As the broader markets continue to fly around ever since the significant selloff on Monday, stock picking has been rather interesting. During the selloff itself, there were only a handful of securities we would deem worthy of picking up. That has since changed just a few sessions later as the majority of stocks are beginning their rebound after finding support. Where equities go on a high level remains up in the air, but one thing we can do during this phase of the market is continue finding those securities that we think might outperform in the near term. With that said, we feel we have found our newest pick; InPlay Oil Corp. (TSX:IPO).
Background:
InPlay Oil Corp is an oil development and production company based in Calgary, Alberta. It is engaged in the acquisition, exploration, and development of petroleum and natural gas properties, and the production and sale of crude oil, natural gas, and natural gas liquids. The company's operations are focused on concentrated light oil asset base located in West Central Alberta. It derives revenue from selling its production of crude oil, natural gas and NGLs under variable price contracts.
IPO Trading Strategy:
After a decent performance on Wednesday as shares closed up at $1.31/share (+3.15%) paired with the overall uptrend over the last year, we like the entry at Thursday’s open. As always, it is essential to set up proper risk parameters before entering a position, so let’s dig into that now.
As far as resistance is concerned, outside of the 52-week high we had to go back multiple years to find any type of relative level near where the current price is. The first level of resistance is the 52-week high made in July at $1.50. This served as an important point preceding a rather chunky selloff, but since this stock’s rebound, we believe the momentum will carry the price right through this level. This brings us to the older resistance previously mentioned. We had to go all the way back to September of 2018, where we found a key peak at $1.85 that served as a sharp ceiling. Following these two levels, we think this stock has some room to run. In order to not get caught up in any selling pressure at the mental $2.00 mark, we have set our price target at the May 2018 peak of $1.98/share.
Support for this stock came in a bit of a different form than the usual, static setups. Instead, this stock’s key support actually comes as two dynamic SMAs as well as a mental level. Up first is the 50-day SMA currently at $1.13. Following this up is the 100-day SMA at $1.03. The only thing under these two indicators that might save the price from dropping off a cliff is potential buying pressure at the mental $1.00 mark. Anything below all three of these would indicate a reversal of the uptrend, so in order to avoid ruin we have set our stop loss at $0.99/share.
With these risk parameters in place and using Monday’s close of $1.31 as the proxy entry price, this play is shaping up to have +51.15% upside while risking -24.43%. We anticipate this move occurring within the next six to seven months.