Oil Stock Could Slide into 2019

Oil prices — and most energy stocks — are lower today, after the Energy Information Administration (EIA) said domestic crude inventories rose last week, surprising economists. Shares of Cabot Oil & Gas (COG) are no exception, with a negative analyst note from Morgan Stanley exacerbating sector woes. Specifically, the analyst downgraded COG stock to “equal weight” from “overweight,” and cut its price target to $23 from $29. What’s more, Cabot shares could suffer even steeper losses in the face of seasonal headwinds, if recent history is any indicator.

COG shares are down 2.9% to trade at $22.57 today. The equity has surrendered roughly 21% so far in 2018, with rebound attempts stalling around its 200-day moving average — a trendline that hasn’t been toppled since early February. The security on Sept. 7, in fact, touched an annual low of $21.48.

As alluded to earlier, the shares could retreat toward new-low territory in the fourth quarter, if past is prologue. COG has emerged as one of the worst stocks to own in the fourth quarter, looking back 10 years. The equity has averaged a quarterly loss of 6.38%, and has ended the three-month stretch higher just 40% of the time, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. A similar pullback from current levels would put COG around $21.53 at the end of 2018.

Should the energy stock once again retreat over the next few months, more negative analyst attention could be in store. Despite COG’s struggles on the charts lately, 11 of 17 analysts maintain “strong buy” opinions, leaving the door wide open for additional downgrades to weigh on the shares.

Likewise, an unwinding of optimism in the options pits could also drag COG lower. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly 42 COG calls for every put in the past two weeks. The resulting 10-day call/put volume ratio of 41.81 is in the 80th percentile of its annual range, pointing to a much healthier-than-usual appetite for bullish bets of late.

Echoing that, Cabot’s Schaeffer’s put/call open interest ratio (SOIR) sits at the bottom of its annual range, at 0.10. This indicates that near-term traders haven’t been more call-biased in the past year. Peak call open interest among all options series rests at the overhead October 25 strike, with nearly 20,000 contracts outstanding. Not far behind is the October 23 call, home to nearly 12,300 open contracts. This abundance of bullish bets overhead could translate into options-related resistance in the short term.