While many stocks have been gradually getting healthier with the recent bounce in the markets, there are some groups that remain in a vulnerable position. It's not to say they haven't risen with the markets over the past few weeks, but upon closer inspection, they remain under key resistance levels. It is very important to evaluate a stock based on where it stands in relation to support and resistance levels, rather than just paying attention to a recent percentage move.
Many oil stocks have bounced pretty sharply along with the markets, but have failed to clear key resistance levels despite the large percentage move. InterOil Corporation (NYSE:IOC
) for instance, has rallied over 50% from its October lows, yet remains below its prior base. The $50 level had been acting as an important support level throughout the summer before cracking in October. This would be the key area to focus on in the near future. If IOC can close back above this level, it might help stabilize the stock after the recent volatility. However, a failure near this area could lead to a quick move back lower.
Stone Energy Corporation
) is another stock in the oil sector that has experienced a sharp rebound in the past few weeks. However, much like IOC, SGY remains under a key resistance level
. In this case, it's the $22.50 level which also coincides with its declining 50-day moving average
. SGY is in a clear pattern of lower lows and lower highs, this bounce may have run its course.
Carrizo Oil & Gas, Inc.
) has an almost identical chart to CRZO. It broke down from a base in August before settling into a secondary consolidation below the prior base. It eventually broke down from the secondary consolidation in September as oil stocks entered a freefall. CRZO traded as low as $18 per share before rebounding back towards $27 this week. While this is a pretty strong rally, CRZO remains under its prior base and 50-day moving average. Traders need to be on guard for a reversal in this area.
Berry Petroleum Company
) is following the same general pattern as well. It had been finding support near the $45 level all year before gapping under the level in September. From there, BRY dropped 15 points towards the $30 level. BRY rebounded sharply much like its peers, and the key question now is whether it is in the midst of a dead cat bounce or it the recent decline was a bear trap. Traders should keep a close eye on the $45 level as it could bring in an influx of sellers.
Obviously, these stocks dropped too far too fast a few weeks ago, and the recent rebound has been very strong. However, these oil stocks are all approaching prior support levels from underneath, and these levels should now act as resistance. Traders should keep a close eye on how these stocks deal with these levels as a failure would suggest that the recent strength was nothing more than a dead cat bounce or short covering.
Charts courtesy of stockcharts.com