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Devon Energy (NYSE: DVN) has been brought to my attention in a couple of different ways in the last few days. First was in an article about hedge fund 13F filings, in which Dan Loeb’s Third Point fund listed Devon as a new position in its portfolio. Hedge funds are required to divulge their holdings at the end of each quarter, and those reports are due 45 days after the quarter ends.
The second time the Oklahoma-based oil and gas producer was brought to my attention was when it appeared on my bullish scan on Wednesday night.
Devon Energy stock has been in an unbelievable fall over the last four months, so seeing it on my bullish scan required further investigation. Looking at the daily chart produced nothing that made me think the stock was ready to rebound, and I am not into catching falling knifes. The only things I saw on the daily chart was that the stock was oversold, but it has been for the better part of two months now.
The weekly chart also didn’t produce much that made me think I need to rush out and buy some shares of Devon. The most fascinating thing about the weekly chart was the astonishingly bad stretch of price declines in the last 16 weeks. In those 16 weeks, the stock has declined in 14 of them. That is incredible and something that I don’t know if I have seen before – losses in 14 out of 16 weeks.
The only other thing that stood out was that the 10-week RSI is at its lowest reading in the last 20 years. That’s as far back as StockCharts.com would allow me to go.
Finally, I looked at the monthly chart to see if there was any point on the chart where the stock might see some support. After ramping up tremendously during the oil surge in 2008, the stock fell from $117 a share to a low of $35.57 in March 2009 when the overall market bottomed.
You see two lines on the monthly chart pointing out potential support. One is at the lowest monthly closing price, which is just above $40, and the other one is the low at $35.57. You can also see that the monthly oscillators are hitting oversold levels for only the second and third times in the last 13 years.
This is a tough call to make. As I said before, I don’t like trying to catch falling knives, but Dan Loeb has been one of the best performing hedge fund managers over the years. If he is right about Devon Energy stock and it rallies, it would likely be a big rally.
If you are an aggressive investor who is willing to take a shot on a beaten-down stock, Devon definitely qualifies. I think I would play it with a smaller allocation than normal and a little wider stop-loss than usual. This investment could take time to work out, but if the stock breaks below the $35 level, I would not want to be in it anymore.
Cheap Oil Here to Stay – For Now
Crude hasn’t been this cheap since March 11, 2009. And it’s likely to stay low for a while. OPEC refuses to cut production. And US production is expected to increase – not decrease – an additional 600,000 more barrels a day. The Saudis have played this one wrong – and you could profit from their blunder.
Top analyst Tyler Laundon’s found what he considers the best way to play this new, cheap oil boom. Click here for all the details.