Stone Energy (SGY) Stock Continuing Skyward While Oil Declines… Dangerous Trend?

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Stone Energy Corporation (NYSE: SGY)

Stone Energy Corporation has been an incredibly interesting stock to watch as of late. While the stock has been hit by the low price of oil, recently we’ve been seeing some strong bullish activity. In fact, we’re seeing that activity today, even with the price of oil declining. So, what’s the deal? What’s causing the trend? Is the bullish movement on SGY likely to continue? I’ll do my best to answer those questions today.

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Why Is SGY Gaining?

When we look at the overall oil market, we’re seeing some bad news. The price of the commodity is falling. However, somehow, Stone Energy, a company that is heavily exposed to spot prices, is seeing strong gains. One big question that may come up when we see movement like this is, “Why?”

The reason is actually relatively simple. Recently, Saudi Arabia said that it would be willing to work with other oil producers to freeze production. This led to a bullish frenzy surrounding oil, pushing the price of the commodity skyward. As a stock that is heavily exposed to the oil spot price, this was incredible news for SGY.

Since then, investor excitement surrounding the stock has been building. After all, when you see your shares gaining, and you’re making money, it gets exciting. Because investors move the market, this excitement can keep a trend going for longer than it probably should. In my opinion, this is what we’re seeing from SGY at the moment.

What We’re Seeing From The Stock Today

As mentioned above, Stone Energy continues to advance in the market, building on investor excitement. Currently (1:02), the stock is trading at $11.57 per share after a gain of $0.97 per share (9.15%) thus far today.

Is This Trend Likely To Continue?

At first glance, you may be considering getting involved. After all, we’re seeing strong momentum in the upward direction. Nonetheless, it’s important that you know that this really is a dangerous trend. With fundamental data suggesting that the stock should be declining, and gains actually happening, we can expect SGY to fall hard when the stock hits resistance. If you don’t sell at the right time, you could end up losing a pretty big chunk of money.

Moving forward, I have a relatively bearish opinion of what we can expect to see in the long run. The reason for my opinion on this is simple. SGY is a company that is dug deeply in the energy and oil sector. Therefore, the stock is at the mercy of the price of the commodity. With hopes of a coming oil production freeze fading, we’re finding ourselves back in the same position that we were in before the recent bullish activity surrounding oil. At the end of the day, there is still no answer or solution for the current supply glut. In fact, producers are working to increase production, rather than stabilize spot prices. As a result, I’m expecting to see declines in the value of oil ahead. This movement will likely lead to declines in the value of Stone Energy stock as well.

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What Do You Think?

Where do you think SGY is headed moving forward? Join the discussion at TalkTRENDZ!

[Image Courtesy of Wikimedia]

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