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Finding The Right Entry Point For A Fundamentally Perfect Trade

Offshore

In many ways, trading is all about reconciling conflicting information and signals. As I regularly point out to anyone that will listen, if there weren’t compelling reasons to do the exact opposite of what you as a trader intend to do with a particular security you would never trade. Every seller needs a buyer and vice versa, and those on the other side of your trade have presumably looked at the same information and arrived at the opposite conclusion. Prioritizing market trends, news and data is therefore an everyday thing for anybody who trades regularly. Sometimes though, the conflict is such that you find yourself split, and that is the case right now with a stock that I have traded successfully in the past, Petrobras (PBR). That conflict has led to inaction on my part, at least for now, but sometimes analyzing inaction can be more informative than looking at an actual trade, and this is one of those times.

PBR is one of those stocks that looks perpetually undervalued, but with good reason. A price/book ratio and price/sales ratio that are both comfortably under 1.0 both indicate that the stock is ridiculously cheap, but also suggest that there is something else you should be looking at. In this case there are two things, a political scandal that has engulfed the company, and what are referred to as “low oil prices”.

The quote marks are because, while oil is undoubtedly significantly below its highs of a few years ago, it is still high on…




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