Oil on Friday got a little bit of a lift following President Donald Trump saying the U.S. is going to use the opportunity of low-priced oil to top off the nation's strategic oil reserve. In early action Monday morning, though, April crude is again below $30 per barrel, down $1.78 per barrel from Friday's close.
The U.S. initiative placated investors temporarily that had been selling-off the black gold amid global economic uncertainty underpinned by the coronavirus scare with an exclamation point added recently by pricing warfare between Saudi Arabia and Russia. It has been tough sledding for E&P companies to say that least.
We're not saying that traders should be jumping blindly into oil stocks, but keep an eye out for opportunities when they present. With oil futures slipping pre-market Monday, today might not be the day for a company like Laredo Petroleum Holdings, Inc. (NYSE:LPI), but because it has been beaten down so much, LPI is going to continue to produce some very nice days, just like it did on Friday with a 61.9% surge.
For day and swing traders, this sort of volatility is heaven.
LPI is a stock that averaged trading around $3.00 for 2019 before the wheels came flying off in 2020. Shares have been as low as $0.36 in recent days. There is a real risk that oil and related stocks will undergo a sell-off again on Monday as measured by pre-market action, so there might not be an entry for us if LPI gaps down.
We will look for an entry only on some upward pressure being immediately demonstrated in LPI in conjunction with the oil market in general. If that happens, we don't see resistance until $0.90 and then $1.10, which presents a big upside on any oil bullishness. We see $1.10 as a fair price target with the company's market cap down to about $176 million.
As we said, Monday is setting up for a drop at the opening bell. LPI might fall back through support at $0.70. Support under that is pretty sporadic because of the recent nosedive, but we see some at $0.53 and a stronger one at $0.45 before the bottom is revisited. If we were to jump in at $0.74, our exit will be fast with a fall under $0.70. From there, we'll look for entries close to other support levels, again with stop/losses nearby.
The point we are making with LPI is that there are ways to play the gigantic market swings. That means watching for an opportunity to strike quickly, in-and-out. LPI is absolutely going to have days like that. Look for entries and exits based upon established support and resistance points.
That's the prudent way to minimize risk in a volatile market. In the case of LPI, an entry at $0.74 leaves 48.7% upside to $1.10 resistance while an exit at $.0.69 (just below support at $0.70) means we're only willing to risk 6.8%.
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