NEW BEARISH Plays
Range Resources Corp. - RRC - close: 45.49 change: -1.49
Stop Loss: 48.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on January -- at $---.--
Listed on January 28, 2015
Time Frame: Exit PRIOR to earnings on February 24th
Average Daily Volume = 2.8 million
New Positions: Yes, see below
Why We Like It:
RRC is in the basic materials sector. They explore and develop oil and natural gas assets. According to the company, "Range Resources Corp. is a leading independent oil and natural gas producer with operations focused in Appalachia and the Midcontinent region of the United States. The Company pursues an organic growth strategy targeting high return, low-cost projects within its large inventory of low risk, development drilling opportunities. The Company is headquartered in Fort Worth, Texas." The company recently stated their proved reserves at the end of 2014 rose +26% for the year to a record high of 10.3 T cfe (trillion cubic feet equivalent).
Unfortunately for RRC and its investors natural gas prices have been declining for a long time. Natural gas futures are currently trading at two-year lows, below $3.00 MMBtu (million British thermal units).
The industry was already facing oversupply concerns. Now forecasts suggest demand will be less than expected.
The price of natural gas is influenced by the weather. In spite of the blizzard that hit the east coast this past week the U.S. could actually see a mild winter, which would drive down natural gas consumption and thus prices would fall. Of course we are talking about the weather. Forecasts could change. I remember last fall they were forecasting 2015 to be an exceptionally cold winter following 2014's uncommonly cold winter. Yet now they're talking about a mild winter for 2015 (what's left of winter).
Another issue is the overall trend for commodity prices. The surging dollar makes commodities cheaper and this is exacerbated the sell-off in oil and gas. The oil and gas industry is also dealing with a price war with Saudi Arabia who is willing to undercut its competitors to drive them out of the oil business. While RRC is mostly natural gas the issue is affecting everyone.
There have been some bullish calls on the energy sector and a few analysts have suggested that the big natural gas names, including RRC, could be bargains at current levels. Goldman Sachs believes RRC will eventually emerge from this energy sector crash as a winner due to their large size. That does not mean that RRC's stock won't collapse toward its 2009 or 2010 lows before finding a bottom.
Technically RRC is in a bear market, having been cut in half from its 2014 highs. The point & figure chart is bearish and forecasting at $29.00 target.
The stock's recent attempt at a bounce struggled for days with resistance (a.k.a. broken support) near $50.00. Now RRC looks ready for the next leg lower.
I am labeling this a slightly more aggressive trade. Tonight's trade that RRC will continue to sink is a bet that shares will break the trend line you see on the weekly chart below.
We'll start with a trigger to launch positions at $44.75.
Trigger @ $44.75
- Suggested Positions -
Short RRC stock @ (trigger)
- (or for more adventurous traders, try this option) -
Buy the MAR $45 PUT (RRC150320P45) current ask $3.50
Option Format: symbol-year-month-day-call-strike