Spoiled by Oil? Houston American Energy Investors Should Be Careful
Texas-headquartered Houston American Energy Corp. (NYSEAMERICAN:HUSA) was incorporated in April of 2001, "with the purpose of engaging in oil and gas exploration and production." Consequently, HUSA stock provides pure-play exposure to the boom and bust cycles of petroleum and natural gas.
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Clearly, the energy market has been in a boom cycle lately. Due to a number of factors, including dollar inflation and the Russian invasion on Ukraine, the West Texas Intermediate (WTI) oil price and other related commodity prices have skyrocketed.
The temptation to jump into the trade today with HUSA stock is undeniable. Yet, it is essential for informed investors to conduct their due diligence before hitting that "buy" button.
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As they say, what goes up must come down. With such strong oil-price dependence, Houston American Energy shares could continue on their upward trajectory — or, they could make a round trip back to Penny Stock Land.
A Closer Look at HUSA Stock
Informally, we might define a penny stock as a stock that represents a small company and trades for less than $5 per share. With that in mind, $5 becomes an important technical level to watch. It was relevant until recently, though, since HUSA traded between $1 and $2 for many consecutive months.
Then, the conflict in Ukraine erupted. Suddenly, the Houston American Energy share price zoomed to $16.61 on Mar. 8, 2022. However, a 10x price move isn't easy to sustain, and soon gravity took over.
The stock closed at $6.95 on Mar. 8, after opening at $15.91 and peaking at $16.61. That is a shocking 56% decline from open to close in one day.
So, the $5 level is important again, but not in a good way. Breaking below that level — or worse yet, returning to the previous $1 to $2 range — would be a crushing blow to Houston American Energy's loyal shareholders.
Let's Not Kid Ourselves
This begs the question: why would HUSA stock collapse 56% in a single trading session?
If you try to find significant company-specific news on that day, you'll likely come up empty-handed. What you might notice, though, is that a number of similar small-energy company stocks took a haircut on the same day.
That is not just a coincidence. As the U.S. and European governments seek to phase out Russian energy imports, financial market traders are speculating that these countries may increase their domestic oil production.