Oil Train Always Leaves with Fewest Passengers

Steve Kanaval |

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A great Small Cap stock to review from the Oil Patch is regional player Midstates Petroleum ($MPO), which is +60% today. The company was left for dead last week after missing earnings, and down 85% for the year as we closed out trading last week. It seems every holder had finally moved out of the stock, as volume exploded, analysts downgraded and there was nary a buyer in sight - until this morning.

In trader world, we called it the final clean-up piece, when the seller finished and the pressure was gone from a beaten down stock. These clean up pieces were always hard to find, and you had to have enough finesse to stay around if you wanted to own shares. 

Today, it is clear that MPO turned over the entire float after the earnings miss, and would get a recovery bounce on the macro news. These shares bounced off the $2 lows and approached $4 today, but this is a lesson in oversold conditions, and creates a visual that I never forget when thinking about stock trading - the train always leaves with the fewest passengers on board. It is a great axiom that speaks to the resolve one must have to fade the trend and stand alone. If you are right, you get paid, and if you bought MPO Friday into the selling barrage and held today, you definitely got paid.



MPO is about as representative of the American Oil patch as you can imagine, and is a great Small Cap stock to watch. Shares were valued at under $300M before today's rally. It’s best to keep in mind that this stock was worth $1B at the start of 2015 and has had a harrowing decline, which culminated last Friday. These beat up oil stocks were hidden gems that no one wanted to look at any longer, and if I were an analyst in the sector (who bandwagon downgraded it), I would be hiding under my desk.

Time to Buy a Ticket on the Lonely Train?

 Midstates Petroleum engages in the exploration, development, and production of oil, natural gas liquids, and natural gas in the United States. It primarily focuses on oil fields in the Mississippian Lime trend in northwestern Oklahoma, the Anadarko Basin in Texas and Oklahoma, and the Upper Gulf Coast Tertiary trend in central Louisiana. The company was founded in 1993, and is headquartered in Tulsa, Oklahoma.

So the question for Midstates will be how they execute during this quarter, and now we know many funds exited that had been long-term holders post earnings miss, and a fresh set of new shareholders will test the waters. The macro world of global oil demand effects all stocks, and this stock is one to watch if you want to get into the heart of the American oil flow. The question is: Is this the bottom for Small Cap oil or just a dead cat bounce? If you think it's the bottom, it's time to jump aboard the train as a lonely passenger.

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Companies

Symbol Name Price Change % Volume
MPO Midstates Petroleum Co Inc 18.43 -0.12 -0.65 24,936

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