3SOF

Profile: American Oil & Gas, Inc (AEZ).. The Group's principal activity is to explore, develop and acquire crude oil and natural gas reserves and production in the United States. It continue to pursue oil and gas operations on its identified projects. These including the acquisition of additional acreage through leasing, farmout or option and participation in the drilling of oil and gas wells. Its operations are primarily in the western United States with current properties in Wyoming, Montana and North Dakota. Major customers of the Group are Eighty Eight Oil LLC and Enserco Energy, Inc.
Market cap: 194M$
Website: http://www.americanoilandgasinc.com

Trading Idea:

This is a speculative play, since AEZ is not profitable yet and will probably just achieve a positive EPS in 4Q2008. Although it has some interesting prospects, I'm not going into details but I've just read a CK Cooper & Cº research note that you can find here:



Analysts at CK Cooper have a price target of $6 for AEZ, they expect a $0.06 EPS for 2009, which is still conservative comparing to Reuters consensus estimates of $0.10 for the same period. Most estimates inside this consensus have not been updated, which makes me believe that new upgrades are probably coming.

Now about the technicals: AEZ recently breakout its downtrend layout, it had a few weeks of consolidation and yesterday it moved up over very strong volume. Current resistance level is @ $4.25, and I believe we have market conditions to break this level now (the sector is hot right now and increasing momentum).

I see technical upside potential to the $5.5 area, and downside just to $3.80, so I think we have a nice risk/reward ratio on this play.

Trading plan:
Buy AEZ today near the open

Hi Ramsburg,

This is my first post here and the reason i started writting right now is related to this opportunity.

In fact, although the TA shows an interesting moment, i think the fundamental may push the price up in the near term. The market momentum seems quite favorable and there is a possibility that the predictions may be a bit undervalued.

We shall see, but in the meantime, this one is in my watchlist for sure.

Thanks for the excellent tip.

Paff

Ramsburg, is that a little cup and handle on AEZ, starting in March?!

Quote from: Paff on June 03, 2008, 10:05:28 AM
Hi Ramsburg,

This is my first post here and the reason i started writting right now is related to this opportunity.

In fact, although the TA shows an interesting moment, i think the fundamental may push the price up in the near term. The market momentum seems quite favorable and there is a possibility that the predictions may be a bit undervalued.

We shall see, but in the meantime, this one is in my watchlist for sure.

Thanks for the excellent tip.

Paff

Hi Paff! nice to see another Portuguese trader around

As I said on the initial post, this is a speculative play, most of the trading idea is based on the sector's momentum and the current TA layout. I enjoy the fundamental prospects as well, but this will be only a short term trade.

Quote from: Se7en on June 03, 2008, 11:07:11 AM
Ramsburg, is that a little cup and handle on AEZ, starting in March?!

Hi Se7en,

Yes, we can consider the Cup with Handle pattern on AEZ, along with other technical inputs suggesting an inversion.
The main factors that I enjoy on AEZ from a technical point of view are:

- The initial breakout was made with volume, and yesterday's candle was made with VERY strong volume as well
- Possible Cup with Handle in Play
- Possible Bump & Run Reversal in Play
- Positive leaning for the 50-EMA
- The intermediate throwback after the initial breakout was a few ticks above the 50-EMA near the breakout level (this suggests that the 50-EMA will be working as a support level now).

Update:

Just a quick update: yesterday’s market action for AEZ was good, in fact very good, as the stock managed to breakout its $4.25 resistance even with terrible broad market conditions.

I’ve read a few more recent notes of research, but I don’t have time to publish now (will publish during the session). We’ll just be setting a stop level, not setting a limit exit order yet, but my thoughts are to sell it between $5 and $5.5.

Trading Plan:
HOLD AEZ with a stop @ 3.75

AEZ closed at $4.29 thanks to a last minute buy up from $4.14 

Update:

Here it is another research note, published a few weeks ago by Ladenburg Thalmann research department (2008-05-13). They have higher expectations for AEZ, with a price target of $8.50, see the complete note here:



AEZ is still fighting this $4.25 resistance level… it closed above that level once again, but was trading for most of the day below it. This is a normal reaction for setups like this, so we’ll keep the same plan:

Trading Plan:
HOLD AEZ with a stop @ 3.75

Update:

Our stop at $3.75 was almost hit last session during a big sell off on AEZ that dived the stock to an intraday low at $3.76.

While I'm not enjoying this market action for AEZ, I first have to admit that the stop was not placed on the right spot, in this case and in order to have the stop in a place where it would be technically significant, the stop should be slightly below the previous relative low ($3.72) and not at $3.75.
I'm updating the stop level to $3.69 (3 ticks below the previous low), this is a price where AEZ would be doing a lower low and invalidating the current bullish layout.

The new trading plan is:

Trading Plan:
HOLD AEZ with a stop @ $3.69

Update:

Since we added AEZ to the portfolio, the stock has been consolidating the recent breakout, not giving us yet the desired price action.
Soon after we bought it, AEZ reacted negatively on the 200-EMA, and bounced back to re-test the 50-EMA. I expect the stock to bounce back to test its resistance soon, following the current move on Natural Gas and related stocks.

We already have a tight stop just near the most recent low, so we'll keep the same plan for now:

Trading Plan:
HOLD AEZ with a stop @ $3.69

nice charting today 

AEZ: Jumps +3.57%; Vol +87%; Last 90 Min of Trading
Wednesday, June 18, 2008 16:21ET

During the last 90 minutes of today's session, shares of American Oil & Gas Inc (AMEX: AEZ) demonstrated a strong UPWARD close relative to its 13:30 ET statistics. "Strong Closers" are determined by proprietary Knobias calculations performed during the last segment of each trading day.

sym: AEZ       @13:30 ET        @CLOSE      % CHANGE
----------   -----------   -----------  ------------
PRICE              $4.20         $4.35        +3.57%
VOLUME           555,630     1,041,003       +87.36%
#TRADES            1,175         2,093       +78.13%
DAY-HI             $4.20         $4.37       LATE-HI
DAY-LO             $3.90         $3.90           N/A

TODAY'S RAiDAR HEADLINES for AEZ:

06/18/2008 14:20 AEZ: Volume Spike; 61% > 20-adsv, Stock +7.25% - knobias
06/18/2008 07:30 American Oil & Gas Updates Fetter Field Activity - prn

Update:

Interesting price development in AEZ, the stock broke out into new relative highs with the presence of strong and above average volume. Yesterday's session was the continuation of the technical signal given the day before, the stock opened with a big gap up, but during the trading hours it went down almost closing this gap.
AEZ is now above its 200-EMA, and during the last weeks it proved the 50-EMA to be a good support zone. I'm expecting the 4.25/4.50 range to be also a support for now.

Driving this action was the following story In Play:

Quote from Stanford Research (2008-06-19)

QuoteAEZ: Stock Price Recovering After Announcement
of Potential Oil Discovery
AEZ's stock price is up 4% today following a strong
performance yesterday when the company announced a
potential oil discovery in the Powder River Basin of
Wyoming.
• Logs from the 69.375%-interest Hageman 11/22 well
showed oil pay between 7,710 and 8,200 feet in the
Teapot and Parkman formations, which produce both oil
and gas in other parts of the PRB.
• AEZ will immediately participate in a twin to the 11/22,
which should provide further information on the two
prospective oil formations.
• Development of the Teapot and Parkman is estimated to
cost $2 million a well, with potential reserves of up to
100,000 barrels of oil equivalent per location.
• Prematurely, each successful well would be worth at
least $0.05 a share in net asset value, although the
number of development locations if any will remain
unclear for the immediate future.
• Also important, the Hageman 11-22 will be completed
beginning next month in four deeper target formations
down to the Mowry.
• All of these formations will be evaluated over the next
year through up to 12 locations, which are in the process
of being identified.
• In the Williston Basin, AEZ plans to participate in a
50%-interest Red River prospect from September.
• Likely of more interest are plans to refocus on Bakken
targets following further evaluation of what others have
found successful.
• That activity should turn to drilling by early 2009.

Investment Thesis
American Oil & Gas has extensive land holdings that contain locations for several hundred natural gas and oil well locations if historically complicated drilling operations can be overcome.

Valuation
At our price target of $10 a share, the stock would be discounting future natural gas equivalent reserves of about 155 billion cubic feet at $3 per equivalent MCF. Estimated gross reserves at Fetter averaged 2.0-3.3 BCF from three wells on December 31, including combinations of horizontal and vertical, and various formations. Assuming a 60% revenue interest and 3 BCF per well, AEZ would need 86 locations to accumulate 155 net BCF at Fetter where it would have 36,000 net acres if development proceeds. The spacing could be calculated at 419 acres a well. In that perspective, the $10 target appears reasonable allowing for inherent risk.

Risk(s)
Holdings of $17,250,000 of preferred stocks can not be fully redeemed. Otherwise, normal risk that accompanies development of technically difficult oil and gas properties.

We'll keep the same trading plan for now, but we'll soon upgrade our stop price and introduce a sell limit order.

Trading Plan:
HOLD AEZ with a stop @ $3.69

Update:

Quick update: AEZ filled the open gap. $4.25 should be a support.

We'll be upgrading our stop level soon and introduce a sell limit order, but not today, so the trading plan remains the same:

Trading Plan:
HOLD AEZ with a stop @ $3.69

AEZ stopped @ $3.69

Do you think folks our stop on AEZ was kind of stupid? We saw the stock hit $5 intraday and then wait for it to tumble to $3.69!!! This is an extremely large spread. The reason you buy stocks is to make money. The way you make money is when a stock goes up. If the stock changes the momentum while you're in profit, and goes steeply down, doesn't it defy the original plan, "to see the stock grow"? AEZ sets a particular example, it is very volatile, but it gave signals by showing, "I am sliding, sell me". Instead of a break even scenario, we lose 13%. Not that much, but all trades lately have been in the similar mode. Buy, hold, sell at 20% loss; buy, hold, sell at 25% loss. Since market is so volatile these days, can't we try to determine a bit earlier that a particular trade is turning sour, instead of waiting it to hit the low-low mark?

For example, GST is set sell if hits $1.8. That is ~30% below where it is now. Won't you be able to tell sooner that the trade isn't doing what it's supposed to? I'd rather buy and sell several time before seeing a stock bring in profit, than sit and wait for my 25% loss to come.

It's been pretty frustrating this year, since the loss has been the largest at 3SOF so far and I do not see a clear way of rectifying the situation. My capital is drying out and soon I will have to stop any activity at the market to simply preserve what's left.

Quote from: berloga on June 27, 2008, 10:07:17 AM
Do you think folks our stop on AEZ was kind of stupid? We saw the stock hit $5 intraday and then wait for it to tumble to $3.69!!! This is an extremely large spread. The reason you buy stocks is to make money. The way you make money is when a stock goes up. If the stock changes the momentum while you're in profit, and goes steeply down, doesn't it defy the original plan, "to see the stock grow"? AEZ sets a particular example, it is very volatile, but it gave signals by showing, "I am sliding, sell me". Instead of a break even scenario, we lose 13%. Not that much, but all trades lately have been in the similar mode. Buy, hold, sell at 20% loss; buy, hold, sell at 25% loss. Since market is so volatile these days, can't we try to determine a bit earlier that a particular trade is turning sour, instead of waiting it to hit the low-low mark?

For example, GST is set sell if hits $1.8. That is ~30% below where it is now. Won't you be able to tell sooner that the trade isn't doing what it's supposed to? I'd rather buy and sell several time before seeing a stock bring in profit, than sit and wait for my 25% loss to come.

It's been pretty frustrating this year, since the loss has been the largest at 3SOF so far and I do not see a clear way of rectifying the situation. My capital is drying out and soon I will have to stop any activity at the market to simply preserve what's left.

Hi Berloga,

I don't think it was stupid.
My thesis for AEZ was to explore a potential move above $5.5 (probably above $6 according to the scenario I was predicting).
With AEZ current volatility, changing the stop to our entry ($4.24 or something) level when the stock was testing $5 a week ago, was the same as quitting this trade and expect 80% chances of being stopped out at our entry price, that doesn't makes sense to me when I was expecting AEZ to go ahead (everything was suggesting that from a TA and FA approach along with the sector). A sell-off to the $3.85 area as a consolidation scenario was pretty possible not affecting the bullish layout.

The stop at $3.69 was the same of saying: «we don't want to keep this stock if it makes a new relative low against the upswing in play compromising the bullish layout». That's exactly what happened, discarding the technical layout we're exploring and only now I could say «Its sliding, sell it».

You are not the only one frustrated with current market development this year, in fact the market has been pretty wild and difficult to trade for most players. This is part of the game, it will happen again for sure, but personally I think it will change like it changed before. I've been trading the markets almost half of my life, since the beginning I only had 2 negative years in record, 2003 and 2008 so far, I know I will have more negative years in record, and I won't quit because any particular bad season.

Regards,