I first showed this oil chart one week ago today before it broke out. Now that the oil market has broken past resistance I wanted to make it more clear where the upward price target near 83 comes from. Coming up with targets is an inexact science but it does give us the opportunity to review the potential for a move and determine our risk to reward ratio before committing capital to a trade. The height of the “cup” part of this formation bottomed out near 56 in December, we then subtract that value from the level of the resistance directly above (70) to come up with a height of 14 points. The 14 points are then added to the breakout point (69) to come up with an upside target of 83. Does that mean oil will definitely get to 83? Of course not, there are no definites in the market. What we can infer is now that oil is at an all time high and there is no traditional resistance on the chart to slow its ascent, we need to be aware that a meaningful move higher could be at hand and when it is an important market like oil, we need to adjust our portfolios accordingly.
Below are a few small cap oil and gas plays that get very active when oil is in the headlines. These stocks are highly speculative and best left to disciplined short term traders.
BDCO reported earnings April 5th and have since been the poster face of speculative momentum in oil stocks. This one is too extended for my taste but I show it to show what can happen in this group.
The weekly chart shows some resistance near 10, but clearing that level could lead to big upside. The 10 level is also the location of the 200 day MA. This company is also involved in the hot biodiesel area with their soy-based alternative fuel product. http://biz.yahoo.com/bw/060221/20060221005900.html?.v=1
The weekly chart of HEC is showing more aggressive buying, if the stock can clear resistance near 90 cents it could make a quick run for 1.20.
Bullish volume pattern in the daily chart of TGC.
The 10 minute chart shows that buyers have just regained control of the short term trend in TGC.
A few other symbols of small speculative oil stocks include; MPET, FUEL, GEOI, ERHE, USEY and ROYL. Remember that these are highly volatile and speculative plays, honor your stops.