Shares of Chesapeake Energy (CHK) has been bearish since cracking 8.00 in December. Price has since retreated from just above 8.00 to close below 6.00 last week. The market was not able to rally back above 6.00 even after mostly better-than-expected earnings. Let's first take a look at the chart.Chesapeake Energy (CHK) Daily Chart 2/26(click to enlarge)Key Support Ahead:- We can see that this is not the first time price retreated from just above 8.00. - The market faded CHK in September when price cracked 8.00 as well. - In November, CHK found support at 5.15.- Now price is heading towards this low as CHK closed last week at 5.66.- Note that the prevailing trend was bullish but has turned sideways.- Before we call this a bearish market, I think we should assess it as bullish-neutral.- In this mode, we should pay attention to that previous support pivot at 5.15.Trade Assessment:- Let's take a look at the reward to risk of entering long around 5.50. - Let's say we put a stop at 4.80. That is a risk of 12.7%- We can look at 2 targets. The conservative target could be middle of the current rage, just above 6.50. Now, if the market is turning bearish, price can still climb back here, but would likely fail to push above the mid part of the top. - However, we can have an aggressive target at 8.00, which would be in-line with a bullish-neutral market. - On average, the reward potential is ((8.00+6.50)/2 - 5.50) / 5.50 = 31.8%.- This looks like a great reward to risk profile. Chesapeake Energy (CHK) Weekly Chart(click to enlarge)The Breakout Scenario:- We are expecting buyers around 5.15 or above.- A break below 5.15 on the other hand would open up the bearish outlook and at least put the 4.00 handle in sight.- If price action further confirms an inability to push higher to the upper half of the current range, (above 6.50), then we might have even more downside ie. 2.00. - The weekly chart above shows how while the medium-term mode has been bullish-neutral, the long-term mode has been bearish.- Therefore, if price indeed breaks below the 5.15, and fails to return above 6.50, we should not be surprised of the bearish continuation towards at least 2.00. Let's now take a look at what the earnings last week was all about. Here are 3 main points from Motley Fool:1. EarningsIn at least some respects, Chesapeake had a pretty decent year in 2016. The company raised cash by selling off properties worth about 73,500 barrels of oil equivalent (BOE) production per day. But it maintained production at the properties it retained at an average rate of about 635,000 BOE per day. At the same time, Chesapeake cut average production expenses by 28%, and reduced transportation costs by 7%. The company grew its proved reserves of oil and natural gas by 14%, and replaced 249% of the BOE it produced in the year with newly discovered reserves -- guaranteeing its ability to meet world energy demands should they increase in the future.From a financial standpoint, on the other hand, revenues declined 38% due to continued weak commodity prices, fewer producing properties (so less total production), and "unrealized hedging losses." Oh, and Chesapeake also recorded a loss of $6.39 per share. Not good.2. An upgradeReacting to the news, investors have sold off Chesapeake by nearly 6% so far this week. But on balance, UBS found the company's bad news/good news report modestly encouraging, and decided this morning to upgrade Chesapeake stock from sell to neutral. The analyst was especially pleased with Chesapeake's "improved liquidity" and increase in reserves -- but was less thrilled with management's guiding toward lower production in Q1, which UBS called "well below consensus."What finally tipped the scales in Chesapeake's favor, though, in UBS' mind, was the fact that Chesapeake "has fallen below our price target to a fair value" of less than $6 a share. At today's prices, UBS sees less risk in the stock. (Full article on fool.com)