Oil prices are lower today after Hurricane Florence was downgraded to a Category 2 storm
The shares of Carrizo Oil & Gas Inc (NASDAQ:CRZO) have been rallying up the charts in recent sessions, as oil prices surged ahead of Hurricane Florence's assault on the U.S. East Coast. However, news that the massive storm has been downgraded to a Category 2 has crude futures reversing course -- and CRZO stock down 1.5% at $23.85, retreating from a key trendline. If history is any guide, the oil name could be headed even lower.
Specifically, from last Friday's close at $22.94 to yesterday's intraday high of $24.70, CRZO stock surged 7.8%. What's more, this brought the shares within one standard deviation of their 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been six other times in the last three years the equity has rallied so close to this trendline after a lengthy stretch below it -- resulting in an average one-month loss of 4.46%, with 67% of those returns negative.
Supporting the short-term bearish case is the fact that CRZO's 40-day trendline currently corresponds to the quarter-century mark, which has contained the stock since an early August bear gap. What's more, this region is near the site of the equity's +20% year-to-date return.
The stock could see additional pressure, should shorts start ramping up their exposure again. Since hitting a near-term peak in early June, short interest has been cut in half to 8.92 million shares. Plus, the energy shares have been unable to capitalize on this steady buying power -- down 4.2% over this time frame -- pointing to underlying weakness.
There's plenty of room for downgrades to spark more selling, too. Of the 15 analysts covering Carrizo Oil & Gas, 11 maintain a "buy" or better rating, with not a single "sell" on the books. Additionally, the average 12-month price target of $33.46 stands at a hefty 40.3% premium to current trading levels.