Cimarex Energy Co. is an independent oil and gas exploration and production company. Its operations are located in Texas, Oklahoma, New Mexico, Kansas and Wyoming. As of year-end 2010, proved oil and gas reserves totaled 1.5 trillion cubic feet equivalent, consisting of 1.9 trillion cubic feet, consisting of 1.3 trillion cubic feet of gas and 105 million barrels of oil and natural gas liquids. In addition, Cimarex’s production averaged 595.9 million cubic feet equivalent per day, consisted of 363.9 million cubic feet of gas per day and 38,674 barrels of oil and natural gas liquids per day. Its exploration and development activities are conducted within three main areas: the Mid-Continent region, the Permian Basin and the Gulf Coast. During 2010, Cimarex sold oil and gas properties, mostly in Mississippi, and made property acquisitions, for additional interests in its western Oklahoma, Cana-Woodford shale play.
Please take a look at the 1-year chart of XEC (Cimarex Energy Co.) below with my added notations:
Over the last 5 months, XEC has formed a few important levels to watch. The $70 resistance (navy) has been tested on multiple occasions. In addition, the $60 level (green) has been a very common support level. And finally, the stock hit its 52-week low of $50 in October.
Another important point to note is the recent high the stock has formed this past week (red, 2). You can see that this most recent high is lower than the high the stock hit earlier in December (red, 1). What makes this most recent “lower high” relevant is the fact the overall stock market has hit the same level as it did back in the beginning of December. In short, this stock has severely underperformed the market. This could be a sign that the stock is poised to break lower.
The Tale of the Tape: XEC has formed levels at $50, $60 and $70. The fact that the stock has lagged the market seems to imply a break of the $60 level is in the works. If this occurs, a short position should be entered with an expectation of a minimum drop to $50. However, if the stock were to turn back up and break through the $70 resistance, a long trade would be advised.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT