Oil Stock Buy Signal Has Never Been Wrong

OAS hit an annual high yesterday

Oct 2, 2018 at 2:12 PM
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Oil prices have been surging lately, with U.S. crude futures notching a nearly four-year-high close north of $75 per barrel yesterday. The energy sector has been enjoying tailwinds, too, with shares of Texas-based Oasis Petroleum Inc. (NYSE:OAS) fresh off an annual high. Plus, the oil stock just flashed a reliable buy signal, suggesting its quest for new highs may be far from over.

OAS stock closed yesterday at $14.27, within 2% of its new 52-week high of $14.57, tagged in intraday action. At the same time, the security's Schaeffer's Volatility Index (SVI), which measures front-month implied volatilities, settled at 41% -- putting it in the 10th percentile of its annual range, suggesting low volatility expectations are being priced into short-term options.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, there have been two other times OAS has been trading this close to a new high while its SVI was ranked in the lower 20% of its 12-month range. Following these prior signals, the oil stock averaged a one-month gain of 14.74%, with both returns positive.

Based on the equity's current perch at $14.17, another move of this magnitude would put OAS near $16.22 by Halloween. The shares have not explored the north side of $16 since January 2017, but have added 68.2% since the start of the year. More recently, the stock has found a steady floor near $12 -- home to its pre-bull gap highs from May -- and broke out above short-term resistance at $13.80 late last month.

oas sock daily chart on oct 2

Plus, there's plenty of skepticism priced into Oasis Petroleum stock, which could push it even higher on a potential unwind. For starters, more than 43 million OAS shares are sold short, representing 18.2% of the stock's available float, or 6.8 times the average daily pace of trading.

Elsewhere, half of the 20 analysts covering the energy stock maintain a "hold" or "strong sell" rating. A round of upgrades could draw more buyers to the table.

 

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