Finding a Diamond in the Energy Rough

 | Jan 19, 2017 | 1:30 PM EST
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Stock quotes in this article:

gpor

Energy names have been struggling a bit lately, but occasionally traders can find a ruby in the rubble. 

Gulfport Energy (GPOR) has been one of those struggling names, but the risk-reward for a trade appears compelling. GPOR has given up nearly half its value since the October highs, and although I don't see many mid-cap names I find compelling at the moment, I'm taking a half-sized long position in GPOR shares. By half-size, I mean if my normal trading size is 4% of the portfolio, then I'm using 2%. The thesis here is GPOR would be considered very aggressive. It only clocks in with a market cap a bit over $1 billion and it's not far from its recent low as well as its 52-week low. I'm not looking to be a hero. 

I'm drawn to the price action as well as the Full Stochastics. Not only do we have a bullish crossover in the Full Stochastics, but the series of higher lows creates an obvious bullish divergence. Price offers a clear stop around a dollar lower and a clean break above resistance. The short-term nine-day simple moving average (SMA) is turning higher and the 18-day SMA is sitting right on price. 

GPOR offers an upside of $23, or around $1.70, versus a risk/stop level $1 lower here. Pairing a higher reward along with two buy signals against a lower risk, excluding gap risk, GPOR sets up as an attractive reversal play.

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