Market Talk with Piranha is currently moving to its new home at chrisperruna.com. The new site is up and running but many of the posts need editing as the images and stock charts did not transfer successfully (thanks blogger). I will post all new entries to both blogs – Thank you for your patience while I make this change!

Thursday, March 23, 2006

Southwestern Energy (SWN) a short?

Looking at a multi-year chart, you would not want to challenge the institutional support that Southwestern Energy Co. (SWN) has received for the past several years at the 200-d moving average. The stock has increasing quarterly and yearly earnings.

Yearly EPS:
2003: 0.37
2004: 0.70
2005: 0.94
2006: 1.23 (E)
2007: 1.56 (E)

Return on equity has been average when compared to its peers but not overwhelming. Revenues are rising and the debt-to-equity ratio is below the industry average. Above all else, it resides in an industry group that has been leading the market for the past two years while oil prices continue to increase and trade above $60 a barrel.

So why would I consider shorting the stock or buying several put options?
For starters, it violated the 200-d m.a. for the first time in almost three years.
It attempted to recover the moving average and failed, another event that hasn't occurred in years.

The short position or put options can be placed (or bought) right now but I must warn that oil is still trading above it's respective 200-d m.a. Unless oil cracks $60 and breaks below its own moving average, this play may not work out. If you initiate the position, make sure you use the correct position sizing techniques and protect yourself from a move to the up-side.

It's ok to be wrong but its not ok to be wrong and sit without getting out of the position. If (SWN) fails to recover the 200-d m.a. once again, this will be a strong signal to place the position if you don't do it before then.

Good luck, we'll see what happens.
By the way, I am not bearish or bullish on the market, I am just searching for opportunities.


Piranha

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