Wall Street wisdom tells us not to try to catch a falling knife. Stocks in strong downtrends are more likely to keep falling than suddenly turn around. However, unless a stock is heading to zero, it will eventually find its footing. 

#-ad_banner-#That time seems to be at hand for international oil giant BP plc (NYSE: BP).

There is no doubt that my fascination with this stock stems from everyone’s natural tendency to want to jump on an apparent bargain. After trading above $53 in the middle of last year, BP dipped below $35 in December before bouncing a bit. That’s a 35% decline in less than six months. 

The next thing that piques my interest is its beefy dividend yield of 6.4%. In a market where 10 years of waiting gets you a whopping 1.8% in Treasury notes, the hunt for income is a popular pastime. 

But again, just because a stock is low in price does not mean it cannot go even lower, and that would eat up the dividend rather quickly. However, in BP’s case, the technicals suggest a relatively low risk-to-reward setup is now in place.  

For starters, downside momentum is waning. While the January low in price was close to the December low, indicators such as the Relative Strength Index (RSI) sport higher lows. This negative divergence shows sellers are getting exhausted.

The December and January price lows were both part of separate bullish reversal bars. During the weeks when each was formed, prices set new lows relative to recent action and then closed significantly higher for that week. This also prevented a major long-term support break below a price floor that held the stock up in 2009, 2011 and 2012.  

Finally, I believe oil is going to be the sleeper market of 2015. Although it made some noise last week, that small bounce is not what it important. Rather, this market is significantly more oversold now, when viewed on weekly charts, than it was in 2008 after an even larger decline from all-time highs. 

On the fundamental side, a glut in oil supplies and weak demand from floundering economies suggests no reason for a rebound in crude prices. That is driving sentiment to bearish extremes, which in the perverse world of the markets, is a bullish signal. 

Theoretically, everyone who wants to sell has already done so, and that leaves a void in supply. Any uptick in demand could light a fire under the energy market and oil stocks such as BP. 

The risk is that the trend, even with all the positive signs, is still officially to the downside. A new low under December and January lows confirms that it will take more than a big dividend and a few short-term reversal signals to turn this ship around. 

The risk is that the trend, even with all the positive signs, is still officially to the downside. A new low under the December and January lows near $34.90 would tell us that it will take more than a big dividend and a few short-term reversal signals to turn this ship around. 

But if I am right and BP does break out to the upside, there is a lot of ground to make up from last year. I am not saying the stock will make a full recovery, but even halfway, taking shares just back to their 200-day moving average, would yield a nice profit. Even if the stock stays put, we can collect a nice dividend yield while we wait.

Recommended Trade Setup:

— Buy BP at the market price
— Set stop-loss at $34.50
— Set initial price target at $44 for a potential 17% gain in six months, plus dividends

There’s one more way you can benefit from a stock like BP that will bring in additional monthly income and help protect you from any further declines. Not all investors know this, but there is a strategy that lets traders “rent” out shares of companies they own in return for cold, hard cash. Some are even making $1,200 or more each month. To learn more about this simple strategy, follow this link.

This article originally appeared on ProfitableTrading.com : Why I Can’t Resist This Severely Beaten-Down Dividend Stock​