The vast majority of oil and other energy stocks have had a dismal 2015 in terms of performance, largely due to a plummeting oil price and a rising dollar. However, while the trend remains lower, I have started to notice some peculiar call buying in some energy stocks.
On Tuesday, Suncor Energy Inc. (USA) (NYSE:SU) saw heavy call buying of its January options, which also occurred right as the stock revisited horizontal technical support of its summer lows. Now, SU stock needs a follow-through buying day to confirm a bullish reversal.
The current damage for Suncor Energy is about 20% — that’s ugly, and yes, the trend remains down. And to be clear, I’m not in the business of calling longer-term bottoms in assets.
That’s a low-probability game.
Suncor Stock Charts
Looking at the multiyear chart of SU stock, we see the well-defined black support line in the sand that held up the stock in 2011 and this past August during the broad market selloff. Troubling is the fact that the stock is exhibiting a series of big-picture lower highs from March 2011 and June 2014, all of which is weighing on the horizontal line of support.
With the most recent selloff since early November, Suncor Energy is once again throwing its weight on this line of support and as I like to repeat; the more often a line of support/resistance gets tested the bigger the eventual breakdown/breakout. The way these charts tend to resolve is either with a heavy breakdown and in the case of SU stock, a revisit of the 2008 lows, or a very strong and visibly forceful bullish reversal must occur.
Either way, in the bigger picture, the fate for SU stock is too early to tell, but the stock sure is dancing on well-defined support once again …
Zooming in on the daily chart, we see that with with the early morning weakness in Tuesday’s trading session, SU stock bumped right into horizontal support from the summer and autumn lows, which then quickly got rejected. Over in the options market, Tuesday saw heavy call buying in January at-the-money options.
Specifically, nearly 8,600 $25 strike calls were traded and about 2,100 of the $26 calls. This is a big spike in options volume. While open interest in SU stock is still decidedly heavier on the put side, it feels like someone was trying to test the market and get active in calls on Tuesday.
I have witnessed this type of activity countless times before, and plenty enough it ultimately led to strong bullish reversals for the near to medium term. Price, however, is the ultimate arbiter, which is to say that SU stock does first need to give us a bullish reversal and likely push back above the $26.30 mark before active investors and traders could try the stock from the long side for a move back into the high $20s.
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