Dow component Chevron Corporation (CVX) is benefiting from a short-term rotation out of overbought market groups and into perceived value plays, raising the odds that Chevron stock can finally break out above stubborn resistance above $126 and head onto a trend advance that posts bull market and all-time highs. In turn, that would translate into healthy gains for long-suffering shareholders, especially when taken together with the stock's healthy 3.99% forward dividend yield.
However, we've been down this road before, with rotational buying pressure into energy and other value plays drying up after a few days or weeks. In addition, Chevron and other big energy companies have already had years to benefit from America's crude oil boom but have slumped badly due to poor management, debt issues, and/or other headwinds. As a result, a defensive posture makes sense until an actual breakout unfolds.
CVX Long-Term Chart (1987 – 2019)
Chevron stock entered a historic advance after the 1987 crash, lifting in multiple buying waves that reached $52.47 in 1999. That marked the highest high for the next five years, ahead of a topping pattern that broke support in the mid-$30s in 2002. A final descent to a six-year low at $30.66 signaled a low-risk buying opportunity, giving way to a fresh uptrend that reached the prior high in the fourth quarter of 2004.
It broke out immediately and fell into a choppy sideways pattern, posting little upside until the second half of 2006. That buying impulse topped out just above $100 in 2008, giving way to a vertical descent during the economic collapse. The decline settled in the low $50s after the crash and tested that level successfully in March 2009, completing a double bottom reversal, while subsequent upside completed a 100% retracement into the prior high in 2011.
A breakout eased into a rising wedge pattern that dampened gains into 2014's all-time high at $135.10. The stock plunged with world commodities through the first half of 2015, finally bottoming out in the upper $60s after the mini flash crash in August of that year. The subsequent recovery wave unfolded at a similar but opposite trajectory, reversing within two points of the prior high in January 2018.
Price action since that time has carved a declining highs trendline, with resistance now located above $126. Rising lows during the same period give a triangular look to the five-year pattern, but it's hard to make bold predictions with two-point trendlines. Unfortunately for bulls, the monthly stochastics oscillator crossed into a sell cycle in May 2019, establishing a headwind that could delay a rapid advance to new highs.
CVX Short-Term Chart (2015 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator posted a five-year low in the second half of 2015 and entered an accumulation phase that stalled just below 2014's all-time high in May 2018. OBV has flat-lined since that time, mimicking the stock's choppy holding pattern. Shareholders have hung tough despite weak returns during this period, taking the hefty dividend for their efforts.
The trendline in place since early 2018 is actually a price zone, with the $125 to $127 levels under contest. A buying spike through the zone that also lifts OBV to the red line should signal a sustained breakout, setting the stage for a critical test at 2014 and 2018 resistance, That impulse will also complete a multi-year cup and handle pattern, with a rally into the $140s yielding a long-term measured move target at $200.
The Bottom Line
Chevron has turned higher with the energy sector and could challenge the trendline of lower highs in place for the past 19 months. A breakout will open the door to a test at 2014 and 2018 resistance while completing a cup and handle breakout pattern that could post impressive long-term returns.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.