Sunday, September 27, 2015

Energy's Biggest Movers: Summit Midstream Partners LP (SMLP)

Today, we are going to look at Friday's biggest mover in the energy sector. Summit Midstream Partners LP is an infrastructure based company that focuses on gathering, treating, and processing natural gas and crude oil. It has a key partnership with Energy Capital Partners which has been significantly hurt by the impending oil slump. As a result, the last three trading sessions have reported two days of extreme losses and a day of retracement. There may or may not be a big future move in this stock's price, but to find out more we should take a look at the chart. The first thing to notice is that a gradual bearish trend turned into a plunge very quickly and with heavy volume. The suddenness looks to be the result of a piece of news affecting sentiment or traders thought the need for a correction. Either way, bearish feelings have been circling like sharks around the price of SMLP even though the RSI indicator didn't show any overbought signals. In the period between the red vertical lines, one can see the bulk of the bearish trend with a 28% loss of price in the month of August. This loss was signaled by a MACD crossover point and increasing volume over that period of time. An interesting thing about the directional movement in August can be seen in the green circles. The stock price develops a bouncing movement defined by three or four days of an incline in selling before a day of more intense buying. This pattern results in three bounces off a black trendline that connects with the major drop in late September. How real is that major correction as one can see it is supported by another MACD crossover, an increase in MACD spread, and ADX gains to support a stronger trend. What may be vindication of a rebound is that fact that investors thought that the correction was unjustified as it reversed on Friday. On the other hand, the bullish day could be the tail end of the volume patterns seen in August. Either way, a support was established on the last day of the decline around $15.15. The indicators are a little confusing when taken all together, and don't provide any illumination into what may come next. Volume and MACD indicators protect the extension of a bearish trend even with the major gain on Friday, but the black trendline touched four times looks to be exhausted. In my opinion, the last day of selling on the 24th was the last push from investors closing their short positions. Bulls should begin to establish long positions as this stock reaches its all time low. At the same time, fundamental strength in this stock is being stretched by a strain on credit markets that has affected the ability of Energy Capital Partners to be a sufficient partnership. In that case, the recovery may be limited to a simple moving average like the blue 7-day trend line shown above. There, the stock might develop either a resistance or support depending on whether it enters into more lateral trading movement (inherently bearish) or a breakthrough leads to a reversal in sentiment with investors pushing towards a shift in larger trends to the 30- or 90-day simple moving averages. Analysts right now have the stock listed as an outperformer with it labeled as "Buy" five times. I'm inclined to think that way as well.

Summary: BUY; bullish bounce up to 7-day average, possibly more

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