Chesapeake Energy Corporation (NYSE:CHK) is continuing to dig out of its 2017 trench Thursday morning, putting up another 2% in gains that has the stock up more than 15% in a week. That’s good news for CHK stock holders, who were sitting on nearly 30% gains just a little earlier this month.
That’s bad news for the considerable crowd of shorts that are still sitting in Chesapeake — those that haven’t exited over the past few days, helping spur this recent run.
Chesapeake’s recent rally has been sparked by a recent swing higher in oil prices, more than 3% over the past week-plus, though that hasn’t done much for the broader set of energy stocks as a whole. The Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) is trading flat over the past five trading days.
But CHK stock is putting together a significant move that’s being fueled by shorts covering their positions. As of the most recent data, just more than a third of the stock was sold short, at about 135 million shares. The question is, how much gas does Chesapeake have left?
The answer is at least partially in the chart.
CHK Stock Chart
Chesapeake Energy has cruised through its 20- moving average in the past couple of days — a bullish development given that the stock has been trying to jump up through it several times this year, but failing to hold each time.
While CHK has sustained itself so far, it’s now butting heads with a few technical difficulties.
For one, it’s butting heads with the slightly longer-term 50-day MA (currently at $5.84), which shares haven’t even sniffed since crashing below it back in late January. Serving as overhead resistance right above that is the 200-day moving average at $6 per share, which served as major support for months until it failed in February.
Most worrisome, though, is that despite its recent run, the stock scrawled out a “death cross” (the 50-day MA swung below the 200-day MA) — an extremely bearish technical indicator that, combined with other resistance, could hold shares back at this point.
Still, bulls can take a little solace in the fact that CHK stock is starting to put in a couple higher lows and higher highs. Even a failure to crack through the 50-day here wouldn’t necessarily mean a return to its more intermediate-term downtrend.
What to watch for now?
For the bulls, a lot. Shares would need to break back above both the 50-day and 200-day moving averages, and at least hold that level for a few days before we could really start entertaining upside targets like the most recent peak around $7.75 (34% higher).
On the downside, a return to the 20-day MA wouldn’t be catastrophic, but a break below would be worrisome, putting the $5 region — which shares have plumbed twice this month — back into play.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
