Energy Stock Sends Up Sell Signal Ahead of Earnings

The stock's previous run ups to its 40-day trendline have previously preceded weak price action

Whiting Petroleum Corp (NYSE:WLL) will report earnings after the market closes next Wednesday, July 31. The energy stock is flashing a "sell" signal on the charts ahead of the event, and given its history of negative earnings reactions, it could be time for a bearish play on WLL.

After bottoming at a three-year low of $14.74 on July 18, WLL stock strung together a five-day winning streak. This brought the equity within one standard deviation of its 40-day moving average, and prior run ups to here have preceded periods of weakness in the shares.

Specifically, there have been 10 other times in the past three years Whiting Petroleum has come this close to its 40-day trendline after a lengthy stretch below it, per Schaeffer's Senior Quantitative Analyst Rocky White. Following these prior signals, the oil stock was 6% lower, on average, one month out, with the majority of the returns negative.

What's more, WLL shares have closed lower the day after the Colorado-based company reports earnings in three of the past four quarters, averaging a loss of 10.7%. This includes back-to-back negative earnings reactions -- namely a 12.9% drop in May, and an 11.1% decline in February.

Short sellers have been positioning for more downside at a blistering pace. Short interest surged 49% in the two most recent reporting periods to a record 25.78 million shares. This has likely increased pressure on WLL shares, and continued short selling could strengthen headwinds on the stock.

There's room for analysts to issue bear notes on the embattled energy shares. Currently, 13 of 22 brokerages maintain a "strong buy" rating, with not a single "sell" on the books. Plus, the average 12-month price target sits all the way up at $30.11. Today, WLL stock is down 2.9% at $`5.84.