Sentiment is in place for a countertrend move in the price of WTI. One that will rip the face off of shorts in both the commodity itself and in the stocks of E&Ps and service providers.
Is anyone left that thinks the price of WTI will rebound? This sets the market up for an outsized reaction in the opposite direction, likely triggered by what will be deemed market altering news.
This news won't drive a true longer term reversal in the price of WTI. But given the complacency in the market it will be interpreted as momentous and could send price back up toward $70 over a period of a week or so, and put a halt to this leg of the crude price decline, one that has seen over a 20% move in just three weeks dating back to the highs of the November 21st trading session.
The news could be an announcement of a major state producer curtailing production, a complete lift of the American export ban or a takeover announcement by a major player of a struggling shale producer. But it will be something that will appear to alter the landscape that will cause unbearable pain for late coming, weak handed shorts.
The way to play this is to position long in the stock of Continental Resources ($CLR). This leading Baaken producer has seen its stock price halved over the three weeks of the latest WTI price leg lower.
Many producers have seen this kind of price decline because of over leverage. And no doubt $CLR has somewhat excessive debt itself. But the biggest reason for its outsized decline is that it is unhedged against the price of oil.
A significant short term reversal in the price of WTI should translate into a major short term advance in the price share price of $CLR, with a price target above $40.
With its price down substantially picking the bottom will be impossible, and there is likely to be an incredible gap higher once a WTI reversal is underway, so it is imperative that a position be established before the triggering event.
Disclosure: The author is long CLR.