Energy Duo That's Ripe to Rally

08/10/2018 5:00 am EST


Andrea Kramer

Associate Editor, Schaeffer's Investment Research, Inc.

Oil prices are on pace for a fifth straight weekly loss. However, two energy stocks could be ready to rally, if history is any indicator: W&T Offshore, Inc. (WTI) and WPX Energy Inc. (WPX), suggests technical expert Andrea Kramer, analyst with Schaeffer's Investment Research.

Both W&T Offshore and WPX Energy recently pulled back to key levels on the charts, suggesting it may be time to buy the dip.

W&T stock has nearly quadrupled in value over the past year, rallying more than 278% since trading in the low single digits. The equity tapped a three-year high of $9.12 on July 23, but subsequently took a breather. WTI shares recently traded at $7.18, as traders continue to applaud the company's stronger-than-expected quarterly earnings, which were recently released.

In light of the pullback from new highs, WTI is now within one standard deviation of its 80-day moving average, after a lengthy stretch above this trendline. There have been six similar pullbacks for WTI in the past, after which the stock went on to average a one-month gain of 15.5%, per data from Schaeffer's Senior Quantitative Analyst Rocky White.

chart 1

Despite the equity's impressive rally in the past year, analysts remain wary of the penny stock. Just one out of four brokerage firms deems WTI worthy of a "buy" or better rating. Should the shares once again bounce off their 80-day, a round of positive analyst initiations or upgrades could lure more buyers to the table.

WPX Energy stock has enjoyed a slow burn higher over the past year, advancing more than 90%. The security notched its highest close since 2014 yesterday thanks to a well-received earnings report, but has given back 4.3% to trade at $18.69 today.

WPX is also back within one standard deviation of its 80-day moving average, after a notable stint north of the trendline.

There have been eight similar dips for the energy stock in the past, and WPX went on to rally 5.48%, on average, in the subsequent week, and was higher 88% of the time. Looking a month out, the shares also boast a win rate of 88%, with an average gain of nearly 8.5%.

chart 2

Should the equity once again rally off this trendline, a short squeeze could add fuel to WPX's fire. Short interest accounts for more than 26 million shares, representing nearly a week's worth of pent-up buying demand, at the stock's average pace of trading.

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