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Chesapeake Energy: Recommendations, Moving Averages

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Of the 25 analysts tracking Chesapeake Energy (CHK), only three recommended a “buy” on the stock. Around 40% have a “sell” recommendation, while 48% recommended a “hold,” based on Reuters’ data. In September 2019, CHK’s stock prices were more aligned to oil than natural gas prices.

50-day moving average below the 200-day average

Analysts’ mean target price for Chesapeake Energy is $1.95, suggesting a potential upside of 39.4% from the last closing level. The mean target price has declined for the last three consecutive months. In this month, SunTrust Robinson Humphrey has kept its target price on Chesapeake Energy at $2. However, Goldman Sachs reduced its target price on the stock from $0.25 to $1.25. 

On September 27, CHK’s stock prices settled 14%, 11.4%, 22.8%, and 39.1% below their 20-, 50-, 100-, and 200-day moving averages, respectively. Prices at such a large level below these key moving averages indicate bearishness for the stock. Moreover, the 50-day moving average was 31.3% below the 200-day moving average.

Chesapeake Energy’s technicals

This fall of short-term moving average below long-term moving average is called “death cross.” It suggests a further decline in stock prices. On December 3, 2018, the 50-day moving average fell below the 200-day moving average for the first time since June 2018. Since December 3, 2018, CHK’s stock prices lost more than half of its value.

In the last trading session, natural gas’s 50-day moving average was 12.5% below the 200-day moving average. For US crude oil active futures, this difference is less than 1%. Chesapeake Energy has a production mix of around 31% in the oil price-linked commodities. The remaining production-mix is in natural gas.

Price target and short-interest

On September 27, CHK’s implied volatility was 99.4%, which is 13.5% higher than the 15-day average. Next week, Chesapeake Energy’s stock prices are expected to close between $1.56 and $1.24, based on the last trading session’s implied volatility. The model is based on the normal distribution of prices. There has been a 68% probability for this price range.

Crude oil and natural gas prices are expected to move lower next week based on the inventories spread. Moreover, the weather forecast is also bearish for natural gas prices. Also, we might see CHK near $1.30 level next week with a possible weakness in energy commodities.

CHK investors: Beware of the “short-squeeze”

Last month, CHK’s short interest-to-equity float ratio jumped to 20.2%. This is its highest since February. On September 27, this ratio has fallen to 17.1%. CHK’s stock prices have lowered by 2.8% in this period. Moreover, with the possibility of weaker energy commodities, this ratio could rise in the future. However, investors should be careful of “short-squeeze.” In short-squeeze, underlying asset prices rise with the closing of short positions.

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