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Chesapeake Energy’s Technical Indicators: Will Prices Rise?

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Aug. 29 2018, Updated 3:15 p.m. ET

Chesapeake Energy’s moving averages

Chesapeake Energy (CHK) continues to trade below its short-term (50-day) moving average. Its 50-day moving average has acted as a strong resistance after it moved below the short-term moving average in mid-July. It was trading 6.9% below its 50-day SMA (simple moving average) and 14.3% above its 200-day SMA as of August 28.

In comparison, CHK’s peers Noble Energy (NBL) and EQT (EQT) were trading 9.8% and 5.5%, respectively, below their 50-day moving averages. That indicates a general bearish sentiment in the gas-weighted stocks.

Here’s what could push Chesapeake Energy above its 50-day SMA and result in a bullish sentiment for the stock:

  • gains in crude oil and natural gas prices
  • an expected improvement in its financial position following the successful completion of the Utica divestiture
  • increased focus in the emerging Powder River Basin
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Natural gas prices are expected to move conformably above the $3 per MMBtu (million British thermal unit) level with the onset of the winter natural gas demand and low natural gas inventories. According to the EIA (U.S. Energy Information Administration), US working natural gas stocks totaled 2,435 Bcf (billion cubic feet) as of August 17. That’s 599 bcf lower than the five-year average and 684 Bcf lower than the gas stock during the same period last year.

On the other hand, trade war tensions between the United States and China and expectations of a sudden increase in natural gas supplies could weigh on gas prices. Having said that, gains in crude oil prices should be a bigger force in driving Chesapeake Energy stock above its 50-day SMA.

Short interest in Chesapeake Energy

Short interest in Chesapeake Energy was 140.3 million shares as of August 28. At the same time, short interest in CHK as a percentage of float ratio was 15.5%. The current short interest in CHK is lower than the 30-day average of 16.3%. It’s also below the last one-year average of 19.61%. That indicates a bullish sentiment in the stock. A decline in short interest indicates a decrease in open short positions. A decline in the short position in CHK amid the recent weakness indicates the market’s expectation that the stock could go up.

In the next part, let’s look at Chesapeake Energy’s seven-day price forecast based on its implied volatility.

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