A short squeeze could also push the oil-and-gas name higher
Apache Corporation (NYSE:APA) was having a solid summer, but was recently rejected from its July highs near $50. Since then, the oil-and-gas issue has struggled to break out -- but this extended period of consolidation could finally be ready to resolve to the upside, if the stock's meet-up with a historically bullish trendline is any indication.
More specifically, Apache stock is now within one standard deviation of its 160-day moving average, after a lengthy stretch above it. Over the past three years, there have been four other instances of APA pulling back to its 160-day trendline after trading north of it at least 60% of the time over the previous two months. Those previous pullbacks have resulted in an average one-month return of 9.36%, per Schaeffer's Senior Quantitative Analyst White, with 75% of the returns positive.
Adding to this layer of support is the level that coincides with a 23.6% Fibonacci retracement of the stock's decline from its late-2016 highs at $69 to its March 2018 lows near $33. APA is already showing signs of bouncing from this technical foothold, up nearly 2% to trade at $43.64.
There are other factors that could provide potential tailwinds for the energy name. For one, there is ample room for bullish brokerage notes. Of the 13 brokerages covering APA, nine rate it a "hold" or "sell."
In addition, shorts are starting to head for the exits. After hitting a near-term high of 31.63 million shares on July 1, short interest fell by 3.8% in the two most recent reporting periods. However, a healthy 7.9% of APA's available float remains in the hands of short sellers, which represents more than eight times the security's average daily trading volume.
In the options pits, APA puts have become more popular lately, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which shows the security with a 10-day put/call volume ratio of 1.38, a ratio that ranks in the 99th annual percentile. This means Apache puts have been purchased at a near-peak pace relative to calls during the past two weeks.
Echoing this, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.20 ranks in the 100th percentile of its annual range. This shows that short-term traders have not been more put-heavy toward the security in the past year. A bounce from APA over the next month could lead to an unwinding of these bearish bets.
For anyone considering speculating on APA with call options, now is a good time to do so. The stock has a Schaeffer's Volatility Index (SVI) of 32%, which ranks in just the 15th annual percentile. This reveals that unusually low volatility expectations are being priced into front-month options for the energy stock.