As Diamondback Energy Inc. (FANG) dropped below its 50-day moving average, it finished giving back all its gains from its October 10th breakout. The failure was not based on any news about the company. Most likely it had more to do with oil prices faltering.

Whatever the cause, investors will have to look for new entry points for Diamondback Energy stock if they want to get back into it or add to current positions.

The chart shows a support level at approximately $88 per share. At this level, FANG has attempted to drop lower, but held on to form a very short base. Investors might want to watch to see if the stock hovers around this price level again.

Much stronger support appears around the $85 dollar mark. FANG has risen from this support level three times since last May. (See also: Buying the Diamondback Energy Breakout.)

Stocks don’t automatically bounce off support. Investors would need to see other developments besides the chart action. Oil prices might rally, or the company could announce early financial gains from its recent commitment to increase capital spending (CAPEX). OPEC could finally agree on capping production to help burn off the oversupply of oil.

There is good reason not to be cavalier about these two support levels. If Diamondback Energy stock breaks through both of them, there is no support in sight. A free fall could follow. (See also: An Overlooked Play in Energy Stocks (ATW, FANG))

If and when FANG reaches support, cautious investors will look to see if the stock forms a base for at least six weeks to two months, then breaks upward on significant volume. Even with positive action such as this, investors may want to place a trailing stop order on any purchase to protect themselves from losses.

The energy sector is not a good place to buy and hold right now. 

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