History Says This Energy Stock Looks Cheap

LNG stock could be on sale after pulling back to a key trendline

Oct 25, 2018 at 10:30 AM
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Energy stocks have taken a hit in recent weeks, as oil prices drop on oversupply fears. However, the shares of Cheniere Energy, Inc. (NYSE:LNG) could be cheap at current levels, if recent history is any indicator. The stock has pulled back to a key trendline -- a technical signal that's had very bullish implications in the past.

LNG stock is within one standard deviation of its 200-day moving average, after a lengthy stretch north of the trendline. In the past three years, there have been four of these signals, after which Cheniere shares were higher 75% of the time one month later, and up an average of 6%, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

From a longer-term perspective, the security has been in a channel of higher highs and lows since mid-2017, and peaked at $71.03 earlier this month, before the broader stock market sell-off. At last check, oversold LNG was up 3.7% to trade at $60.47. Another 6% rebound from current levels would place the equity around $64.09.

LNG stock chart oct 25

Most analysts are already in the bullish corner for LNG, with nine of 10 offering up "buy" or better ratings. However, recent option buyers have been upping the bearish ante. While speculators preferred LNG calls over puts on an absolute basis during the past two weeks, put buying has ramped up. The stock's 10-day put/call volume ratio of 0.40 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is higher than two-thirds of all other readings from the past year.

In the same vein, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.88 is higher than 87% of all other readings from the past year. This indicates that short-term options traders have rarely been more put-heavy in the past 12 months. Should Cheniere stock once again rebound, an exodus of option bears could add fuel to the commodities stock's fire.

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