Oil Stock Bulls Need to Keep an Eye On

A short squeeze could work in the stock's favor

Jun 15, 2022 at 11:59 AM
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This commentary first appeared on Forbes Great Speculations, where Schaeffer's Investment Research is a regular contributor.

Oil concern Diamondback Energy (FANG) has been swept up in the sector surge, adding over 25% in the past month, and more than 117% in the past nine months. The equity today hit a record high of $162.24, and according to a study from Schaeffer’s Senior Quantitative Analyst Rocky White, even more fresh peaks could be on the way.

Per White’s study, these highs come amid historically low implied volatility (IV). The security sports a Schaeffer’s Volatility Index (SVI) of 46%, which sits in the 5th percentile of its 12-month range. There have been five other peaks in the past five years where Diamondback was trading within 2% of a 52-week high, while its SVI sat in the 20th annual percentile or lower.

fang june 15

One month after 80% of these signals, FANG was higher, averaging a 5.9% return in that time period. A similar move would mean even more highs for the security, putting it just shy of the $172 mark.

Despite this recent surge, short interest has also been on the rise, up 10.3% in the last reporting period. It would take nearly three days to buy back these bearish bets, at FANG’s average daily pace of trading.

Analysts, on the other hand, are eyeing even more upside for FANG. The stock’s 12-month consensus price target of $180.07 is a 12.4 % premium to current levels. Plus, all but one of the 14 firms in coverage call the equity a “strong buy.”

 

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