בס״ד

FAKE NEWS FRENZY! Energy Prices TRIPLE Overnight! (PXD)

Posted on February 28, 2022

You’d have thunk a war with a major oil producer (Russia) that threatens a major gas pipeline into Europe would cause energy costs to erupt.  After all, we’re only a few days into the conflict and the effect we’re seeing on supply lines, bank transfers, shipping routes, insurance costs, etc. is already manifest.

So the question stands – where’s the price-jack vortex that sends commodity prices angling toward the ether?

And why is there even a pause in the rise of crude oil?

But it was not to be…

‘Sell the news’ is the likeliest explanation here.

We had a tremendous lift in the price of NYMEX crude as talk of ‘war’ proceeded, followed by a massive spike as the first shots were fired, and then – as the chart below illustrates – a turnaround the likes of which we haven’t seen since the 2013 Red Sox took the MLB title.

We also believe demand destruction and a global turn to the dollar will put a lid (of sorts) on the commodity complex, though for how long, we can’t be sure.

It will be enough time, however, for us to execute on Pioneer Natural Resources (NYSE:PXD) for a potential take of 2400% in less than 50 days!

Of course, it’s all been delicately crafted with all the risks defined aforehand.

Read on and Learn More!

Before we get to the gritty, here are some nitty fundamentals on the exploration and production people at PXD, a company with assets in Texas and headquartered in that same state –

  • She runs with a P/E of 27.85, but analysts are giving her a Forward P/E of just 11.13 (call it ‘expected shrinkage’).
  • Dividend Yield is 1.00%,
  • Price to book is 2.41,
  • Price to free cash flow is a strong 24.26, but
  • EPS for the last year fell by 126.30%, while
  • EPS for the coming year are expected also to fall by 4.76%.

And that don’t bode well.

On February 16th the company reported earnings, and even though they were better than anticipated – and even though the aforementioned war broke out just days later – price is still in the same darned place.

See here –

Technically, PXD is facing the following –

  1. An overbought RSI read from mid-January (circled, in red) that led to an immediate faith-flop on the part of the bulls.  That is, both RSI and MACD began diverging lower from price at that time, a sign that momentum was being turned over to the bears.  Both RSI and MACD are still above their respective waterlines, to be sure, but once they reach that level, we’ll likely see tidal selling in the stock.  Again, we’re not there yet.
  2. That said, we could be veering closer, as both daily and weekly charts are exhibiting bearish engulfing patterns (enlarged, in blue), reliable signs of a top – particularly when they come paired, like these.
  3. The short term moving average is running in tandem with an eleven week trendline (in red), both of which are now indicative of immediate support.
  4. That support arrives at $220, after which the stock could easily retrench to the $190 level, where the rising 137 DMA provides next support.
  5. PXD shares soared by 43% in just eleven weeks as the energy market got Putinized. Then the Ukraine got Putinized.  And prices stopped rising!  In other words, it was all just a trade.

So here’s ours –

A Jew and His Money recommends you consider buying the PXD April 14th 225/220 PUT spread* for $3.40 (12.80/9.40) and selling the PXD April 14th 260 CALL for $3.20.  Total debit on the trade is $0.20. 

Set a STOP buy on the stock at 260 to prevent a runaway loss.  And remember, if the STOP is triggered, it has to be replaced with a STOP sell at the same 260 to keep the trade square.  If that’s tripped, reset the STOP buy at the same level.  Ad infinitum…

[*Buy the 225 PUT and sell the 220 PUT.]

Rationale: we’re looking at a $4.80 maximum profit from a $0.20 investment.  As mentioned, that’s a full-bodied 2400%.

Max loss is limited to the initial $0.20 debit – so long as proper STOPs are in place.

We need to see a decline of less than 2% to break even and just 4% to achieve full profits.  And that’s Sputnik outta sight!

As for the likelihood of the stock reaching 260 and passing higher?  We say not so.  It would mean significant new highs for a stock that did nothing with a strong earnings beat in the midst of a war.  Moreover, the STOP buy at 260 protects us from any loss whatsoever.

More probable is a move to the 200 range over the coming months.

But that – like the fate of nations in bloody conflict – is in the hands of the Al-mighty living G-d of Israel.

May His name be praised.

With kind regards,

Hugh L. O’Haynew

 

Leave a Reply

Your email address will not be published.