Oil Stock's Buy Signal Has Never Been Wrong

Marathon Oil shares have pulled back to a key trendline

Oct 19, 2018 at 11:01 AM
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Energy stocks have taken a hit this week, as crude oil prices dropped on oversupply concerns. However, it could be time to buy the dip on one oil stock: Marathon Oil Corporation (NYSE:MRO). The shares have pulled back to a key trendline, which has had very bullish implications for MRO in the past.

Marathon Oil stock has been in a channel of higher highs and lows since August 2017. More recently, the equity notched a three-year high of $24.20 on Oct. 3, before dropping back to the $20 level, which has provided a round-number floor for MRO since May. What's more, the stock is now within one standard deviation of its 160-day moving average, after a lengthy stretch above this trendline.

During the past three years, there have been seven pullbacks of this kind for MRO, per data from Schaeffer's Senior Quantitative Analyst Rocky White. One month later, the security was higher 100% of the time, averaging a healthy gain of 9.65%. From. MRO's current perch of $20.91, a similar pop would put the oil stock around $22.93

MRO stock chart oct 18

While Marathon Oil call buying has been more prevalent than put buying on an absolute basis during the past two weeks, option bears have been much more visible than usual. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), MRO's 10-day put/call volume ratio of 0.62 is in the 85th percentile of its annual range. This indicates a healthier-than-usual appetite for bearish over bullish bets lately. An unwinding of pessimism in the options pits could help propel MRO back toward new highs, should the stock and/or oil prices rebound once again.

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