Atwood Oceanics (ATW) has managed to remain profitable through the years of falling oil prices, which may explain why buyers picked up shares when OPEC announced measures to boost the price of oil. (See also: Which OPEC Country Has to Cut Their Oil Output?)
ATW’s breakout on the news that OPEC would limit production to reduce excess oil inventories came as welcome relief to current shareholders. Then came a follow-through day right behind the breakout day. Both days saw increased volume, indicating that many new buyers were pouring into the stock.
The third day of trading after the breakout saw a slight pullback on lighter volume, meaning that sellers did not bail out in huge numbers. This is a common breakout reaction for a healthy stock. (See also: Ensco, Atwood Breakouts Look Similar But Aren't.)
The only problem is that Atwood stock's 50-day moving average is still below its 200-day moving average. The 50-day is certainly climbing, but it is important that investors get out of the habit of mentally drawing the rest of the moving average line, assuming it will cross the 200-day. A prudent investor will wait until the moving averages actually cross.
If the crossover actually occurs and ATW has not seen any major sell-offs, those interested in getting into an offshore drilling stock may want to start picking up shares. Some may think this would be coming late to the party. That is, by the time the moving averages cross, ATW will have risen and the late investor could have made money instead of waiting. (See also: A Primer On Offshore Drilling.)
Those that can handle the extra risk may want to jump in early, but long-term investors won’t fret over the money they didn’t earn while waiting for the moving averages to confirm the action. They think of the missed profits as insurance payments against the risk of the stock failing altogether. When your house doesn’t catch fire, you don’t regret paying your fire insurance premiums.
Over the long term, if ATW is starting to climb, there will still be plenty of money to be made. Investing based on what a stock is actually doing instead of what it might do often pays off and prevents losses.