Oil is now in its third day of moving higher and nearing resistance at $55/barrel. Several oil company stocks have moved higher and more look attractive by the minute. But the overriding view is that the move higher in oil may be nothing other than a Dead Cat Bounce. Oh, your favorite trader or pundit might not use those words. They might even say they are bullish and a reversal is in, but they then caveat that statement with a caution to take some profits now after this run. So which is it? Is this the reversal in oil or is it just a Dead Cat Bounce?
It you are a technical trader it does not matter. The trend on a short term time frame has turned to up. And if you trade individual stocks then there are still many names that have great upside potential. One I am watching is Rex Energy (NASDAQ:REXX).
The chart above shows just part of the long decline in REXX from a high at 22 in April 2014. This stock lost almost 90% of its value in that decline. Whether it is in a Dead Cat Bounce or not even recovering just 23.6% of that, a minor Fibonacci retracement, still leaves better than a 45% return. What if it gets up to the 38.2% retracement at 9.90?
Do you think that is crazy? Well if you look at the price action since September it has been in a falling wedge. It broke that wedge to the upside a couple days ago when it started higher. The target on this pattern break is a move over 11. The momentum indicators have turned bullish as well. The RSI is making new higher highs and in the bullish zone while the MACD has crossed up and is rising.
If this stock gets to the 38.2% Fibonacci or the falling wedge target and fails it will still be considered a Dead Cat Bounce. So ask yourself this. Do you care if Oil is in a Dead Cat Bounce or not?
Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.