Schaeffer's Trading Floor Blog

ConocoPhillips (COP) Bulls Undeterred by Recent Pullback

COP is on a collision course with its descending 40-day moving average

by 2/25/2014 1:04 PM
Stocks quoted in this article:

Bullish traders have taken a liking to ConocoPhillips (NYSE:COP) in recent sessions. At the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), the energy concern has racked up a five-day call/put volume ratio of 16.59, meaning nearly 17 calls have been bought to open for each put during the last week.

Taking a step back to include two weeks' worth of data -- and adding information from the NASDAQ OMX PHLX (PHLX) -- yields a similarly call-skewed figure. Specifically, the stock's 10-day ISE/CBOE/PHLX call/put volume ratio sits at 8.34 -- good enough to register in the 95th percentile of its annual range. In other words, speculators have rarely scooped up COP calls over puts at such a rapid rate within the last 12 months.

On a similar note, ConocoPhillips' Schaeffer's put/call open interest ratio (SOIR) sits at 0.60, which indicates call open interest outweighs put open interest (among options with a shelf-life of three months or less) by a 5-to-3 margin. Compared to the previous year, the company's SOIR has been lower just 6% of the time, conveying a pronounced bias toward short-term calls over puts.

Getting more specific, speculators are flocking to COP's March 70 strike, which is home to peak front-month call open interest. The majority of the 17,903 contracts residing here were bought to open, suggesting option bulls anticipate the shares -- currently docked at $66.74 -- will muscle north of $70 by the close on Friday, March 21, when the options expire.

Meanwhile, on the charts, the equity has advanced over 17% on a year-over-year basis. Since hitting a record high of $74.59 in late October, however, the shares have shed 10.5%, and have underperformed the broader S&P 500 Index (SPX) by 11.1 percentage points during the last three months. If that's not enough, COP could soon encounter a layer of overhead resistance in the form of its descending 40-day moving average.

Daily Chart of COP since July 2013 With 40-Day Moving Average

From a contrarian perspective, the current set-up looks precarious for ConocoPhillips (NYSE:COP). Should the stock's recent technical troubles continue, it could prompt the option bulls to hit the exits, further intensifying the selling pressure.


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