Dow component Chevron Corporation (CVX) has bounced into an 18-month trendline and could break out in the third quarter, testing the 2018 high at $134. In turn, this bullish action would complete a massive cup and handle pattern going back to the 2014 peak and all-time high at $135. It's a big deal because a cup and handle breakout will yield a healthy measured move target at $200, which is situated more than 60 points above multi-year resistance.
A generous dividend history that boasts a current forward yield at 3.83% has kept investors in the game in recent years, despite sub-par performance for a Dow component. The stock has gained about 15% so far in 2019, after dropping to a two-year low in December, but this upside barely moves the needle in relative strength. That could change in a hurry after a breakout, with the potential for Dow and market leadership early in the next decade.
CVX Long-Term Chart (1989 – 2019)
A 1989 breakout above the 1987 high at a split-adjusted $15.16 yielded a powerful trend advance that post a series of graceful rally waves into the 1999 peak at $52.47. That marked the highest high for the next five years, ahead of a narrow trading range that broke to the downside in July 2002. Chevron stock fell to a six-year low in the first quarter of 2003 and turned sharply higher, completing a round trip into the prior high in October 2004.
A breakout into 2005 generated nearly two years of support testing, followed by a steady uptick that topped out at $105 in May 2008. The stock crashed with world markets a few months later, giving up 100 points in just five months before bottoming out at a two-year low. A 2009 retest found willing buyers, ahead of a modest bounce that gained traction at the start of 2011. Chevron completed a 100% retracement into the 2008 high in March and broke out, entering a rising channel that posted an all-time high at $135.10 in July 2014.
Chevron shares crumbed with the commodity sector in 2015, spiraling to a five-year low during the August mini flash crash. That marked a buying opportunity, unfolding through a series of rally waves that stalled within two points of the 2014 peak in January 2018. The stock ground lower for the rest of the year, hitting a two-year low at $100 in December, while a 2019 bounce reversed at the trendline of lower highs in April. The stock has now returned to that level, raising the odds for a breakout.
The monthly stochastic oscillator entered a long-term buy cycle in July 2017 and reached the overbought level in December. A bearish crossover has yielded a flip-flopping pattern in the past 18 month, highlighting congested and choppy price action consistent with a persistent trading range. This oscillation will eventually break higher or lower with price, offering more reliable cyclical buy and sell signals.
CVX Short-Term Chart (2015 – 2019)
A Fibonacci grid stretched across the 2015 to 2018 uptrend organizes seemingly chaotic price action, highlighting repeated tests at the .382 retracement level, followed by a December 2018 breakdown that found support at the .50 retracement. It remounted broken support in January, reinstating a trading floor at $109 that might offer a buying opportunity following a decline. However, the trendline of lower highs since January 2018 may be complete, with a breakout lifting quickly into 2018 resistance.
There's little benefit in buying prior to a breakout because the stock has reversed at resistance once again and could settle at lower prices. Look for a buying spike above the October and April highs above $127 to attract healthy volume, setting off quick but limited upside. It's hard to predict how long it will take to mount resistance at $135, so patient investors may wish to buy at $128 and hold through gyrations that could take months or longer before ejecting to new highs.
The Bottom Line
Chevron stock has reached trendline resistance for the fourth time in 18 months and could break out, competing a multi-year cup and handle pattern.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.