When most investors think of ways to make money from the rally in crude oil, which has taken prices from the mid-$20s to the low $50s since February, names like Exxon Mobil (XOM) , Chevron (CVX) and Halliburton (HAL) are the first to roll off our tongues. And rightly so, as these are among the giants of the oil industry. However, there are some lesser-known gems worthy of inspection that can offer even greater percentage moves. One of these is Sanchez Energy (SN) .
This is the daily bar chart of the company, which has just triggered a "highly confident" alert for those looking to use the latest pullback in price to catch the oil-sector bandwagon. Starting with the stochastics study in the lower pane of the graph, notice that these shares have returned to the oversold 10% threshold, where declines typically subside and rallies begin. The crossing of the red line up through the green line is phase one of our decision support engine's (DSE) buy alert. Our DSE then looks for both red and green lines to move back above the 10% threshold, creating phase two of a buy alert. Once the red line starts to distance itself away from the green line, the buy signal is confirmed (likely to be seen next week).
Next, observe that the correction off the April high has taken the form of an Elliott down/up/down pattern, known as a zigzag. This sequence informs that the previous move (in this case upward) will soon be exceeded. The blue arrows highlight the likely path from the green buy box to the pink sell box, which surrounds the $15 level.
Another indication of an imminent cessation of selling pressure is that the correction from the 10 zone has returned to the green oval, which includes the Fibonacci 38% to 78% support targets.
Alone, each of these situations is enough to justify establishing long exposure, with reasonable risk/reward characteristics. However, when they combine like described above, our objective DSE flashes the "highly confident" alert, as it is doing this week.
Therefore, for speculators who are short Sanchez, buying actions are indicated, which would cover short exposure and/or use buy stops at $7 to protect those profits. If long and nervous, this same buy alert encourages investors to hold or add to exposure in anticipation of another doubling in price in the coming year. If flat, establishing long exposure, using these parameters is ideal between $4.50 and $7, using $4 as your protective sell stop. Doing so would allow a maximum risk assumption of three points vs. a reward target of $7 plus or minus one point, which would be around a double.