Can Apache Corporation Live Up to Traders' High Hopes?

This article notes that crude oil prices are beginning to recover from their precipitous plunge, and as a result, investors are starting to rediscover a few names within the oil sector. Apache Corporation (APA: sentiment, chart, options) is cited as one name within the group that's worth taking a look at, thanks to "its large stake in the U.S. and its high success rate in oil drilling of about 93%," according to Joseph Tatusko, chief investment officer at Westport Resources Management.

The author observes that APA is currently trading at a discount to its larger-cap peers, even though the equity has already regained a significant amount of ground from its 52-week low of $51.03, tagged as recently as mid-March.

In addition to the upside potential in the top stocks to buy, there's also a chance for APA to bulk up its fundamental position through key property acquisitions -- the article notes that the firm "has a history of augmenting its production volume growth through acquisitions." Plus, since the company's 11% debt ratio "is among the lowest in the sector," investors can breathe easy about APA's balance sheet.

Contrarian Takeaway:

If you're going to play the oil sector, it's much better to focus in on a lower-profile name, such as APA, rather than one of the bloated heavyweights in the group, such as Exxon Mobil (XOM). However, there are a few pressing technical concerns for APA at the moment, and contrarian investors will want to take note of the relatively heavy optimism surrounding the shares.

Specifically, the stock is poised to end the week below support at its 10-week moving average, and the shares have also pulled back beneath their 10-month trendline. In fact, since early May, APA has spent most of its time bouncing aimlessly between the $75 and $85 levels.

Despite the lackluster price action, option traders are favoring bullish bets. APA's Schaeffer's put/call open interest ratio (SOIR) of 0.60 ranks in the upbeat 18th annual percentile, and traders on the International Securities Exchange (ISE) have bought to open 3.41 times more calls than puts during the past two weeks. This ratio ranks higher than 86% of comparable readings during the past year, indicating that calls on the equity are in greater demand than usual.

In other words, traders seem to have high hopes for the best stock of 2010, even as it's showing signs of a technical breakdown. Unless the shares can snap out of their sideways channel in short order, APA could be vulnerable to downside as disappointed bulls hit the exits.

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Highest Option Volume for the Week Ending Monday, June 22, 2009
Ticker Symbol	Call Volume	Put Volume	Total Volume*	Put/Call Ratio
Citigroup Inc(C)	488,217	410,369	898,586	0.84
Spdrs(SPY)	346,660	422,258	768,918	1.22
S&P 500 Index(SPX)	180,212	211,125	391,337	1.17
Nasdaq 100 Index Trckng Stck(QQQQ)	164,142	201,476	365,618	1.23
Ishares Ftse/xinhua China 25(FXI)	262,285	20,477	282,762	0.08
Bank of America Cp(BAC)	211,711	57,585	269,296	0.27
Sel Sec Spdrs Fd Financial(XLF)	58,262	161,282	219,544	2.77
General Electric Co(GE)	89,824	93,713	183,537	1.04
Research In Motion Ltd(RIMM)	113,036	65,060	178,096	0.58
CBOE Market Volatility(VIX)	92,587	16,510	109,097	0.18

Highest Option Volume Compare to Average Volume for Week Ending Monday, June 22, 2009
Ticker Symbol	Call Volume	Put Volume	Total Volume*	5-week Avg Volume	Volume Ratio	Put/Call Ratio
Genzyme Cp (GENZ)	38,427	52,832	91,259	24,164	0.73	1.37
Mcmoran Exploration Co (MMR)	6,901	6,205	13,106	3,693	1.11	0.90
Matrixx Initiatives Inc (MTXX)	19,598	11,501	31,099	6,320	1.70	0.59
Smithfield Foods Inc (SFD)	22,238	11,633	33,871	9,745	1.91	0.52
Companhia Siderurgica Nacional (SID)	20,105	3,353	23,458	5,882	6.00	0.17
Western Digital Cp (WDC)	8,095	75,565	83,660	23,462	0.11	9.33
Sel Sec Spdrs Fd Materials (XLB)	292,856	32,930	325,786	76,647	8.89	0.11
Sel Sec Spdrs Fd Industrial (XLI)	364,255	21,426	385,681	109,121	17.00	0.06
Sel Sec Spdrs Fd Utilities (XLU)	639,430	23,949	663,379	154,667	26.70	0.04
Consumer Discretnary Sel Spdr (XLY)	270,247	47,545	317,792	86,682	5.68	0.18

 

The technology sector has been hot in 2009, with the PowerShares QQQ Trust (QQQQ) gaining more than 20% since the beginning of the year. By comparison, the S&P 500 Index (SPX) has added roughly 1.6%. Furthermore, the trust has soared more than 41% since hitting a low of $25.63 in early March. Technically speaking, QQQQ still looks strong, and has drawn its 80-day and 200-day moving averages into a bullish cross. Despite this outperformance, investors continue to bet against the shares. In the options pits, the 10-day International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) put/call volume ratio of 1.94 indicates that nearly two puts have been bought to open for every one call purchased during the past two weeks. This ratio also ranks above 89% of all those taken in the past year. Meanwhile, heavy put open interest resides at the July 35 and 36 strikes, and could provide options-related support for the trust. One concern would be that the QQQQ's 50-day buy-to-open put/call ratio is beginning to roll over, and might mean that hedged players are no longer in accumulation mode. Within the sector, our favorites include Palm Inc. (PALM), Synaptics Inc. (SYNA), Juniper Networks Inc. (JNPR), and priceline.com Inc. (PCLN).

 

After enjoying a strong rally from its March lows through early June, the energy sector has begun to waver a bit. The Select Sector SPDR Energy Fund (XLE) is still up more than 31% since mid-March, but XLE has declined about 10% from its June 11 peak. Furthermore, the fund has slipped back to its converging 50-day and 200-day moving averages, breaching the upper rail of its September 2008 through May 2009 trading range. Furthermore, XLE's 50-day buy-to-open call/put volume ratio has turned sharply higher, giving us the impression that hedge funds may be shorting the energy sector following the September-June rally. We'll continue to monitor this ratio. Another potential concern is that sentiment toward the U.S. dollar has reached extreme levels, placing the greenback in position for a potential reversal, which would be negative for dollar-denominated commodities. On the other hand, open interest on crude oil futures is rebounding from low levels, a signal that has had bullish implications since early 2007. Finally, traders should keep a close watch on technical support at the 49 level for XLE, as a move below this area, which is home to the fund's 50-day and 200-day trendlines, would be bearish for the sector.

 

Treasurys are getting quite the bad rap lately. There has been talk in the financial media of a bursting bubble, a sentiment that was recently highlighted by a bearish Barron's cover story. Furthermore, a recent survey of investment managers indicated that optimism in regard to government debt is at its lowest level in quite some time. However, the iShares Barclays 20+ Year Treasury Bond Fund (TLT), which seeks results that correspond to the price and yield performance of the long-term sector of the United States Treasury market as defined by the Barclays Capital 20+ Year U.S. Treasury index, is currently in the process of consolidating into support near its 80-month moving average and the round-number 90 level. Furthermore, the U.S. Dollar Index is holding support in the 80 region, which could be bullish for Treasurys. Should these support levels hold, we could see an unwinding of pessimism on both fronts, potentially sending bonds steadily higher. Making the TLT even more attractive is the fact that the trust's 14-week relative-strength index (RSI) of 37.46 remains extremely low. Furthermore, readings below 40 appear to be solid longer-term entry points.