Bearish sentiment adds to Bullish case for cheniere energy

Cheniere Energy (LNG) has been a technical standout in 2013, with the shares more than doubling in value year-to-date to perch at $40.55, and outpacing the broader S&P 500 Index (and SPY ETF) by nearly 29 percentage points during the last three months.

Meanwhile, Cheniere’s early November pullback was cushioned by its 32-day moving average, after which LNG bounced higher to touch a six-year peak of $42.61 on Nov. 18.  Cheniere’s most recent downturn was also contained by this supportive trendline, suggesting another move higher could be on the horizon for the natural gas concern in the near term.

Surprisingly, however, there are still a number of doubters in the options pits. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 1.10 for LNG, conveying puts bought to open have outnumbered calls during the last two weeks. This ratio arrives in the 87th annual percentile, indicating speculators have been scooping up puts over calls at a faster-than-usual pace lately. 

 

 

Similarly, LNG’s Schaeffer’s put/call open interest ratio (SOIR) of 0.53 ranks higher than 90% of similar readings taken within the last 12 months, confirming short-term traders have been more put-focused toward the security just 10% of the time during the past year. From a contrarian perspective, this abundance of put contracts — especially at out-of-the-money strikes within the December series — could end up serving as a tailwind for the stock, as these positions are unwound ahead of front-month expiration.

Elsewhere, short interest climbed by 4.1% over the last two reporting periods, and now accounts for a formidable 7.3% of LNG’s available float, with more than 13.5 million shares currently sold short. In other words, should the equity increase its year-to-date gains, it could stand to benefit from a wave of short-covering activity down the road.

Lastly, although all four covering analysts maintain “buy” or better ratings for LNG, its average 12-month price target of $42 represents expected upside of just 3.4% from current levels. This leaves room for a round of price-target hikes, which could add more fuel to the stock’s tank. Just yesterday, Clarkson Capital raised its price target for LNG to $48 from $45.

Traders hoping to bet on additional upward momentum for Cheniere Energy might want to think about purchasing the security’s in-the-money January 2014 34-strike calls, which sport an ask price of $7.25 right now.

http://www.forbes.com/sites/greatspeculations/2013/11/30/bearish-sentiment-adds-to-bullish-case-for-cheniere-energy/?ss=business%3Aenergy