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The first is the very bearish sentiment surrounding shale oil stocks. If prevailing wisdom was negative on more traditional energy stocks, it was downright hateful for this subgroup. When the bottom fell out of oil prices last year some shale stocks tumbled more than 80%. OAS was one of them.
As loved as shale stocks were when oil prices were rising, they were completely forsaken by the end of 2014. Nobody wanted to touch them, and headlines from drilling operator employment to real estate demand in states hosting this industry kept fear levels high. That is a recipe for a stock that could have big potential gains once it starts to move higher -- and OAS has started to move higher.
It may not seem this way since OAS remains in a trading range, but something important has changed for the better. Volume is soaring and most of it is changing hands as prices moved higher, not lower. This pushed the cumulative volume study to levels not seen since July -- before crude oil prices broke down.
That tells us that demand is strong here and suggests the trading range is close to an upside breakout. Indeed, Oasis has spent the past week trading above its key 50-day average, something it has not been able to sustain since the middle of last year -- again, before oil prices sank.
Based on the size of the trading range, the upside objective could be as high as $27.50, which is where the falling 200-day average will be in just a few weeks. And that would still only be a 38.2% retracement of the entire bear market trend from last year. Parameters for this trade reflect greater volatility and the very wide stop provides greater risk in the hope of capturing a very big reward.
Recommended Trade Setup:
-- Buy OAS at the market price
-- Set stop-loss at $16.25
-- Set initial price target at $27.50 for a potential 47% gain in eight weeks Please share this article
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