social distancing or even further lockdowns, then the stock will likely trade downwards as a response to the negative news.
It’s also not the most liquid of stocks – so be careful on your position size.
Michael Taylor provides a distance learning course for traders, both beginners and seasoned market participants, who want to sharpen their stock market skills. This includes modules on technical analysis, risk management and trading psychology. You can find out more about Michael’s course here
