It’s no secret that some chicanery is going on with the oil market. Iran, Saudi Arabia, and the rest of the world’s oil-producing nations have come to a unique intersection.
For the first time, oil reserves are near excess capacity – meaning that we’re almost producing more oil (worldwide) than is needed, even though the number of active oil rigs and drilling operations is at a historic low.
Thanks to significant advances in technology, drilling for oil has never been easier or cleaner.
And that, in part, is driving down the cost of oil.
But what really has oil prices slumping is the recent attack on the Saudi oil industry. It initially caused oil to spike, before plummeting over the next few days.
Why?
Because the world oil reserves were unleashed in response, displaying just how much backup oil we truly have.
And with oil prices low, oil-producing companies have started to suffer.
Yes, as I said, emergent tech has made oil drilling cheaper. But it’s not efficient enough to offset a significant price decline. For that reason, oil bears are starting to gather, shorting oil companies in the process.
One in particular – Northern Oil & Gas Inc. (AMEX: NOG) – has yet to be discovered. But that’s okay, because its “under the radar” status will allow us to get short on it before everyone else does.
In the weekly candlestick chart above, you can see that NOG is locked in a solid downtrend. A lower low has been set, along with several lower highs. The 50-week moving average is sloping downwards, and the current weekly candlestick is trading below the last two.
Usually, I want to see it trading below the last four. However, recent contact with the upper Bollinger Band (BB) coupled with a moderately high stochastics reading makes the current price action satisfactory for a short setup.
Our trade trigger, in this case, would be slightly below the low of the last three candles, at $1.90. From there, outside of another surprise oil event, I wouldn’t be at all surprised to see NOG set another lower low.
We usually don’t feature stocks this cheap, but NOG is notable due to it’s slow, consistent “death spiral” movement. The company may not be dead in the water (yet, at least), but it’s mimicking other stocks that have followed a similar path.
Eventually, larger investors may give up on NOG altogether, causing a major drop in the near future if it descends below a point of key support.
Right now, the closest key support is around $1.40. A fall below that point could be downright ruinous for NOG.
But highly profitable for opportunistic traders that managed to “get in” before it happened.
