Oil prices jumped on news that the U.S. had killed Iranian military leader Qassem Soleimani with an airstrike on Friday. Brent crude prices shot ahead 3.6% to $68.60, marking the highest closing price since May, according to stockcharts.com data.
As frequently happens, a rising tide lifted all boats, with others across the oil chain seeing a boost in value.
Realistically, the U.S. shouldn't feel the impact of the airstrike in the way of gasoline prices spiking because of concerns of supply disruptions. The country isn't in the same position that it has been historically where conflict with the Middle East meant gas doubling in price. The U.S. is now one of the world's largest oil producers and produces more than 7.5 million barrels of oil per day more than it did 10 years ago.
Still, the turmoil helped Independence Contract Drilling (NYSE:ICD) gain 8.8% on Friday to close at $1.06. There are two things to consider with this. One, ICD looks to be making a higher low after bottoming at 66 cents in December. Two, the company is incentivized to try and hold value because in November it was warned by the NYSE about non-compliance when it was failing to hold the $1 minimum price requirement.
It is also worth noting that the stock price is holding over its 50-day moving average (DMA), which is now starting to take an upward path. This is a bullish signal. We think ICD may have a run at its 200 DMA in it going forward.
To make that happen, ICD will need to break resistance at $1.20 and then more around $1.30. There is a little more about $1.45 too. With the 200 DMA (currently at $1.58) on a downward trajectory, our price target is set at the $1.45 resistance. We suspect by the time the price moves that much higher, this will be an intersection point between static resistance and the 200 DMA.
As for support, it's all about the 50 DMA. Currently at 88 cents, the 50 DMA is rising and will lend to static support at 90 cents in the coming days. We're setting a stop/loss at 90 cents because we think if ICD starts coming back down and breaks under the 50 DMA that it is probably going to at least 80 cents.
There is certainly a caveat here with the U.S./Iran tensions that just came to bear a couple days ago. At the time of this writing, we expect stocks to open sharply lower Monday morning in general, but how oil stocks react is a little up in the air.
If ICD gaps down and looks weak, we're not even taking a position and will just watch for a different entry point in coming days. If it comes out stable and we can get in at $1.06, there is a nice upside of 36.8% to our price target at $1.45, while the risk side is 15.1% to $0.90.
