Energen Corporation: Buy EGN Calls on Breakout Above Support

Today marks the last Tuesday in 2014 and it is interesting to watch the light volume trading action in U.S. stocks as traders wrap up 2014 in anticipation of greater gains in 2015. The stocks of companies operating in the global oil and gas industry have attracted much attention in recent times and as such, I am looking at stocks in the oil and gas industry today.

In today’s piece, we will examine possibilities in the options of Energen Corporation (NYSE:EGN). Energen Corporation with its market capitalization of $4.71B is an oil- and natural gas liquids-focused exploration and production company. The Company has operations in the Permian and San Juan basins. As of August 28, 2014, the company had approximately 775 million barrels of oil-equivalent proved, probable, and possible reserves, as well as 2.5 billion barrels of oil-equivalent contingent resources.

Why We Are Looking at Energen Today

EGN Chart

Shares of Energen caught my attention after I observed what appears to be the worst possible scenario in how the stock has traded this year. The chart above (with my annotations) shows how the shares of Energen have traded in the last six months.

You will observe that shares of Energen have had a down trending resistance line at $90, $80, $75, $70 and $65 as shown by the red line. You will also observe that the stock has obtained a $55 support in October and recently this month. The more interesting part is that the shares of Energen rose to a $72.5 high after the stock hit the $55 support in October; hence, we can optimistically expect the stock to rise to previous highs after its most recent bounce from the $55 support level.

Can the Rally Continue for Energen

A cursory look at any bullish sentiments on oil and gas stocks might appear to be synonymous with going out on a limb for the industry. However, the fact remains that the global drop in oil prices have been overflogged and the market is already moving on to other news of economic importance as we head into the New Year.

The assertion that the drop in global oil prices is already priced into stocks is confirmed by the fact that shares of Energen have actually soared more than 8% in the last two weeks in sharp contrast to all expectations from the oil and gas industry.

How to EGN Options

I am optimistic about the prospects of Energen going forward and I strongly believe that the stock has a better chance of going up than going down. For one, the bad news about falling oil prices is already priced in and the stock is trading up in defiance of the prevailing market conditions.

In addition, shares of Energen sport an RSI of 53.38, which suggests that the stock has more room to soar before the buying action tapers out. More so, shares of Energen are trading at a discount to the 200-day moving average and we can expect the bullish streak to continue as the stock tries to catch up with that MA. I recommend buying EGN Call options and the EGN Apr 2015 70.000 call (EGN150417C00070000) looks attractive at an asking price of $3.30.

 

— Daily Option Alerts

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