It seems as if Northern Oil & Gas, Inc. (NYSEMKT:NOG) can’t get any love.
On the last trading session of this past February, NOG stock closed up 5.6% on the back of a positive earnings report. According to The Street, the company’s non-GAAP adjusted earnings exceeded analysts’ expectations by 20 cents — an impressive surprise considering that the metric itself came in at 21 cents. Further bolstering sentiment for Northern Oil on that day was a spike in crude oil benchmarks.
Yet just a month later, shares are trading hands at $7.81, a loss of 10% since the earnings release. What gives?
The main culprit is a false rally in the underlying sector that happened to reach its zenith on Northern’s earnings day. Brent crude oil prices hit $53.61 per barrel on Feb. 27, with the next highest close coming in on March 3 ($53.56). From there, it was mostly downhill until the market hit a bottom in the middle of March at $45.86.
Prior to the collapse, the Wall Street Journal had reported that traders were directionally biased, anticipating positive momentum due to a reduction in both U.S. and OPEC output. Clearly, the sentiment did not pan out as expected … and several oil producers had to bite the bullet.
Those who kept the faith in Northern Oil despite the volatility in crude oil prices are likely to be handsomely rewarded. Between Jan. 20 and March 27 of this year (a 10-week time span), NOG stock maintained an average week-over-week performance of 2.6%.
Since the company’s initial public offering back in April 2007, there have been 38 instances when NOG has maintained an average 10-week performance between 2.00% and 2.99%. Of those 38 occurrences, bullish moves have driven the market higher over the next 10 weeks an astonishing 78.94% of the time!
The story gets even better. The current 2.6% average performance hits a statistical “sweet spot” because as the average rises, the probability of losing money over the next 10 weeks diminishes substantially. The trade-off is that as the average moves closer to 3%, historically, NOG shares have a tendency of lowering the upside potential.
At the present average, however, the market provides a healthy balance between risk and reward.
Additional confirmation comes courtesy of the technical charts.
Within the noise created by the ebb and flow of the charming oil production sector, NOG shares since the beginning of this year have sustained a stable and upwardly biased trend channel. The key feature of this pattern is the series of higher lows created when the bears failed to upset the channel in the middle and end of March.
Furthermore, the momentum in the Brent index mirrors that of NOG, which suggests that prices should move significantly higher, at least over the next few weeks. Coincidentally, the aforementioned technical patterns and statistical trends are appearing ahead of the busy summer driving season.
Just another reason why investors want to keep Northern Oil & Gas on their must-watch list!
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
