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Rock Energy: A promising stock in a risky sector

A cup of heavy oil produced in Alberta's oil sands: Energy companies are racing to exploit North America’s vast shale gas and oil fields, sparking the biggest drilling boom in generations.

Todd Korol/Reuters/Todd Korol/Reuters

Mr. Lou,

What are your thoughts on Rock Energy? Seems like production is up, and these guys might be coming out of the penalty box.

That's my read. What's yours?

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Hey Robert,

Thanks for the assignment.

Rock Energy Inc. is focused on producing heavy oil from its land position in western Canada. The stock as you say has been in the penalty box for a good long time and has punished investors who failed to recognize that a severe downtrend had formed and that it was time to preserve capital. A review of the charts will better identify if in fact a trend reversal is at hand.

The three-year chart indicates that the downtrend was broken in October of 2012 and that the stock has been starting an advance. There also seems to be a cup and handle pattern developing that implies a continuation of the uptrend. There is some resistance at $1.50 but if the stock can get through that it runs to $2.25 without much to hold it back.

The six-month chart illustrates the advance through resistance along the 50- and 200-day moving averages that occurred in early January of 2013. What had provided resistance now provide support for more upside. The MACD has proven a useful signal generator indicating a sell in November of 2012, a buy followed in December and then a sell in late January of 2013. Currently the MACD and the RSI are suggesting that there is more to come from this move.

If you like the story and can tolerate the risks associated with a small cap heavy oil producer then it appears that you have found a stock with upside potential. Nothing in the world of investing is guaranteed so make sure to only invest a small portion of your assets in this opportunity and to build your position a piece at a time.

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Make it a profitable day and happy capitalism!

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