Callon Petroleum (CPE)

Technical Update Video

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Callon Petroleum Company is an independent oil and natural gas company. Callon Petroleum looks set to remain in a strong bullish trend over the coming 3-5 years, so long as the improving financial conditions remain. The Company is engaged in the exploration, development, acquisition, and production of oil and natural gas properties. The Company’s activities are primarily focused on horizontal development in the Midland and Delaware Basins, both of which are part of the Permian Basin in West Texas, as well as the Eagle Ford in South Texas. The Company’s primary operations in the Permian reflect a high-return, oil-weighted drilling inventory with multiple prospective horizontal development intervals and are complemented by a repeatable cash flow-generating business in the Eagle Ford. Its Permian basin consists of approximately 8,800 net acres and the Midland and Delaware Basins consist of approximately 75,000 net acres.

Callon Monthly Chart

Defining Supply & Demand

  • The value of the monthly chart is giving investors the historic view, there are very simplistic tools we can use to calculate relative weakness & strength. Patterns that have strong fundamental value, historically.
  • The above monthly chart defines two ranges at which price has struggled to surpass.
    • First, historic supply has been defined between ($185-$224)
    • Second, historic demand has been defined between ($3.8-$33)
  • Recently price has consolidated in the historic BUY range, we now see an extension rally back towards the relative mean ($146.55).
  • Short-term resistance rests at ($62). Above this level triggers a higher base probability for full mean reversion ($146.55).
  • Note the significant decline in monthly volume from a peak of 123.7 Million during the crisis of 2020, now falling nearing the end of 2021 to 25.6 Million. All while price/volume has diverged, from the lows in 2020 CPE has rallied 1,444.73% ($3.8-$58.7).
  • As earnings begin to improve we are looking for monthly volume to begin to reverse into a positive trend.

Callon Daily Chart

  • On the daily chart, we see two significant demand zones ($25.5-$32)/($32-$42) and one significant supply zone ($60-$65.45).
  • As long as the price can remain above the relative demand (previous highs $49.85) we can look to follow the price back into recent new highs ($65.45).
  • Note the ascending channel, starting from the lows on 8/20/2021 ($25.5), the pattern which has remained relevant into this week.

Callon Financials Overview (Quarterly)

Fundamental Improvements

  • A few notable improvements in the financials are highlighted above.
    • Earnings Per Share; Strong improvements (+105.70% QoQ) from a loss of ($17.12) in Q3 2020 to $3.28 in Q3 2021.
    • Return on Assets; Strong improvements (+291.87% QoQ) From a loss of (-43.084) in Q3 of 2020 to a net loss of (-5.5488) in Q3 of 2021.
    • Net Profit Margin; Strong improvements (+108.54% QoQ) From a loss of (-234.59) in Q3 of 2020 to a net gain of (+31.11) in Q3 of 2021.
    • Gross Revenue has improved +53.63% from a historic 5 year average of 49.68 to the current of 76.327.

Summary

Overall With strong technical improvements along with signals of improving financials, Callon Petroleum looks set to remain in a strong bullish trend over the coming 3-5 years, so long as the improving financial conditions remain and faith in investors along with it.

References

8/21/50/100/200dSMA: The Simple Moving Average is calculated by summing the closing prices of the security for a period of time and then dividing this total by the number of time periods. Sometimes called an arithmetic moving average, the SMA is basically the average stock price over time. As a trend develops, the moving average will slope in the direction of the trend, showing the trend direction and some indication of its strength based on the slope steepness.

Mean Reversion: Mean reversion, or reversion to the mean, is a theory used in finance that suggests that asset price volatility and historical returns eventually will revert to the long-run mean or average level of the entire dataset. This mean level can appear in several contexts such as economic growth, the volatility of a stock, a stock’s price-to-earnings ratio (P/E ratio), or the average return of an industry.

Ascending Channel: An ascending channel is the price action contained between upward sloping parallel lines. Higher highs and higher lows characterize this price pattern. Technical analysts construct an ascending channel by drawing a lower trend line that connects the swing lows, and an upper channel line that joins the swing highs.

ATR: The Average True Range (ATR) study calculates the average true price range over a time period. True range is the greatest of the following:

  • The difference between the current high and current low
  • The difference between current high and previous low
  • The difference between the previous close and the current low

MACD: MACD (Moving Average Convergence/Divergence) is an oscillator study that is widely used for the assessment of trending characteristics of a security. Calculated as the difference between two price averages, this indicator also provides a signal line, an average of that difference. Crossovers of the MACD plot and the signal line often produce valuable signals for trend analysis.

RSI: The Relative Strength Index (RSI) is an oscillator that rates the strength of a security on a scale from 0 to 100, comparing magnitudes of its recent gains and losses. By default, Wilder’s moving average is used in the calculation of RSI, however, you are free to select a different type of average in the input parameters.

Links:

Ascending Channel Definition (investopedia.com)

Mean Reversion Definition (investopedia.com)

DISCLAIMER

Our content is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis prior to making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our post(s) and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities. Past performance is no guarantee of future results. Any historical returns or expected returns are hypothetical in nature and may not reflect actual future performance. Account holdings are for illustrative purposes only and are not investment recommendations. Speak to a financial advisor before confirming any investment decisions.

About the author: Liam Hennessy

With 5 years of trading experience, Liam intends to share his insights and knowledge with anyone who seeks to learn more about trading and utilizing technical analysis to improve their market research capabilities.

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