Investors and traders who've referred to oil as black gold as its price has capitulated during the fourth quarter are those who hold short positions in the liquid commodity. Since early October, the price of Light Sweet Crude Oil Futures (CLF19) for January 2019 has tumbled close to 40% due to oversupply fears mixed with fresh concerns about the possibility of a global recession, adding further energy to the aggressive sell-off. "The only way is down," Tamas Varga, senior analyst at PVM Oil Associates, said in a research note, per a CNBC article.
Despite the negative sentiment shared by many analysts, these unfavorable fundamentals appear already factored into the oil price. Significant technical support sits at the $43 level, which is 7.7% below Tuesday's market close of $46.28.
Traders who are looking to swing trade bellwether names in the oil and gas industry should keep a close eye on these three stocks if oil prices fall further down the well to test this closely watched support area.
Exxon Mobil Corporation (XOM)
Exxon Mobil Corporation (XOM) explores and produces crude oil and natural gas in the Americas, Europe, Middle East, Africa and Asia Pacific. The Texas-based company produces 2.3 million barrels of oil per day and over 10 billion cubic feet of natural gas per day. Trading at $72 with a market capitalization of $304.83 billion and offering a 4.43% forward dividend yield, Exxon Mobil stock is down 7.62% year to date (YTD), underperforming the S&P 500 Index by roughly 4% over the same period as of Dec. 19, 2018.
Although Exxon Mobil's share price trades at a 16.74% discount to its YTD high of $86.48, it is likely to find significant support between $70 and $71 from the March swing low. Also, the relative strength index (RSI) is moving toward oversold territory, which increases the likelihood of a bounce from this level. Traders who take a long position should set a stop-loss order just below $70 and consider booking profits on a rally to $82, where the price could find resistance from a horizontal line.
Chevron Corporation (CVX)
Founded in 1879, Chevron Corporation (CVX) has global operations in energy, chemicals and petroleum. The company, with a market cap of $209.69 billion, has a daily production of 2.7 million barrels of oil and 6 billion cubic feet of natural gas. As of Dec. 19, 2018, Chevron stock has returned -6.6% YTD while slipping 1.21% over the past month. Investors have had to hang their hat on the stock's 3.98% dividend yield to partially offset the capital loss.
Chevron's stock has oscillated within a roughly 25-point range between $128.91 and $104.01 throughout most of 2018. Those who want to trade the stock should look for an entry point between $106 and $108 – an area on the chart where the price should encounter support from the February and October swing lows. If the price reaches this level in the coming days, the RSI is likely to cross below the oversold threshold of 30. Traders should sit their stops below $104 while aiming to exit with a profit at the $120 level. The stock may find resistance in this area from previous price action.
ConocoPhillips (COP), with a market cap of $71.27 billion, explores, produces and transports crude oil, natural gas and bitumen primarily in the United States, Canada, Norway and the United Kingdom. The company produces approximately 800,000 barrels of oil per day and 3.3 billion cubic feet per day of natural gas. ConocoPhillips stock pays a 1.89% dividend yield and has gained 12.79% YTD as of Dec. 19, 2018, thanks to higher revenue and lower debt levels.
ConocoPhillips shares rallied for the first nine months of the year before surrendering to sharply lower oil prices in October, November and December. Traders who want to play a bounce to the upside should look for the share price to hold $60, where it finds support from the prominent January swing high. Consider placing a take-profit order between $66 and $68, where the price may stall due to resistance from the 50- and 200-day simple moving averages (SMAs) and horizontal lines. Protect trading capital by placing a stop order several dollars below the entry price.
(Further Reading: Top 3 Oil and Gas Penny Stocks for 2020)