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A Small-Cap Energy Stock Fueling Up for a Short Squeeze - views
DELAFIELD, Wis. (Stockpickr) -- Energy -- and specifically the oil and gas complex -- continues to be a bright spot in this market.
Just take a look at some of the moves in this sector, such as small-cap independent oil and gas player Quicksilver Resources (KWK). That stock is ripping higher today by 7% on above-average volume. Over the last six months, shares of KWK have soared higher by 58%, and the stock is now approaching its 52-week high at $3.67 a share.
Another small-cap oil and gas player that's been on a fire of late is Callon Petroleum (CPE), which is up by more than 40% so far in 2014. This stock is also trending strong today, with shares up by 2.6% at $9.17, within range of its 52-week high of $9.84 a share. One more small-cap oil and gas play that's recently exploded to the upside is Magellan Petroleum (MPET), which has soared higher in 2014 by over 100%.
As you can see, the oil and gas complex is trending strong right now, and small-cap stocks in this space are in play with the bulls. This momentum could be here for a while when you consider the troubling escalations we've seen in the past few weeks in Ukraine. The geopolitical tensions in Ukraine are keeping a bid under the energy market, and unless that situation de-escalates dramatically, then I expect that bid to remain in place.
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This all has me scanning the small-cap energy space for what could be the next big runners. A number of small-cap oil and gas players could very easily be next to make a major run as the momentum players move from stock to stock in the sector looking for opportunity. These small-cap energy names have the capability to make massive moves higher, since many have low floats and lots of shorts.
A perfect example of an oil and gas player that's recently exploded higher and also has a low float and lots of shorts is FX Energy (FXEN), which has ripped to the upside by 30% over the last three months. FX Energy has a tradable float of 50 million shares, and the short interest as a percentage of its float is just over 6%. Just this month, shares of FXEN exploded higher from its low of $3.13 to its recent high of $5.14 a share. Make no mistake, once the big upside volume flowed into FXEN a few weeks ago. the shorts got spooked and covered in a hurry, producing that large spike.
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One small-cap independent oil and gas player that's showing up on my scans today that could be capable of a massive move higher soon is Endeavour International (END), which acquires, explores and develops energy reserves and resources in the U.K. North Sea and the U.S. onshore. This company has interests in Alba, Bacchus, Rochelle and other field areas in the U.K., as well as the Pennsylvania Marcellus area, Haynesville producing project areas in Louisiana and Heath Shale Oil Play in Montana. So far in 2014, shares of END haven't joined the small-cap oil and gas party; shares are down by 37%.
That might be about to change, though, since shares of END are starting to look interesting from a technical standpoint, and this stock has a very low tradable float and a massive short interest. This is just the recipe that can produce moves like the ones we've seen in some of the names mentioned above. END could outperform them all if a short-squeeze gets underway that's accompanied by strong upside volume flows.
>>5 Toxic Stocks to Watch Out For If you take a look at the chart for Endeavour International, you'll notice that this stock was in a massive downtrend from its January high of $7.50 to its recent low of $2.71 a share. During that downtrend, shares of END were consistently making lower highs and lower lows, which is bearish technical price action. That said, shares of END have now started to show signs of coming out of that downtrend, since the stock has trended sideways for the last two months, between $2.71 on the downside and $3.69 on the upside. Shares of END have recently rebounded higher off that $2.71 low to its current price of $3.25 a share and it's now quickly moving within range of triggering a major breakout trade.
Traders should now look for long-biased trades in END as long as its trending above $3 a share or above $2.90 a share then once it breaks out above some near-term overhead resistance levels at $3.31 to $3.36 a share and then once it clears more resistance levels at $3.49 to $3.69 a share with high volume. Look for volume on that move that registers near or above its three-month average action of 1.11 million shares. If that breakout gets sparked soon, then END could see a monster short-squeeze that takes the stock back towards its 200-day moving average at $4.99 to even $5.50 or $6 a share.
The short-squeeze opportunity is huge here, since the current short interest as a percentage of the float for END is massive at 33%. That means that out of the 29.8 million shares in the tradable float, 9.88 million shares are sold short by the bears. This is a very low float that's being leaned on big by the short-sellers. If the sector strength we've seen recently in the small-cap oil gas names spills over to END soon, then this stock could make the biggest move yet.
The key thing to watch for if that squeeze is going to happen soon, is for shares of END to take out those near-term overhead resistance levels I highlighted with strong upside volume. Traders should watch for large block trades to hit the tape on END if the stock starts to clear those levels soon, because that could mean the shorts are covering knowing full well the sector is in play. Keep in mind, this is just a trading opportunity I see here not a long-term call on END as a great buy. I am simply looking to take advantage of the sector strength on a low float high short interest idea.
-- Written by Roberto Pedone in Delafield, Wis.
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At the time of publication, author had no positions in stocks mentioned.
Roberto Pedone, based out of Delafield, Wis., is an independent trader who focuses on technical analysis for small- and large-cap stocks, options, futures, commodities and currencies. Roberto studied international business at the Milwaukee School of Engineering, and he spent a year overseas studying business in Lubeck, Germany. His work has appeared on financial outlets including CNBC.com and Forbes.com. You can follow Pedone on Twitter at www.twitter.com/zerosum24 or @zerosum24.