Best and Worst Oil & Gas Driller Stocks to Own Tickers in this article: WLL, AR, CXO, RSPP The oil and gas drilling and exploration companies have been beat down this year. If trading in this sector though, be aware of relative strength. Relative strength is how a stock is performing relative to its peers. If oil continues to weaken, traders should look to short the weakest stocks in this sector, and if oil stabilizes or rises, buy the strongest stocks in this sector. Why? Because the stocks have already proven themselves for each trade type. The weak stocks have fallen regardless of what happens, making a short trade within them a higher probability trade than trying to short a stock that has been stronger. On the flip side, while even the strong performers have witnessed recent sell-offs, they aren't in free fall and some have even been pushing higher. This shows the traders in the stock are less likely to sell, and are willing to step in and buy, helping to support the price. Depending on which side of the market you want to be one--long or short--here are two of the weakest and two of the strongestoil and gas drilling and exploration stocks (all over $2 billion market cap. and more than 500,000 share average volume).
Whiting Petroleum Corp. (WLL) 
Whiting Petroleum Corp. (WLL) traded as high as $92.92, before it began falling to the recent August 7 close of $17.92. While the price was stable for much of 2015, ranging between $41.57 and $26.14, the price broke below that range in July and is on a steady decline since. This stock is in a downtrend on all time frames, and while buyers could step in at any time, there isn't much technical evidence to suggest that right now. A rally above $20 may indicate a short-term pop higher, but wouldn't reverse the trend. Pullbacks which stay below $35 keep the trend down, while a rally above $36.50 indicates the long-term downtrend could be reversing. Consecutive higher swing highs and higher swings low also signal the downtrend may be reversing. Prior downside targets at $18 and $16.5 have been exceeded or almost reached. Further downside targets are $13 and $11.
Antero Resources Corporation (AR) 
The slide in Antero Resources Corporation (AR) began in early 2014, when the stock peaked at $68.43. It has fallen to $25.97, as of the August 7 close. This stock also stabilized in early 2015, and even showed signs of a possible uptrend beginning, putting in higher swing highs and lows in March and May. The price is in a steady decline since the May high ($46.06) though, and the trend is down on all time frames. The decline is respecting a descending trendline, currently intersecting at $27.50. A break above the trendline is a weak signal that a bounce could be forthcoming, but given all the downside momentum buying isn't recommended until there is more evidence of a reversal (higher swing low and higher swing high). With such a sharp slide utilizing a trailing stop loss works well to lock in profits from a further decline and minimize risk in case the trend reverses.
Concho Resources, Inc. (CXO) 
Concho Resources, Inc. (CXO) stock is trading higher over the course of 2015, up 7.59%. That's better than the SPDR S&P 500 ETF (SPY) which is only up 2.10% year-to-date (YTD). While the aforementioned stocks have continued to fall, Concho Resources has been showing resilience. The logic behind buying it is that if the stock is holding up well in unfavorable conditions, it should do well if conditions turn more favorable. The stock bottomed in December at $77.22, then traded as high as $134.13 in May. The stock has fallen off that recent high, trading at $107.32 as of the August 7 close. Despite recent weakness the stock is still performing better than many of its peers. Recently the price bounced off $98.03; place a stop loss below that to help limit risk on long trades. From early July onward the price has met resistance in the $112.50 region. A break above that level, especially if the outlook in the oil and natural gas markets improve, could signal another move higher in Concho Resources stock price.
RSP Permian, Inc. (RSPP) 
RSP Permian, Inc. (RSPP) bottomed in December at $19.36, and rallied to a June high of $31.15. As of the August 7 close at $23.24, the price has fallen off that high and is down 7.56% in 2015. Since the stock began trading in 2014, $19.50 to $19.36 has been a support zone. Stop loss orders can be placed below that zone to help control downside risk. Based on the price action in 2014 and 2015 this stock isn't likely to scream higher, but still provides upside potential. The stock has predominantly ranged over the last couple years with resistance near $30, followed by the 2014 high at $33.67. In the current conditions it provides upside potential and relative safety compared to many of its peers.
The Bottom Line Trading based on relative strength doesn't mean we should expect the weakest stocks to continue to plummet, or the strongest ones to skyrocket. Relative strength is simply a way to isolate trades which offer opportunities if a certain catalyst develops. While oil is weak, short trades in the weakest stocks are preferred, while long trades in the strongest stocks are preferred if a bullish scenario develops in the sector.
The downside of relative strength trading is that it requires homework. What is strong today may not be strong a week or month from now, and what is weak could become stronger in the future. Relative strength traders stay on top of which stocks are performing well and poorly, and then adjust their positions accordingly based on what is happening with the underlying catalyst (oil and gas prices in this case).
Refine Your Financial Vocabulary Sign up to receive our FREE Term of the Day newsletter. Gain a better understanding all things financial with technical and easy-to-understand explanations. Click here to begin developing your financial language with this daily newsletter. Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.
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