Buy the Dip on This Oil Stock

A short squeeze could be beneficial for the natural gas concern

Managing Editor
Jul 16, 2018 at 11:32 AM
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After topping out near its early January highs last week, Range Resources Corp. (NYSE:RRC) sold off with oil prices. The energy stock is down another 1.3% today to trade at $16.18, but this recent pullback could be a prime buying opportunity, if history is any guide.

Looking closer at the charts, RRC has picked up almost 36% since its 13-year low of $11.93 on Feb. 9. Since peaking at $17.83 last Tuesday -- just below its year-to-date breakeven mark -- RRC has pulled back to the 40-day moving average, which currently coincides with a 50% Fibonacci retracement of its sell-off from October through February, and has acted as a line of support since early May.

According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been three other times over the last three years where RRC has pulled back to within one standard deviation of this trendline after trading above it for a significant length of time. Following these three prior signals, the stock went on to gain 13.77% over the next month, with a 100% success rate.

Daily Chart of RRC with 40MA and Fib Levels

A continued round of short covering could also provide more fuel for an RRC rally. Short interest fell 18% during the past two reporting periods, yet the 39.08 million shares sold short still represent 16% of the stock's total available float -- or nearly six days' worth of pent-up buying demand, at Range Resources stock's average price of trading.

Traders looking to speculate on the equity's short-term price action may want to do so via call options, which are attractively priced at the moment, from a volatility perspective. RRC sports a Schaeffer's Volatility Index (SVI) of 43%, which ranks in the 23rd annual percentile. This low ranking indicates that front-month options have rarely priced in lower volatility expectations in the past year.

 

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