I got into Rock Energy at $0.96, and it's taken a nice run, but I'm wondering if I should be taking profits or staying on this ride?
Thanks for the assignment.
This will be the second time that I study the case for Rock Energy Inc., a small-cap heavy oil producer with operations in Western Canada. The first analysis was conducted on March 1, 2013, on a request from Robert who identified that increased production could get the company out of the penalty box. The shares were trading for $1.31 a share and the research conducted on Robert's behalf highlighted that the downtrend had been broken and that a cup and handle pattern had formed indicating that there was potentially more to the advance.
In retrospect that is exactly what happened. The shares added to the advance trading briefly above $3.50 in October of 2013. Another examination of the charts will provide further support for my thoughts.
The three-year chart depicts the trend reversal that caught fire in late May as the shares bounced off support along the 200-day moving average. As we got into early October of 2013 the RSI and the MACD both generated buy signals as the stock caught a lift off $1.80. What became evident as we progressed through October was that the stock got overbought and the momentum indicators both turned lower suggesting that some investors were taking profits.
The six-month chart provides a close-up of the resistance that came in at $3.60 and led to the retreat back below $3.00 by early November. Currently the shares are trying to hold onto a thin ledge of support at $3.00. When a stock makes an aggressive move higher, as in this case doubling in a month, it often does so without building support along the advance. If $3.00 doesn't hold the shares may have to retest support at $2.40.
Given that you are currently deep in the money on your investment I would recommend taking some profits while they are available.
Make it a profitable day and happy capitalism!
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