2 Oil Stocks With Gas in the Tank

PAA and CLR stocks could have room to run, after pullbacks to key trendlines

Jun 22, 2018 at 2:12 PM
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Oil prices are on the rise today, after the Organization of the Petroleum Exporting Countries (OPEC) said it will modestly boost crude production. Against this backdrop, energy stocks are leading the broad market rally, and two could have more gas in the tank, if recent history is any indicator: Plains All American Pipeline (NYSE:PAA) and Continental Resources, Inc. (NYSE:CLR).

PAA Stock Pops After Pullbacks to 80-Day

Plains All American Pipeline stock is up 1.1% to trade at $24.44 today. The security has been in a channel of higher highs and lows since touching a two-year low of $18.38 in late November, advancing roughly 33% in that time frame. What's more, the equity yesterday came within one standard deviation of its 80-day moving average, after a notable stretch above this trendline. In the past, this has been a bullish signal for PAA stock. The shares were higher one month later 88% of the time, and averaged a gain of 6.21% after the past eight signals, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

PAA stock chart June 22

Although PAA stock has added more than 18% in 2018, eight of 18 analysts maintain tepid "hold" ratings. Meanwhile, short interest still represents about a week's worth of pent-up buying demand, at the energy stock's average pace of trading. Should PAA extend its upward momentum on the charts, a round of analyst upgrades or more short covering could propel the shares even higher.

CLR Stock Eyes Best Day in Months

Continental Resources stock has rallied 5.9% to trade at $66.53, set for its biggest one-day percentage gain since March 21. CLR shares have more than doubled since their July 2017 lows south of $30, and notched a two-year peak of $69.91 in mid-May. After that, however, CLR stock took a breather, retreating to within one standard deviation of its own 80-day moving average -- also a historical "buy" signal. After the last seven times the oil stock came within one standard deviation of this trendline following a lengthy stretch above it, CLR was higher a month later 71% of the time, racking up an average gain of 4.55%.

CLR stock chart June 22

As with PAA, not everyone has boarded CLR's bullish bandwagon, even though the security has been on fire. Nine analysts still offer lukewarm "hold" recommendations, leaving the door wide open for potential upgrades. Furthermore, short interest represents nearly 14% of the stock's total available float, or more than six days' worth of pent-up buying demand. A short squeeze could also be a tailwind for CLR.

In addition, options traders were picking up Continental Resources puts over calls at a rapid-fire rate ahead of today's OPEC meeting. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 3.11 is in the 95th percentile of its annual range. An exodus of options bears could be an additional boon for CLR.


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