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Hi everyone! We continue our trading ideas section. The link to TradingView post with the idea is available here.
Just in 10 days, CLR became a much more attractive company with its' CEO, billionaire Harold Hamm, buying stocks worth $155 million. Let's take a look at whether we should follow him.
Before I continue, please note that I do not hold CLR and only consider buying. As always, please note that this analysis is my point of view, and trading is a risky activity. You are the only responsible for your trading actions. Now, with disclaimers being said, let's take a look at the trade.
There are several interesting points to analyze.
First of all, CLR is an oil company based in the US. Unlike other oil companies, it didn't hedge the oil price risk. As a result, because of the COVID-19 crisis, it had to shut many of its' wells. At the same time, the company gains from the oil price increase much more than other market participants. In fact, taking a position in CLR is partially like taking a lagged position in the oil itself because of the lag between oil price and stock price increases.
Second, from June 22 till July 7, CEO, billionaire Harold Hamm, bought additional $155 million stocks, bringing his overall company control to 78%. For those who don't know, Hamm is an old legend in the oil market. He is a self-made billionaire and was one of the first to start horizontal (shale) drilling. In this sense, I believe he had reasons for his decision.
CLR insider trading
Third, the stock price right now is attractive. It had two negative days, falling to an upward trendline and a 50-period MA. This level is supported by the COVID-19 gap and excessive activity area below.
Overall, the price seems to be interesting, and the trade offers a great risk-reward ratio. The first target is about $27.5, and the second one is about $36. At the same time, a narrow stop below $13 might be a good idea, in case the levels don't work and we have to search for another entry point.
There are two ways to play around the idea - you can either wait for a bullish candle to appear or to entry right at the spot. The first option offers a lower risk-return ratio but increases the probability of success. The second one is just the opposite. Since risk-return in option one is still really good, I'd recommend it instead of option 2.