Market Overview

Crude Just Rallied 9%, What Stocks Could Benefit?

Amid a flurry of short-covering and whipsawing sentiment, crude oil soared 9% on Friday to $84.75. The catalyst for the move was an unexpected announcement from the EU summit. Policy makers had agreed that European Union bailout funds could be used to stabilize the bond markets of countries that comply with EU policy recommendations. The leaders also agreed that a single supervisory body for Eurozone banks, under the European Central Bank, would be discussed by year-end.

Market watchers believe this could be a first step towards a banking union in the region. Lazard Capital Markets managing director Art Hogan told Reuters, "It's inching closer to a banking union and the closer we get to a banking union would put (the EU) well on the road to a fiscal union."

The news caught traders off guard, and with huge short positions in stocks, the EUR/USD, crude and other assets, there was a sharp spike to the upside in risk assets, being driven in part by short-covering from wrong-footed traders. Essentially, the market's initial reaction to the news out of Europe is that it is more substantive than had been expected. Whether or not the gains will hold, however, is an entirely different question as cynicism has quickly returned in the wake of prior rallies driven by optimism out of the EU.

The massive move in oil, however, suggests that the bulls are looking to chase the commodity higher on improving overall risk sentiment and that the shorts are covering. Crude oil, along with the energy sector, have been decimated in recent months. The sell-off has been really merciless. While the cynical point of view is that this is merely a bear market rally in the energy complex, it could last awhile. It might also be a sharp trend reversal which sends prices back to highs seen earlier in the year.

In any event, a trade may be setting up in energy stocks, which are up 3.40% on Friday, on account of improving sentiment in the oil markets. In order to come up with some ideas, Benzinga looked for small-cap energy stocks that are down at least 30% over the last quarter (prior to today), but jumped at least 5% on Friday. These names could be a good way for traders to aggressively gain exposure to the energy sector heading into next week. Below, Benzinga highlights the seven names that fit the above outlined screening metrics.

Clayton Williams Energy (NASDAQ: CWEI) - Shares have lost 38% over the last 3 months, but jumped more than 9% on Friday. The company has a market-cap of roughly $589 million, making it a leveraged play on sentiment in the energy complex.

Gulfport Energy (NASDAQ: GPOR) - Stock has plunged more than 26% over the last 3 months, but added 7.39% on Friday. The company has a market cap of a little over $1 billion and belongs to the independent oil and gas sub-sector of the energy industry.

Lufkin Industries (NASDAQ: LUFK) - This oil and gas equipment and services stock has lost 30% during the last 3 months amid plunging crude prices, but rose more than 5% on Friday. The company sports a market cap of under $2 billion and the stock is yielding 1.00% at current levels.

Precision Drilling (NYSE: PDS) - This driller is down more than 29% over the last 3 months and the stock is near the low-end of its 52-week range. On Friday, PDS climbed 8.60% to $6.82 and should be set to rally if today's energy action turns out to be a trend shift.

Rosetta Resources (NASDAQ: ROSE) - The price action in this stock was phenomenal on Friday. ROSE gapped higher and then climbed throughout the session to finish at its best levels of the day, up 10%. Volume was also on the heavy side. After today's close, Rosetta shares are still down more than 26% on the three-month chart.

Swift Energy (NYSE: SFY) - Shares have lost a whopping 35% over the last 3-months, but a better than 6% rally on Friday could be setting the stock up for more gains next week. Swift is an independent oil and gas company engaged in the exploration, development, acquisition and operation of oil and natural gas properties. This is the kind of name that could be fun to own if crude comes storming back.

W&T Offshore (NYSE: WTI) - This company's ticker, WTI, plays off the acronym for West Texas Intermediate crude, the American oil benchmark. With crude contracts soaring more than 9% on Friday, this offshore driller may be worth a look. The stock climbed 5% on Friday but has fallen almost 28% over the last 3 months.

Posted-In: Long Ideas Short Ideas Dividends Small Cap Analysis Futures Technicals Commodities Intraday Update Best of Benzinga

 

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