The price of oil has gotten a renewed bid of late, and while I don’t expect this to be a straight shot to the moon from here, the bid looks to remain firm enough for higher prices in coming weeks/months. Not surprisingly, as a result shares of energy companies such as independent energy company Apache (NYSE:APA) are also now waking up. APA stock has popped more than 8% over the past four trading days and, all else being equal, looks to have plenty more upside left.
The so-called top-down research process to stock trading and investing is not one that I invented, but it is one that is practiced by all of the most successful private investors and hedge funds that I speak to on a weekly basis. It is important to understand that large smart-money investors most of the time do not just buy one stock in a sector or group that they like, but rather buy a basket of those stocks for diversification purposes. This then leads to an underlying bid in that entire sector or group of stocks.
APA Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
The recent rally in the price of oil also allowed energy stocks to wake up again after a thus far choppy going in 2018. Getting right to the charts and starting off with a multi-year look, we see that APA stock has been in a sea of hurt over the past few years but in March of this year revisited and bounced off its 2015/2016 lows around the mid $30s. Since then the stock has managed to get back on its feet to some extent and push and hold back above its yellow 50-week simple moving average. The RSI trend momentum indicator also continues to slowly push higher.
This is not to say that APA is now ready to champ higher on a multi-year tear, but rather that for now, this longer term look seems to give credence to more upside.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart we see that over the past few days, APA stock once again bounced off its red 200-day moving average and also managed to pop past simple diagonal resistance. From here and given the aforementioned support by the broader energy stock sector, a next upside price target for the stock in my eye is in the high $40s. Any strong bearish reversal from here, and at the very latest a drop and hold below $42, would be a clear stop-loss signal.
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