Finding Value in the Oil Stock Sell-Off
After rallying into overbought territory at the beginning of the month, oil and gas stocks have come under a sustained attack by sellers. Stocks like Halliburton (NYSE: HAL), for example, fell by more than 6% in Wednesday’s trading, finishing lower for a second day in a row. Down by nearly 4% and also closing lower for back to back sessions were shares of fellow oil and gas equipment and services corporation, Baker Hughes (NYSE: BHI).
Both HAL and BHI are trading below their 200-day moving averages, which means that both stocks are likely to be avoided by many short-term traders – at least in terms of trading to the long side. While oversold stocks trading in bear market territory also have a tendency to rally, that tendency is far more pronounced when stocks are trading in bull market territory, above their 200-day moving averages and advancing over the longer term.
This is why, for all but the most special situations, we encourage traders to avoid buying stocks when those stocks are trading below their 200-day moving averages.
With that in mind, are there are other oil and gas stocks that are experiencing significant selling – enough selling to take the stock to or at least near oversold territory – that are trading in longer-term bull markets?
Among the best candidates in this sector is Cabot Oil & Gas Corporation (NYSE: COG). Shares of COG pulled back by 5% on Wednesday to close lower for a third consecutive session. The three-day sell-off puts the stock in oversold territory, where it was trading only a few weeks ago. Then, a correction that took COG lower for seven out of eight days following a new 52-week high, brought buyers off the sidelines and sent the stock higher by more than 18% over the next four days.
Other energy stocks that have begun to pullback include Spectra Energy Corp (NYSE: SE), down three in a row ahead of trading on Thursday, and Range Resources Corp (NYSE: RRC). Shares of RRC dropped by more than 3% on Wednesday, finishing lower a third session out of the past five. The stock is set to open on Thursday back in oversold territory, where it traded on the days before and after the Thanksgiving holiday.
COG has a positive edge of 1%, as does Range Resources. The positive edge in SE is more than half of one percent.
The stocks in today’s report were drawn from the data and research available through The Machine. To find out more, click here.
David Penn is Editor in Chief of TradingMarkets.com