2 Oil Stocks Trading Above Multi-Month Downtrend Lines

Leading firm expects oil to be trading at $50 in 2021

Oil stocks added to Monday's vaccine breakthrough gains after Vitol, the world's largest oil trading firm, said that the incoming Biden presidency's environmental policies could push oil prices higher over the longer term as supplies tighten.

The company's CEO Russell Hardy said that he sees the United States moving toward similar environmental goals to the European Union (EU), which may lead to shrinking stockpiles. "We've seen this in Europe. There's a lot less capital available for these markets and these developments and that could begin to feature more in the United States," Hardy said, per Reuters.

Key Takeaways

  • Vitol says that the incoming Biden presidency's environmental policies could push oil prices higher over the longer term as supplies tighten.
  • Devon Energy Corporation (DVN) shares broke above an 11-month downtrend line, with the price closing above the 200-day simple moving average (SMA) for the first time since mid-January.
  • Occidental Petroleum Corporation (OXY) shares have broken above a downtrend line on above-average volume, indicating possible institutional buying.

Vitol cautioned that oil prices could face some near-term weakness as several Iranian oil exports resume operations but expect the commodity to be trading at $50 in 2021. Below, we take a closer look at two leading oil names that have recently broken above multi-month downtrend lines. We'll also analyze their charts using technical analysis to identify possible trading opportunities.

Devon Energy Corporation (DVN)

Devon Energy explores for and produces oil, natural gas, and natural gas liquids in the United States. While the Oklahoma-based energy giant recently posted a third quarter loss of four cents per share, the figure came in ahead of the eight-cent loss analysts had expected. Moreover, the earnings beat marks the seventh consecutive quarter that the company has topped bottom-line forecasts. Last month, Truist analyst Neal Dingmann upgraded Devon Energy stock to "Buy" from "Hold" and revised his price target from $14 to $16. Dingmann argues that the company has an attractive valuation and an ability to generate solid free cash flow (FCF) through its stable operational plan. Devon Energy stock has a market capitalization of $4.5 billion and offers a healthy 3.88% dividend yield but is trading over 50% lower on the year. However, the shares have jumped 22% in the past week as of Nov. 11, 2020.

The share price staged an impressive breakout above an 11-month downtrend line Monday, with gains accelerating yesterday to record the first close above the closely watched 200-day SMA since mid-January. Those who buy at current levels should look to book profits near $19.80 – an area on the chart that finds resistance from a crucial horizontal line. Protect trading capital with the stop-loss order placed below the breakout level at $9.85.

Chart depicting the share price of Devon Energy Corporation (DVN)

A breakout refers to when the price of an asset moves above a resistance area or moves below a support area. Breakouts indicate the potential for the price to start trending in the breakout direction.

Occidental Petroleum Corporation (OXY)

With an $11.52 billion market cap, Occidental Petroleum is an independent exploration and production company with operations in the United States, Latin America, and the Middle East. The energy producer on Tuesday posted a third quarter loss of 84 cents per share on revenue of $3.3 billion. Wall Street had expected a loss of 70 cents per share on sales of $4.3 billion. To combat lower oil prices and weaker demand amid the ongoing health crisis, the company continues to focus on cost controls. Domestic operating expenses for the quarter were down 36% from the year-ago quarter. As of Nov. 11, 2020, the stock issues a 0.33% dividend yield and has tumbled 68% year to date. Over the past week, the shares have rebounded 27.76%, indicating a possible shift in sentiment.

After plunging to a 20-year low just last month, the shares have reversed course rapidly to trade above a downtrend line that extends back to February. Furthermore, the move has occurred on above-average volume, indicating possible institutional buying. Active traders who enter here should consider scaling out at key overhead resistance levels $24.50 and $37.50 while limiting downside by placing a stop somewhere beneath the downtrend line.

Chart depicting the share price of Occidental Petroleum Corporation (OXY)

Scaling out is the process of selling off portions of total held shares while the price increases. To scale out means to get out of a position (e.g., to sell) in increments as the price climbs.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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