Leading energy stocks have lagged the broader market for most of the year as investors punished the embattled sector over fears of slumping end-market demand amid falling economic activity in the wake of coronavirus-induced shutdowns. Therefore, it comes as little surprise that the group has made up ground in recent weeks as news about successful vaccines lifts sentiment and pushes up oil prices.
"While crude oil, up 15% since Nov. 9, still requires support from producers curbing production, company stocks and related ETFs have surged higher," Saxo Bank's Head of FX Strategy John Hardy said, per Oilprice.com.
- The development of successful coronavirus vaccines has given investors hope that oil demand will rebound as economic activity increases.
- Exxon Mobil Corporation (XOM) shares gapped above a 10-month downtrend line and closed above the closely watched 200-day simple moving average (SMA).
- Chevron Corporation (CVX) shares broke above a multi-month downtrend line Monday on healthy volume, with gains accelerating yesterday.
Supply-side tailwinds may come as early as next week when the Organization of the Petroleum Exporting Countries plus allies (OPEC+) meet to discuss extending the duration of their production cuts to offset weaker winter demand. Analysts are expecting the group to delay a return to additional output initially slated for January.
Below, we take a closer look at two large-cap energy stocks that have recently broken above a significant multi-month downtrend line. We'll also use technical analysis to identify crucial chart levels and outline possible trading opportunities.
Exxon Mobil Corporation (XOM)
Exxon Mobil operates as a global integrated oil and gas company that explores for, produces, and refines oil and natural gas. The $177.5 billion energy giant continues to closely monitor expenses through the pandemic, announcing last month that it plans to slash 15% or 14,000 staff through 2022. Moreover, the company announced earlier this summer that it had suspended a range of employee benefits. It may also ramp up operations in South American oil-rich country Guyana to capitalize on cheaper production. As of Nov. 25, 2020, Exxon Mobil stock issues one of the highest dividends in the S&P 500 at an eye-watering 8.84% and has gained 22.89% over the past month.
Exxon shares gapped above a 10-month downtrend line Tuesday and also managed to close just above the closely watched 200-day simple moving average (SMA). The move occurred on above-average volume, which may attract breakout traders looking to play short-term momentum. Those who enter at these levels should consider booking profits on a test of the early June swing high at $55.36 while managing risk with a stop-loss order placed below the breakout point at $39.30.
A swing high refers to a peak reached by an indicator or a security's price before a decline. A swing high forms when the high reached is greater than a given number of highs positioned around it.
Chevron Corporation (CVX)
With a market capitalization of $184 billion, Chevron engages in exploration, production, and refining operations through two segments: upstream and downstream. The company's cost-cutting overhaul – which it commenced in late 2019 – has continued through the health crisis, with management announcing earlier in the year that it intends to reduce the firm's global workforce by up to 15%. Chevron's CFO Pierre Breber said the job cuts related mostly to corporate and support functions but also affected oilfield workers amid lower activity. Earlier this month, RBC analyst Biraj Borkhataria upgraded the stock from to "sector perform" from "underperform," citing Chevron's balance sheet strength and position in the investment cycle. The shares offer a 6.01% dividend yield and are trading 31.76% higher in the past month as of Nov. 25, 2020.
The price broke above a multi-month downtrend line Monday on healthy volume, with gains accelerating yesterday on the back of stronger oil prices. Those who buy here should think about setting a take-profit order near $111.60, where the stock finds overhead resistance from the lower trendline of a previous trading range. Protect capital by setting a stop under the Nov. 23 low at $86.76 and amending it to the breakeven point if the price climbs above the June swing high.
The breakeven point for a trade is determined by comparing the market price of an asset to the original cost; the breakeven point is reached when the two prices are equal.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.