PWE Growth & Income Trade Update

I received an inquiry as to my thoughts on the sizable gap down on the PWE (Penn West Energy) last week and my reply is pasted below, along with the updated daily & weekly charts:

I was planning to post an update on PWE last week but never got a chance to before I left town. Personally I still own PWE across several accounts although I was very disappointed on that gap and would not view it as a buying opp, as that big gap down certainly did some technical damage to the stock. I had listed (and personal have) various entry criteria on the stock as well as multiple price targets so I can’t really list a blanket, “one-stop-fits-all” suggested stop on PWE. Despite the big drop last week, PWE is still well within my normal minimum R/R of 3:1 based on the final target (T3 at 16.60) even for those who only took the second entry which was a break above the weekly downtrend line (around 9.40 on June 2nd). For those that took the original entry of 8.50 back on March 21st (or partial lots on both entries), they are still within a much better R/R as the stock only dropped exactly 1 point from that level (compared to an upside of over 8 points from the entry to the final target). Even those targeting the only first target at 12.30 are still well within 3:1 R/R. With PWE categorized as a Growth & Income Trade (a sub-category of the Long-Term Trade Ideas), keep in mind that I’m only referring to the unadjusted entry prices. Since the original entry at 8.50, PWE has paid out just over 25 cents in dividends, effectively reducing the cost basis to 8.00, thereby providing even better R/R’s than the unadjusted numbers that I used in the quick math above.

With all that being said, I do not view the recent drop as a buying opp, at least not at this point although the stock still has a lot of potential to hit those weekly price targets as long as it holds up from here. Of course there’s also the fundamental issues (financial restatements, etc..) that caused the large drop in PWE. Last week we had two reaction lows at 7.50 (exactly a point below the original entry) so that is an important support level to watch IMO. With the stock still hovering precariously close to that level (7.59 as I type), I wouldn’t be surprised to see a quick flush-out move below 7.50 to run a few stops before the stock begins moving higher. As such, my plan to is to pull the plug on PWE should it trade much below (10 cents +/-) the 7.50 level and although I placed a hard stop in one account, my preference is to use manual stops for most of my shares as I’d prefer to use an end of day close below the 7.40ish level vs. an intraday move below that level.