Since last April, the oil industry has been in a weird spot. OPEC nations, coupled with tension in Iran, have caused oil prices to fluctuate wildly over the last few months.
Oil prices plunged, only to come roaring back a week or two later.
Then, they dropped again, leaving oil-focused companies and investors scratching their heads.
Normally, that kind of volatility would produce great trading opportunities.
However, much of this sector’s movement is dictated by price-setting oil producers. That makes it harder to trade companies that deal in energy, especially the ones that do most of their business in oil & gas.
But that doesn’t mean we should ignore energy stocks altogether. Instead, we just need to be more careful about our entry conditions.
Looking for breakouts, for example, instead of simple trend continuations might make more sense with energy companies.
In the weekly candlestick chart above, you can see that Parsley Energy Inc. (NYSE: PE) has formed another descending triangle.
At this point, nearly every stock I examine is approaching an upside breakout. PE is no different.
Because in addition to the triangle formation, we’ve got contact with the lower Bollinger Band (BB), and a weekly candlestick trading above the last 4 candle body highs.
Moreover, should PE rise above the high of the current week by a sufficient amount (to $17.17) sometime next week, an upside breakout would likely be confirmed.
But don’t just take my word for it; analysts are starting to notice PE as well.
In fact, Evercore ISI, a London-based equity research firm, just flipped their status of PE shares from “in-line” to “outperform”.
Wolfe Research, located on Wall Street, is also high on PE. They too gave it an “outperform” rating.
Now, don’t get me wrong.
I don’t really care about what analysts think of stocks I myself am analyzing. Evercore ISI and Wolfe Research are primarily fundamental analysis firms, meaning that they place more emphasis on financial reports in relation to share prices.
In layman’s terms, they’re trying to figure out if a stock is undervalued, correctly valued, or overvalued based on key financial data.
For me, a technical analyst who’s only concerned with what the chart says, I take the fundamental analysts’ opinions with a grain of salt.
PE may be destined for greatness. Or, it could sink like a stone long-term. It’s all the same to me.
What I’m looking for is a short-term movement (in terms of weekly candlesticks) upwards, which based on what the chart is giving us, seems likely. The fact that analysts love PE as well might end up helping in that regard, simply due to investors buying the stock on the recommendation of Wall Street.
Trying to follow the analyst-driven hype is by no means a way to trade, but “buy ratings” from research firms can certainly help jump start certain companies.
Especially ones like PE, which are usually never discussed in the financial media.
At least, until their shares make a “moonshot”, pushing windfall gains to a small handful of traders in the process.