Why Is Encana Stock in a Strong Uptrend?




In the last three months, natural gas (UNG) producer Encana (ECA) saw its stock price outperform natural gas (UNG) prices. Encana’s stock price rose from $9.83 to $12.54, and natural gas prices rose from $2.77 per MMBtu (million British thermal units) to $3.06 per MMBtu during the same period.

Encana plans to increase its liquids production over the next five years. Currently, ~65% of Encana’s production contains natural gas, making its stock price more dependent on natural gas than crude oil or natural gas liquids.

A clear outperformance of Encana (ECA) stock price compared to natural gas prices over a three-month timeframe is an indication of market participants betting on Encana’s ability to benefit from higher natural gas and crude oil prices in 2017.

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Did ECA’s peers also outperform?

Encana’s peers Consol Energy (CNX) and Range Resources (RRC) are up ~3% and ~5%, respectively, in the last three months. Southwestern Energy (SWN) has been almost flat during the same period.

The outperformance of Encana was more evident in light of lower performance by the First Trust ISE-Revere Natural Gas Index ETF (FCG) and the S&P 500 (SPY) (SPX-INDEX) over the last three months.

Price action

After falling strongly from the high of $23.66 in June 2014 to the low of $2.98 in January 2016, Encana’s price started to increase in February 2016. Since then, ECA stock has been forming higher lows and higher highs. This pattern indicates that Encana’s stock price is in a clear uptrend. Natural gas prices have been forming higher highs since February 2016.

Currently, ECA is trading slightly below its 50-day moving average but above its 200-day moving average. On February 3, 2017, ECA’s stock price closed at $12.54, whereas its 50-day and 200-day moving averages stood at $12.62 and $9.83, respectively. Encana is scheduled to report its 4Q16 and fiscal 2016 earnings on February 24, 2017.

Next, let’s look at the possible trading range for ECA stock for this week based on its implied volatility.


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