Todays Big Stock: Carrizo Oil & Gas, Inc. (NASDAQ: CRZO)

Carrizo Oil & Gas, Inc. is an independent energy company. Carrizo together with its subsidiaries is engaged in the exploration, development, and production of oil and gas in the United States and United Kingdom. Its operations are principally focused in proven, producing oil and gas plays primarily in the Barnett Shale in North Texas, the Marcellus Shale in Appalachia, the Eagle Ford Shale in South Texas, the Niobrara Formation in the Denver-Julesberg Basin (the Niobrara) in Colorado and the United Kingdom North Sea where its Huntington field discovery was under development during the year ended December 31, 2010. Carrizo controls acreage blocks and utilizes advanced drilling and completion technology along with 3-D seismic techniques to identify potential oil and gas drilling opportunities and to optimize reserve recovery.

To discuss potential trading opportunities on Carrizo’s stock, please take a look at the 1-year chart of CRZO (Carrizo Oil & Gas Inc.) below with my added notations:

Over the last (5) months, CRZO has formed (2) very important levels to watch: First, you can obviously see the $30 resistance (red) level that has been tested on multiple occasions. More importantly, I’d like to focus on the $25 level that has acted as a very common support level (navy), as well as a resistance (l. blue).

Twice over the last (2) months CRZO has closed below that $25 support level (#1 and #2) leading a trader to think the stock was headed lower. However, both times the stock popped right back above that level the very next day negating the expectation for a move lower. On Tuesday the stock closed below the $25 level again, but DID NOT pop right back above the level yesterday. Is it possible that this time CRZO is officially breaking down?

 

The Tale of the Tape: CRZO had been trading mostly between the $25 and $30 levels for a couple of months now. The stock recently closed below the $25 level for the 3rd time, thus leading traders to believe it is going lower. A rally up to $25 would be a great opportunity to enter a short trade, while a break back above $25 would be the time to enter a long position with the expectation of a run back to the $30 level.

 

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT