Schaeffer's Trading Floor Blog

Can Canadian Natural Resource Ltd (USA) (CNQ) Hurdle Overhead Resistance?

CNQ is testing overhead resistance at the $34 level

by 2/10/2014 2:55 PM
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It would be an understatement to say that call buyers have outnumbered put buyers in Canadian Natural Resource Ltd's (USA) (NYSE:CNQ) options pits in recent days. During the last week at the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), nearly 47,000 calls have been initiated versus just 50 puts, for a five-day call/put volume ratio of 939.42.

Taking a step back, the energy concern's 10-day ISE, CBOE, and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at a still-astronomical 757.36. Relative to the last 52 weeks, this reading sits in the bullishly skewed 95th percentile, meaning traders have rarely picked up calls over puts with the rapidity they've shown in recent weeks.

In a similar vein, CNQ's Schaeffer's put/call open interest ratio (SOIR) registers at 0.39, with call open interest among options expiring in three months or less outweighing put open interest by a roughly 5-to-2 margin. The SOIR is also lower than 72% of readings from the previous year, indicating short-term speculators have displayed an unusual penchant for calls (relative to puts).

Currently, however, peak call open interest resides at Canadian Natural Resource's further-dated, near-the-money September 34 strike, where approximately 50,500 contracts can be found. The majority of the calls here were bought to open, suggesting traders anticipate the shares -- docked at $33.84 -- will surmount $34 by September options expiration. This region has served as a layer of overhead resistance since July, and is being tested today, with the stock spending time on both sides of the fence (after closing the past two sessions above the strike).

Daily Chart of CNQ since June 2013 With 160-Day Moving Average

From a technical standpoint, Canadian Natural Resource Ltd (USA) (NYSE:CNQ) has underperformed the major market indexes over the long term, gaining just 13% on a year-over-year basis. However, during the last three months, the shares have outstripped the S&P 500 Index (SPX) by 10.2 percentage points, helped by a late-January bounce off of their 160-day moving average.

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