Lower earnings from energy suppliers, like Apache (APA) and Occidental Petroleum (OXY), indicate that declining oil prices rather than lasting weakness in U.S. profits caused the slump. Apache, the United States' third-largest oil and natural gas producer by market value, reported a 36 percent drop in second-quarter income. Earnings at Occidental Petroleum decreased 26 percent last quarter and are expected to fall another 25 percent for the three months ending this week. But it is Apache we want to take a look at today.
Technically Speaking
The stock has been on a very steady (but mild) climb since early June in a consistent peak and valley pattern. The RSI gives us a hint at how consistent this move has been with an even flow since its move. On these peaks it is in bullish territory and on in the valleys it is in bearish territory. It never pushes too high or too low. The last high pushed quicker because of the stimulus announcement, but that was out of the norm. The MACD and Histogram are showing a long negative divergence. Normally this would signal a slow down in the bullish move and since it stands along with no support, it would signal a consolidation period. But I believe since the move has been so gradual, it is just reflecting the move. From the looks of the stock I would say the stock is mildly bullish to neutral and I do not yet see signs of a change. But a neutral move is very easy to see coming out of this weak climb.
With the combinations of declining oil profits and consistent (but weak) climb up, I believe we may see this stock top out and even move into a consolidating pattern sooner than later. I cannot say for sure when it will occur of if the stock will lose value or just remain in a trading channel for a period of time, but I am certain from the events that influence this company-it will not be moving up much longer.
Absent a Mideast crisis, oil prices have likely seen their 2012 highs. Supplies are strengthening as demand is decreasing, due to both seasonal factors and as a result of the high oil prices. U.S. crude inventories rose 8.5 million barrels in the week ended Sept. 14, much larger than expected. Oil has also been hit by reports that Saudi Arabia is pumping more, and the fact that the White House continues to hold out the possibility that it will dip into the Strategic Petroleum Reserve if oil prices rise too much so the market has no where to turn but down. Supply and demand do not justify current prices and this will have an adverse affect upon Apache in the long run.
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The Options Play
Presently trading at 85.28, I am going to go with a longer bearish trade on this stock. Because of oil prices, I am apt at going against the weak bullish run right now.
- Buy an April 2013 put with a strike of '87.50' (priced at $8.80)
- Sell an April 2013 put with a strike of '85.00' (priced at $7.40)
- Net Debit to Start: $1.40
- Maximum Profit: $1.10
- Maximum Risk: net debit
- Maximum Length of Trade: 7 months
Reasoning behind the Trade
- Present upward move is weak and can easily turn neutral to bearish
- Oil prices are spiraling down and will influence the price of the stock.
- Lower income is never a value energizer!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
