Devon Energy
As an independent producer of oil and natural gas, Devon Energy (NYSE:DVN) is always on the look out for bigger and brighter opportunities. The company may have hit the mother load this weekend, announcing that it and its partners Chevron (CVX) and Statoil (STO) made the deepest successful well test in the Gulf of Mexico. The company's Jack number-two well at Walker Ridge could become the nation's biggest new domestic source of oil since the discovery of Alaska's North Slope more than a generation ago, according to a report in The Wall Street Journal.
On the news, shares of DVN gushed more than 13 percent higher, tagging a new all-time high and taking out long-term resistance in the 70 area. Technically speaking, the equity has been locked in a long-term uptrend since November 2002, rallying more than 246 percent and enjoying the stalwart support of its 10-month and 20-month moving averages during this time frame. The former resistance at the 70 level is clearly visible, having capped the shares in September 2005, October 2005, and January. Today's breakout to the upside could be the beginning of another upleg for the shares.
Sentiment Rundown for DVN:
-- Percent of analysts tracked by Zacks who rate the stock with a "buy": 44%
-- Number of analysts tracked by Zacks: 16
-- Short interest as a percent of float: 1.95%
-- Short-interest ratio: 2.21
-- Schaeffer's put/call open interest ratio (SOIR): 1.04
-- SOIR percent rank: 68%
-- Schaeffer's Equity Scorecard: 5.0
Sentiment heading into today's news was rather wishy-washy. There is practically no short-covering support for the shares, let alone any fuel for a covering rally. Options players favor puts to calls by a rather slim margin at the moment, given the stock's SOIR of 1.04. Furthermore, this ratio also skirts the verge of a bearish sentiment reading with its annual percentile rank of 68. However, DVN's SOIR has been in decline mode for several weeks, and judging from today's activity in the options pits, we could see this ratio continue its pullback. In fact, more than 10,000 calls have crossed the tape at DVN's September 70 strike so far today, with open interest at this front month strike totaling a measly 3,147 contracts. While we will have to wait until tomorrow for a definite confirmation of this activity, I think it is a safe bet that DVN's SOIR will feel the impact of today's activity. This may not be a good thing for the stock, as a chart of DVN's SOIR reveals that it tends to trend in the direction of this ratio, hinting at some short-term weakness after today's buying spree abates.
The only other possibility for sideline money for DVN arrives from the analyst community. According to Zacks, nine of the 16 covering analysts rate the shares a "hold" or worse. Should these naysayers run with today's positive developments for DVN, the security could benefit in the way of brokerage upgrades.
There is one other point I would like to make before I sign off for the day. Keep an eye on the 70 level. While the shares are trading closer to 73 at the moment, I wouldn't be surprised to see DVN pull back a little bit as the shares consolidate these gains. Looking at the sentiment picture, and the recent pullback in crude prices, I don't see much additional upside potential for DVN over the near to intermediate term. That said, a put sell may just be the best way to profit from the equity's recent run higher, especially if you missed out on the initial rally.
