Trade of the Day: Quick Drop in RRC Stock Could Land Shorts 22%

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Range Resources Corp. (RRC) — This independent oil and gas exploration and development company operates mostly in the Marcellus Shale formation of the Appalachian Basin.

S&P Capital IQ Equity Research considers RRC stock to be a high-risk investment due to its exposure to volatile commodity prices and its capital intensive industry. Its analysts rate RRC stock a “Hold” with a 12 month price target of $28, which is nearly 7% below Thursday’s close.

While Range Resources’ Q4 earnings came in well ahead of estimates, the company is expected to report losses for 2016 and 2017. And while it currently pays an annual dividend of 8 cents for a forward yield of 0.3%, I believe Range Resources is likely to follow other producers of its size in eliminating its dividend.

RRC stock topped in June 2014 at over $94 per share. But like the stocks of other drillers, it followed the price of crude oil down, falling nearly 80% to a low of $19.21 on Jan. 20. That same day, WTI oil hit a nearly 13-year low below $27 a barrel.

When crude oil began to rally several weeks ago, RRC stock tracked it higher. As buyers drove oil prices back into the $30s, short sellers scrambled to cover their positions in energy stocks.

At the end of February, short interest in RRC stock represented 18.8% of its float. So it’s very likely short covering played a big part in the burst of buying seen in early March, as oil rose on talks of production freezes. In the first five trading days of the month, RRC stock surged more than 55% to a high of $36.86 on March 7.

On Thursday, RRC stock advanced an additional 1.6%, and shares could make another small push higher as more shorts cover. Therefore, sell RRC stock short at $32 with a downside target of $25 for a potential return of 22%.

While traders should use a stop-loss with every short position, it is imperative with a highly speculative trade like this. So be sure to enter a stop-loss order at $34.

RRC Stock Chart
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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/range-resources-corp-rrc-stock-trade-of-the-day/.

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