Oil hit a fresh two-year high this past trading week, reaching upwards of $88 a barrel.
One way to profit from the current "black gold rush" is to find growing oil companies that also pay attractive dividends.
Marine Petroleum Trust (Nasdaq: MARPS ) is one of these gems.
As a royalty trust, the company receives revenue from its interests in oil and gas wells and is legally required to distribute at least 90% of its distributable income (revenue less expenses) to shareholders as distributions. Income and distributions vary mainly based on changes in oil and natural gas prices and production volume.
Technically, MARPS is sky rocketing. The stock is in a steep accelerated uptrend and recently bullishly broke a multi-year basing pattern.
The base began forming in February 2009 as the stock formed a downtrend line, falling from a high near $21 to a low of $12.71 by November 2009.
Quickly rising off this low, the stock broke the downtrend line in late 2009 and began forming a Major uptrend line.
Moving to a high of $17.81 by February 2010, MARPS encountered resistance at this level. The stock fell once again to support marked by the rising uptrend line, which was close to $14.
Forming a double-bottom near $14.24 -- between May and July 2010 -- a smaller basing pattern (labelled #2) was etched within the larger basing formation (labelled #1).
Surging off this double-bottom, MARPS blasted through $17.81 resistance in early October 2010, forming an accelerated uptrend line. Then after bullishly completing the larger basing pattern this November, the stock soared through major resistance near $21 and is continuing to trend higher.
A small shelf of resistance has formed at the stock's recent high of $23.88. However, for about the past three months, MARPS has been riding its upper Bollinger band higher. If the stock can decisively pierce its upper Bollinger band, it is not likely to encounter new significant resistance until $34.29 -- a multi-year peak hit in October 2008.
In September of this year, the rising 10-week moving average bullishly crossed above the rising 30- and 40-week moving averages. The 10-week moving average mirrors the steep accelerated uptrend line.
The indicators are bullish. In mid-August, MACD gave a significant buy signal near the zero level. The MACD histogram is building in positive territory.
Relative strength index (RSI) has been in a major uptrend since 2009. At 74, it has has become overbought. However, strong stocks can become and stay overbought for long periods.
Stochastics and Williams %R, although overbought, are on buy signals.
Fundamentally, MARPS looks strong.
During the first-quarter of fiscal 2011 (for the period ending September 30th), distributable income increased +21.8% due to higher prices realized for oil and natural gas.
As a result, distributions to unit holders increased +48% to $0.37 from $0.25 in the comparable year-ago quarter. The trust may also be on track to provide higher distributions in upcoming quarters.
Action to Take--> Given that MARPS looks technically strong, and has increased distributions, I plan to go long on the royalty trust by entering a long position if the stock successfully breaks the small shelf of resistance at $23.88.
I will, therefore, place a buy-on-stop order at $23.97. This means if MARPS does not hit or go above $23.97, I will not enter the position.
My stop-loss is $20.25, below support marked by the completion of the base pattern and the 10-week moving average. My target is $34.27, near the 20-year high hit in October 2008.
The risk/reward ratio is: 2.77:1. Note: MARPS tends to trade with thin volume, so if you are planning to take a large position, it would be wise to scale into the stock.
Dr. Melvin Pasternak is one of the most experienced market technicians in the nation and Chief Trading Expert behind Double-Digit Trading. With more than 25 years experience... Read more.
Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC hold positions in any securities mentioned in this article.
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