Chevron Corporation (CVX) missed earnings per share (EPS) estimates when it reported results on July 31, but the stock stabilized after a lower open. Chevron shares traded as low as $81.51 in reaction to the report and then rebounded to $88.43 on Aug. 5. The oil giant stayed below its quarterly pivot at $88.84.
Chevron stock closed last week at $86.80, down 28% year to date and in bear market territory at 29.3% below its Jan. 3 high of $122.72. The stock is also in bull market territory at 68.2% above its March 19 low of $51.60.
NYMEX crude oil futures are down 33.9% so far in 2020. The futures contract's annual value level is $26.31, with its semiannual risky level at $58.11. Chevron is a component of the Dow Jones Industrial Average, and with a dividend yield of 5.9%, it is one of the Dogs of the Dow in 2020.
The daily chart for Chevron
The daily chart for Chevron shows that the stock has been below a death cross since Oct. 7, 2019. This occurred when the 50-day simple moving average fell below the 200-day simple moving average. This is a sell signal, as it indicates that lower prices will follow.
Chevron stock has been below these two moving averages since Jan. 8. At the same time, the oil giant's stock broke below its semiannual pivot at $118.69. These sell signals led to the March 19 low of $51.60.
The V-shaped bottom from this low had the stock up to its 50-day simple moving average on April 9. The high of $103.59 set on June 8 was shy of the 200-day simple moving average, then at $105.41.
The quarterly pivot at $88.84 has been a magnet since July 1. The 50-day and 200-day simple moving averages are now at $90.11 and $99.17. Chevron's weekly and monthly value levels are $74.35 and $68.26.
The weekly chart for Chevron
The weekly chart for Chevron is negative, with the stock below its five-week modified moving average of $87.77. It is also below its 200-week simple moving average, or reversion to the mean, at $112.78. The 12 x 3 x 3 weekly slow stochastic reading declined to 30.72 last week, down from 94.22 on July 31.
Trading strategy: Buy Chevron stock on weakness to its weekly and monthly value levels at $74.25 and $68.26. Reduce holdings on strength to its 200-day simple moving average at $99.17. The quarterly pivot remains at $88.84.
How to use my value levels and risky levels: The stock's closing price on Dec. 31, 2019, was an input to my proprietary analytics. Semiannual and annual levels remain on the charts. Each level uses the last nine closes in these time horizons.
The third quarter 2020 level was established based upon the June 30 close, and the monthly level for August was established based upon the July 31 close. New weekly levels are calculated after the end of each week, while new quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year, and annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. A reading above 90.00 is considered an "inflating parabolic bubble" formation, which is typically followed by a decline of 10% to 20% over the next three to five months. A reading below 10.00 is considered "too cheap to ignore," which is typically followed by a gain of 10% to 20% over the next three to five months.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.