Consistent short play queued up in EOG, reports Josh Selway.
Energy stock EOG Resources (EOG) has had an awful 2019, shedding 14% on a year-to-date basis. Now, a bearish trendline has caught up to the shares on the charts, pointing to more downside in the near term.
A study from Schaeffer's Senior Quantitative Analyst Rocky White called attention to the security's 80-day moving average. Going by 10 previous tests of this trendline, EOG stock has managed a 21-day gain just 30% of the time. You can see on the chart provided below how the previous two tests have resulted in downturns for the shares. Traders may also want to take note of recent seasonality, as EOG dropped 15.6% in December last year.
As you can see from the two prior instances, EOG tends to extend the rally beyond the 80-simple moving average providing a better short entry. This has occurred once again this time.
Options traders seem to have the right idea, since data from the major options exchanges shows a 10-day put/call volume ratio of 0.77. This reading's 77th annual percentile rank means the rate of put buying has been stronger than usual lately.
In fact, EOG options in general have been popular with total open interest of 212,069, in the 96th annual percentile. Peak open interest is at the December 75 call, closely followed by the December 72.50 put. Still, volatility expectations don't seem overheated in the slightest, since the 30-day at-the-money implied volatility of 32.7% ranks in the middling 41st annual percentile.
Josh Selway is the Deputy Editor at Schaeffer’s Investment Research. Selway uses Schaeffer’s data and analysis to produce daily blog posts on schaeffersresearch.com, and hosts the Schaeffer’s Stock Market Podcast. Sign up here for the Schaeffer’s Research Edge weekly newsletter
