Bull Signal Says Buy Oil Giant Ahead of OPEC+ Meeting

Running alongside CHK’s ascending channel’s floor is its 50-day moving average

Managing Editor
Jun 4, 2024 at 4:32 PM
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Subscribers to Chart of the Week received this commentary on Sunday, June 2.

Since we last checked in with the stock in September, Chesapeake Energy Corp (NASDAQ:CHK) has been busy. Back in January, the energy giant revealed a $7.4 billion all-stock deal to combine with Southwestern Energy (SWN). The merger created one of the largest natural gas producers in the nation -- and follows in the footsteps of oil and gas leaders Exxon Mobil (XOM) and Chevron’s (CVX) own recent billion-dollar mergers.

Since then, Chesapeake Energy stock has been ascending in a channel of higher highs, that culminated with a fresh annual peak of $93.58 on April 30. The shares have since consolidated and traded sideways, even after announcing layoffs of 80 workers in its Oklahoma City location to sharpen focus and efficiency boosting. Those sort of workforce reductions often translate to a short-term bounce, and a lack of distinct upward movement from CHK underscores how the equity may have run out of steam.

The drawdown – although minimal in the long term – comes at an interesting time, with all eyes on the Organization of the Petroleum Exporting Countries and their allies’ (OPEC+) highly-anticipated conference on June 2. The meeting could trigger unrest in the sector if the group fails to extend voluntary output cuts by several months.

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Running alongside CHK’s ascending channel’s floor is its 50-day moving average, of which the stock has come within one standard deviation of. Per Schaeffer’s Senior Quantitative Analyst Rocky White, this tends to be a historically bullish signal for the energy stock. CHK has spent a significant period of time above the 50-day, defined for this study as having traded north of this trendline 80% of the time in the past two months, and in eight of the past 10 trading days.

Per White, seven similar signals occurred during the past three years, with CHK averaging a 5% one-month gain, finishing positive 86% of the time. A move of this magnitude from the equity’s current perch of $90.65, would put the shares at $95.18 -- a fresh annual high.

Chesapeake Energy stock looks ripe for a short squeeze, which could catch bears off guard, as bearish bets have increased by 11.8% in the most recent reporting period, and the 17.74 million shares sold short now accounts for a hefty 14.2% of the stock’s total available float. At the security’s average pace of trading, it would take shorts 10 trading days – two full weeks! – for shorts to buy back their bearish bets, an ample amount of buying power that could snap CHK out of its recent slump. Even better, options are looking affordable, per the stock’s Schaeffer’s Volatility Index (SVI) of 19%, which ranks in the low 23rd annual percentile, suggesting options traders are pricing in low volatility expectations at the moment.

Keeping a close eye on the June 2, OPEC+ meeting remains an overhang in the coming weeks for energy bettors. However, with options affordable and a bull signal flashing, now could be the perfect time for bulls to move in on Chesapeake Energy shares.

 

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