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Suncor Energy (NYSE: SU) appeared on my bullish scan last night, and at first glance it seemed like it could be a good signal. The oil and gas company struggled as the price of oil fell from over $105 a barrel in the summer of 2014 to under $30 a barrel in January of this year. As the price of oil has recovered over the last three months, Suncor has recovered as well.
Looking at the daily chart, we see that the price of Suncor Energy stock jumped from a low of $18.49 in January to the recent high of $29.90, but has pulled back in the last few weeks. The $30 level also served as resistance back in November.
The daily stochastic readings are in oversold territory thanks to the recent sell-off, but they just make a bullish crossover. That is one of the reasons the stock appeared on my bullish scan. The 10-day RSI hit an oversold reading as well and has recently turned higher.
While the indicators on the daily chart suggest a bullish run, the weekly chart paints a different picture. We see the horizontal line at the $30 level where the stock recently peaked out, but there is another layer of resistance there in the form of the 104-week moving average. Look at how that moving average served as resistance back in the spring of 2015 and again two weeks ago.
We see that the 10-week RSI hit an overbought reading last month and the weekly stochastic readings have been in overbought territory for some time now. The recent bearish crossover from the stochastic readings points to more movement to the downside, as we saw significant declines in each of the previous two instances where this occurred.
I also noticed how the last two declines had similar patterns. They started with a significant weekly loss, then the stock stalled for a week or two, and then the decline resumed.
Despite the fact that Suncor Energy stock dropped in half from June 2014 through the low in January, the sentiment toward the stock is still rather optimistic. The short interest ratio is low – at 2.3 – and of the 11 analysts following the stock, eight have it rated as a “buy” and three have it rated as a “hold.” Given the price performance of the stock, you would think there would be more pessimism toward the stock.
Despite the bullish signal from my scans, I would not look to buy Suncor Energy stock at this time. Instead I would look at any bounce as an opportunity to short the stock. The resistance at the $30 level and from the 104-week moving average are the main drivers behind the bearish stance, and the pattern in the weekly stochastic readings adds to that stance.
I would look to short the stock above the $28 level with a downside target of $20 at the very least. Should the stock close a week above the 104-week moving average, that would be sign to shut down the trade.
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