Chesapeake Energy Corporation (CHK) Stock Is One Step from Utter Disaster

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CHK stock - Chesapeake Energy Corporation (CHK) Stock Is One Step from Utter Disaster

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Earlier this month, I wondered out loud if Chesapeake Energy Corporation (NYSE:CHK) had any hope left. At the time, market sentiment was somewhat divided between risk-takers and financially conservative analysts. I didn’t necessarily want to go guns-blazing with my bearish outlook, as Wall Street has a way of humbling hubris. But now, I’m unencumbered with such concerns. CHK stock is as good as gone, and I mean that in the worst way possible.

Chesapeake Energy Corporation (CHK) Stock Is One Step from Utter Disaster

When looking at Chesapeake Energy, I’m reminded how quickly and radically the markets can change. At the start of August, CHK stock demonstrated potential as a short-term trading candidate. This made sense because shares had finally stabilized in a range between $4 to $5; at least, that’s what “stable” looks like in the speculative oil sector.

Also, the underlying crude oil market began to show signs of life.

As InvestorPlace contributor Ryan Fuhrmann noted, if CHK stock were to have any chance of rallying, oil prices must cooperate. This point extends to blue-chip companies, including Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX) and Royal Dutch Shell plc (ADR) (NYSE:RDS.A, NYSE:RDS.B). Fuhrmann writes that the majors are “operating only at cash-flow break-even because of low oil prices.”

The only problem here is that the cooperation never came. The stark reality is that the “peak oil” doom-and-gloomers were wrong: Earth is awash in oil. Plus, the argument is hardly new. As advancing technologies make oil cheaper and more plentiful, virtually no incentive exists for producers to restrict supply. Even OPEC members can’t agree to drive out pesky American oil firms, particularly the “frackers.”

When Hurricane Harvey touched down and devastated many regions of Texas, that appeared to be the end of the road. Despite obvious production concerns, domestic oil markets are moving sharply down.

Hideous Technicals for CHK stock

One could go all day counting the reasons why you should avoid CHK stock. Whether you’re discussing the declining prospects for the underlying oil market or the exceedingly poor financials, it’s a complete mess. But the biggest reason I’m avoiding Chesapeake Energy is the technicals.

Whenever you bring up the discipline of technical analysis, trolls are sure to follow. To the critics, the technical approach is a pseudoscience, and that’s one of the more reasonable disparagements. For those that don’t have filters, the methodology is an outright scam that mysteriously gained growing mainstream acceptance.

But in the case of CHK stock, I think we can all agree that its price chart perfectly reflects how Chesapeake Energy executives intractably lost their shareholders’ confidence. Furthermore, I propose that the aforementioned confidence will likely never return.

CHK stock, Chesapeake Energy
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Source: Source: JYE Financial, unless otherwise indicated

Most disconcerting, though, is CHK’s sudden freefall. Since I last wrote about Chesapeake Energy, shares dropped 19%. That’s dubiously impressive considering how much the market value was already ripped apart.

Where CHK stock currently stands, I don’t believe technical support exists. With shareholders clearly panicked, I foresee further damage as people try to salvage whatever value they can receive.

Chesapeake Energy has No Positives to Rely on

One of the hardest lessons to learn in the investing game is to know when to quit. Chesapeake Energy is waving a number of white flags. It’s our job to decide whether we want to acknowledge them or not.

Suppose that the entirety of the technical argument is deliberately ignored. What potential speculators still can’t hide from is the very factual financial situation. CHK is massively burdened with debt. More critically, Chesapeake faces the deadly combo of higher debt-service charges and lower oil prices. This worst-of-both-worlds dynamic pressures already strained sales and earnings metrics.

Perhaps the killer within the fundamental argument is that investors have far better alternatives. Why open yourself up to a failing organization in a deflated market that pays no dividends? Within the oil sector itself, both investors and speculators can rattle off names vastly superior to CHK stock.

Ultimately, crude oil has too many players and not enough demand. Technological and societal shifts towards electric vehicles will only render a negative impact. Thus, being an oil producer is natively a disadvantage. Throw in extremely poor trading sentiment and even worse financials, and you have CHK stock in a nutshell.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/09/chesapeake-energy-corporation-chk-stock-disaster/.

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