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Chesapeake Energy: What’s the Latest Outlook?

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On November 15, Chesapeake Energy closed at $0.7. On November 12, the company made an intraday low of $0.63—the lowest level since March 1999. The bearish outlook for oil and natural gas prices is an important factor behind the downturn.

On November 14, Credit Suisse reduced the target price on the stock by 50% to $0.5. Yesterday, Morgan Stanley reduced the target price on Chesapeake Energy by $1 to $1.25 and downgraded the rating to “equal-weight.”

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Natural gas could be in trouble

So far in November, natural gas and WTI crude oil prices have risen 2.1% and 6.5% as of November 15. The rise in HDDs (heating degree days) has helped natural gas prices rise during the ongoing winter season. Today, Reuters’ weather forecast models suggested a fall of between 44.7 HDD and 20.5 HDDs from the previous forecast.

The period for this weather forecast is for the next 15 days. Lower HDDs in the Lower 48 states could drag natural gas prices this week. At 9:18 AM ET today, natural gas prices have lost 3.5%. Weaker natural gas prices might be a concern for Chesapeake Energy. In the last quarter, the company operated with a production mix of 69.2% in natural gas. Lower realized natural gas prices impacted the company’s earnings. To learn more, read Chesapeake Energy Fell after Its Q3 Earnings Results.

Oil’s outlook

After the IEA’s Oil Market Report, oil prices’ bearish sentiments have reduced. Growth in the global oil demand could help oil prices rise more. Early in December, OPEC+ might make a crucial decision on extending the production cut beyond March 2020. Notably, the market expects deeper cuts from member countries. A possible upside in oil is a positive development for Chesapeake Energy. Read Is Chesapeake Energy Destined to Fall More? to learn more.

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Chesapeake Energy’s moving averages and price

Last week, Chesapeake Energy’s stock prices were 41.7%, 49.4%, 53.6%, and 66.4% below their 20, 50, 100, and 200-DMAs (day moving averages). Prices with such a large difference below these key moving averages suggest strong bearish sentiments. The 20-DMA at $1.2 is an important resistance zone for natural gas prices going forward.

On November 18–22, the company’s stock prices could close between $0.86 and $0.54 with a confidence level of 68%. The price range is based on the company’s implied volatility of 195.4% on November 15 plus the normal distribution of prices. Chesapeake Energy’s implied volatility was 49% above its 15-day average. The surge in the implied volatility indicates the market’s expectations of a large price movement.

Chesapeake Energy’s short interest

On November 15, Chesapeake Energy’s short interest-to-equity float ratio was 12.5%. During the last week of October, the ratio was at 18.1%. Cabot Oil & Gas (COG) and EQT’s (EQT) short interest-to-equity float ratios were at 6.6% and 6.5%, respectively. 

Chesapeake Energy has a relatively high short interest-to-equity float ratio compared to its peers. However, investors should be careful about “short squeeze.” A short squeeze is a condition when asset prices rise rapidly due to a sharp fall in the short interest-to-equity float ratio.

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