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.
What: Shares of Continental Resources (CLR) jumped as much as 18% today and got some rare good news when the price of oil jumped. Mid-day, the price of WTI crude jumped from $54.21 per barrel to $58.98, although the commodity fell almost $3 to $56 in late trading.
So what: Watching oil jump around lately could give even the most experienced trader heartburn, and Continental Resources executives must be panicking over the price drop since the summer. If prices continue to fall, they'll have no choice but to cut back drilling, putting revenue and profits in question for 2015 and beyond. That's why the reprieve in the price of oil was so welcomed today.
But the jump in oil was driven by the Federal Reserve saying it would be "patient" in raising interest rates, not an adjustment to supply and demand in the oil market. So, the world remains oversupplied with oil, and prices will likely see downward pressure until that changes.
Now what: This looks like a dead cat bounce today, and none of the fundamental challenges for Continental Resources has been corrected today. I think the shale business will be put through the ringer in 2015, and this will be one of the companies that will see profits drop like a rock. I certainly wouldn't change my investment thesis for Continental Resources based on a few-hour jump in oil, and I'd be cautious with shale plays in general right now.
