Apache Corporation: Oversold APA Stock Could Enjoy a Sharp Pop

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Shares of diversified energy company Apache Corporation (NYSE:APA) — along with the rest of the energy sector — continues to face pressure and flash awful year-to-date performance. Margin pressure due to a still-weak oil and rising-dollar environment are simply putting energy stocks in a hurt locker.

beatthebell_185x185However, APA stock price charts are looking increasingly overextended on the downside … just as earnings are approaching, and as investor sentiment around energy stocks has reached new lows.

This could be a perfect setup for contrarian traders and active investors. My suggestion: Play Apache shares for a sizable oversold bounce.

While Apache Corporation is an energy independent, don’t confuse 9it with the smaller niche players in the shale industry. Despite the stock’s slump over the years, APA still sports a market capitalization of $18 billion and has operations in the United States, Canada, Egypt, Australia, the North Sea and Argentina.

The next company-specific catalyst for APA stock is Apache’s earnings report on Aug. 6, which could either lead to a good bullish reversal or another round of selling — either of which would confirm a near-term bottom that active investors could sink their teeth into.

APA Stock Charts

Starting off with the long-term weekly chart, we see that Apache shares have been trending lower for years. After an ultra-steep blow-off rally into spring 2008, APA stock fell hard during the financial crisis only to sharply rebound into a lower high in spring 2011.

Apache then made another notable lower high about 12 months ago, all of which led to more weakness. This week, the stock finally broke below its reaction lows from March 2009.

All the while, downside momentum as represented by the Relative Strength Index (RSI) looks to have bottomed in late 2014, which is the bullish divergence one wants to look for to give a powerful oversold bounce a better chance. In other words, the break below horizontal support may well play out to have been a breakdown fake-out move that sees APA stock rally for a few weeks/months, if only to another lower high.

Apache weekly stock chart
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The relative picture of APA stock versus the Energy SPDR (NYSEARCA:XLE) is also weak and shows a meaningful breakdown (i.e., relative weakness of APA stock versus the broader energy sector). While a trend follower will see this trend lower, the contrarian simply looking for a possibly sharp oversold bounce sees this breakdown as unsustainable without a jump higher first.

Apache vs. XLE chart
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On the daily chart, we see that after APA stock’s rally attempt in the spring on the back of a firmer oil price, the shares again began to slide by late April. The selling has been relentless ever since, and particularly nasty over the past handful of days, which has Apache shares overextended once again below their 8- and 21-day moving averages (blue and yellow lines, respectively).

Also note that the stochastic oscillator has now been in oversold territory since May with the exception of a bounce in the second half of June. This is a long time for an oscillator to consistently remain in deeply oversold territory.

Apache stock chart daily
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While investors shouldn’t jump the gun for an oversold bounce trade in APA stock, shares do look increasingly exhausted, so after the August earnings report, a better bump higher may come to fruition.

An initial upside target near $53-$54 may then come into focus, particularly if the bounce is also accompanied by a firmer oil price and a backing off in the dollar index.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/apache-corporation-apa-stock-pop/.

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