Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
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What: The price of crude oil is rallying again today -- up another 3%. Crude's rally is taking oil-related stocks up with it, especially highly indebted oil stocks like SandRidge Energy . By mid-afternoon the oil driller's stock was up 20% as it enjoys another double-digit oil-fueled relief rally.
So What: A couple of days of rallying crude prices doesn't make a trend, however, investors do seem to be buying into the idea that oil has bottomed, at least in the near-term. Because of that it's sending the stocks of what the market perceives as weaker oil companies like SandRidge Energy higher.
That said, some of the recent buying could very well be short covering as more than 17% of the company's available shares had been sold short as of the middle of last month. These traders are very likely to be lightening up their short bets by buying back the SandRidge Energy stock they've previously sold short. As traders get into and out of a stock it creates a lot of volatility, which make for big stock price movements during these transitions.
Now What: We don't yet know if the recent rally in oil prices is sustainable. That's a big concern as SandRidge Energy really needs higher oil prices, ideally in the $70+ per barrel range, to make decent money from its core drilling area. That's why I'd caution investors not to get their hopes up as oil has a long way to go before it hits that level.
The article Heres Why SandRidge Energy Inc. Stock Rocketed 20% Today originally appeared on Fool.com.
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Matt DiLallo is happy (at least today) because he owns shares of SandRidge Energy. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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