While it appears that Chesapeake Energy (NYSE:CHK) has seen all the punishment that could possibly lay ahead, we're concerned that the previous technical pattern in the period from 1993 to 1999 is about to repeat. In the chart below, we've applied Edson Gould's Speed Resistance Lines [SRL] to the price of CHK in the period from 1993-1999 and 1999-2012.
Critical to our analysis using Edson Gould's SRL is the fact that, so far, CHK has replicated every move that has occurred in the '93-'99 period in the most recent price activity from '99-'12. While it would appear academic that the stock has been in a declining trend, we're more concerned with the downside risk.
With this in mind, if CHK declines below the red line at x2, then we believe CHK will return to the pivot level of $4.94 with the possibility of declining all the way back to 1999 prices. If CHK falls significantly below the $4.94 level, then the stock has a high likelihood of going all the way $0.67. This would be a replication of CHK falling below x1, and returning to the previous pivot level of $2.00, set in 1994.
This "warning" does not suggest that CHK cannot go back to the prior highs at $55 (for now), instead, this review is strictly intended to consider the downside risk, which is our only concern.
Who is Edson Gould?
"Edson Gould spent over 60 years working in and studying financial markets. Gould studied the arts at Princeton, engineering at Lehigh (from where he graduated in 1922), and finance at New York University. In 1922, after working for a short time at Western Electric, he joined Moody's Investor Service as an analyst and later was editor of Moody's Stock Survey, Bond Survey, and Advisory Reports. In 1948, he began at Arthur Wiesenberger & Company, where he developed and edited the well-known Wiesenberger Investment Report and became a senior partner. He also was Research Director at E. B. Smith (which later became Smith Barney), and worked for Nuveen."
(source: Market Technicians Association. Gould, Edson Beers, Knowledge Base. Accessed April 26, 2012. link MTA reference.)
"Market technician Edson Gould always laughed at the idea of having a significant influence on the stock market, but his predictions were the most precise around. He pinpointed major bull markets and prophesied bottom-out markets as if he had his own peephole into the future. But in place of a crystal ball and wacky off-the-cuff schemes, his were smart, intensely researched and time-tested theories that made him a legend in the investment community."
(source: Fisher, Kenneth L.. 100 Minds That Made the Market. Business Classics, Woodside, CA. 1993. page 320.)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.