Steer Clear From This Struggling Oil Stock

NFX stock historically underperforms after a Fed rate hike

Managing Editor
Jun 11, 2018 at 12:10 PM
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Energy stocks have been in focus as the Organization of the Petroleum Exporting Countries (OPEC) meeting approaches, scheduled for June 22. As oil-and-gas concern Oasis Petroleum (OAS) struggles today, sector peer Newfield Exploration Co. (NYSE:NFX) is throwing up a bearish signal ahead of this week's Fed meeting.

The Fed is widely expected to announce a rate hike on Wednesday, and per analysis from Schaeffer's Senior Quantitative Analyst Rocky White, NFX has been one of the worst S&P 500 stocks to own after a rate hike, going back to 2015. Newfield Exploration stock has dropped an average of 3.7% the week after Fed rate hikes -- among the steepest pullbacks on our list. The equity was higher one week later just 17% of the time.

Looking at the charts, NFX stock has seen recent breakout attempts stymied at the $30.50 level, home to a 61.8% Fibonacci retracement from its January high to early March lows. At last check, the security was up 1.8% to trade at $29.67, but still remains below its year-to-date breakeven level. 

Fib Levels NFX

Downgrades and/or price-target cuts could pressure the energy name even lower. Of the 23 brokerages covering NFX, almost two-thirds rate it a "strong buy," with not a single single "sell" on the books. In addition, its consensus 12-month price target of $37.58 is a 27% premium to the stock's current perch.

The attitude is tremendously bullish in the options pits too, despite low absolute volumes. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculative players have bought to open 602 calls in the last 10 sessions, compared to just two puts. The resultant call/put volume ratio ranks in the 100th percentile of its annual range. Should NFX continue struggling, it could lead to an unwinding of these bullish bets.

Traders looking to speculate on the equity's short-term price action may want to do so with options, which are attractively priced at the moment. NFX currently sports a Schaeffer's Volatility Index (SVI) of 38%, which ranks in the 20th percentile of its annual range. This suggests that near-term options are pricing in relatively low volatility expectations at the moment, which could help maximize the benefit of leverage for premium buyers. Lastly, the Schaeffer's Volatility Scorecard (SVS) currently sits at an 88 out of 100. This lofty ranking suggests that NFX has handily exceeded options traders' volatility expectations during the past 12 months.


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