Yesterday, after a long and uncharacteristic stalemate between Saudi Arabia and the United Arab Emirates, two of the only countries who rarely disagree on matters of oil, the countries finally announced a compromise that analysts presume will unlock an OPEC+ deal to boost oil supply.
Oil prices hit record highs because of a pandemic-caused supply shortage. This news coupled with a lower than expected demand in US gasoline last week has caused the WTI and Brent benchmarks to slide.
While this is certainly a short-term hit to investors in the sector, the overall market is still up nearly 100% from last year, so the sky is not falling in any way. If anything, it provides an opportunity for new investors who missed the initial run to find value in the dip.
One company worth exploring (pun intended) is Allied Energy Corporation (OTCMKTS:AGYP), a Texas-based exploration company focused on reworking proven wells. The company was up as high as 10,287% over the past year, from $0.008 to $0.83, and closed yesterday at $0.682. Unlike many penny stocks that make similar moves, there is a lot of indication that this momentum can continue in the long term.
From a technical standpoint, the stock’s move did not happen overnight as you see with over-hyped momentum plays. The company’s initial move from $0.0093 to $0.62 happened over the course of two months between the end of November and culminating in a February 8th peak.
AGYP gave back over half of its gains between the February high and their year-to-date low of $0.21 on June 21st coincidentally.
AGYP then differentiated itself from just a ‘flash-in-the-pan’ penny stock to a ‘maybe there’s something here’ kind of company when it rallied all the way to a new high last week of $0.83.
The company is now consolidating strength in its current channel pulling back yesterday close to its 23.2% retracement level at 62 cents. This coincides perfectly with the broader oil market’s recent consolidation and could be prime for another bullish move in the coming weeks or even days.
Why AGYP’s Bullish Momentum Could Continue
AGYP has experienced a large amount of short selling over the past 12 months according to Finra, and this is part of the reason the stock has been able to make such tremendous gains.
While short-sellers are vilified, the fact is they are a necessary evil in a healthy market; otherwise, they wouldn’t exist. Market makers don’t generally keep inventory of thinly traded OTC companies and when these companies receive an influx of buying, Market Makers sell new investors borrowed shares which they eventually need to cover. If the buying pressure continues, market makers are forced to cover and the price action increases exponentially.
Market makers aren’t in the business of losing money, so at this point they either increase their inventory or sell short again once they feel the buying pressure slow down. With many penny stocks after their first spike it is almost always the latter.
Due to their ability to short “Naked” (which was a major hang-up for the Reddit group that moved GameStop, AMC and several other securities earlier this year), as well as the natural profit taking from short term investors who can book massive gains, the price falls.
Buyers who caught the run late get stopped out, and the dip ensues.
Here’s where “support” comes in and the dance of “will it or won’t it” begins.
The stock now has an audience and sits on watchlists across the world. Many of the people watching are technical traders because that’s who predominantly provides liquidity to micro-cap companies. These traders are looking for signs of support at key price ranges; in AGYP’s case, it was the 61.2% Fibonacci Retracement.
If this support comes in, accumulation begins, and that’s when Market Makers and other shorts start to cover their positions.
Short sellers depending on their view of the market will either pounce and drive the stock down or begin to acquire inventory so they don’t get caught with their ‘pants down’, so to speak. Generally, it is a mix of the two. That has a lot to do with what’s going on with the company fundamentally.
AGYP’s Differentiating Factor
Allied Energy Corporation’s spring ‘fall’ coincided with a somewhat quiet period for the company. Right before hitting “support” the company made a major announcement updating investors on work at their Green and Gilmer leases This announcement coupled with its position on the chart is a big reason why the stock found said support and so “the dance” began.
Substance or Fluff
AGYP followed up the announcement of: “getting back to work after heavy rains caused a delay,” with timely tweets and press releases showing rigs and other work being done at the site. This gave new investors and traders the confidence to back the company and most likely made some market makers think twice about getting caught short again.
The price shot up to its recent high and peaked with more short selling and profit-taking based on sliding oil prices as mentioned at the top of this article.
In AGYP’s latest press release the company’s CEO stated they are “incentivized to bring wells online and producing this month,” and that their Green Lease, the M1 Well is currently ready to begin production. They tweeted footage of a pumpjack being installed and this should lead to them having a good idea of barrels per day flow rate.
This could mean two big catalytic announcements for the company in the near future, which is why the current stall in price may not result in the kind of dip AGYP experienced in the fall. It is likely less market makers will hold it down, and less profit taking will occur.
News about an oil explorer in Texas producing oil will certainly draw a crowd, so the market makers and shorts will have to cover and as less shares are available this will become harder if the company does not dilute which there is currently no indication of. If the company is producing oil it will be deriving revenue from their projects, giving less reason for dilution in the near future.
These are all educated guesses of course as most speculation on the stock market is, but you can see why AGYP is a good company for oil investors looking at opportunities for accumulation during this dip in oil prices should put Allied Energy Corporation on their watchlist.