The West Texas Intermediate (WTI) crude oil contract is trading near $40 after completing an 80-point journey off April's historic low at -$40.32. Energy stocks have bounced off lows since that time, but energy giants and Dow components Chevron Corporation (CVX) and Exxon Mobil Corporation (XOM) are still trading well below levels posted in January and February, bringing recovery efforts into doubt. Even so, bottom fishing continues at a modest pace while armchair technicians wonder if it's time to take the plunge.
These behemoths face greater challenges than smaller production and exploration companies because gasoline sales are highly cyclical, rising during periods of economic growth and contracting during downturns and recessions. U.S. business activity remains well below 2019 peaks despite reopening efforts, raising fears that the economy will fall back into recession, especially with an out-of-control epidemic ravaging the Southern and Southwestern states.
Political headwinds are also taking a bite out of buying power, with sovereign and hedge funds under pressure from environmental groups to dump energy portfolios. The angry calls should grow louder over time, but supply and demand will determine their ultimate fates, with high demand overcoming politics for the vast majority of investors. However, we haven't reached that point yet, given oversupply that still hasn't been absorbed, despite an improved business outlook.
Chevron stock has attracted greater buying interest than its rival since March, but the long-term downtrend remains intact. Looking back, the stock posted a series of nominal new highs between 2011 and 2014 before topping just above $135. It sold off with world commodity markets in 2015, bottoming out at a five-year low in the upper $60s, ahead of a multi-legged uptick that stalled less than two points below the 2015 high in January 2018.
The stock then entered a shallow decline, posting a long series of lower highs into January 2020, when the bottom dropped out in a 53% decline to the lowest low since 2005. The second quarter bounce reversed at the .618 selloff retracement in early June, dropping through new resistance at the 200-month exponential moving average (EMA) and .50 selloff retracement in the low $90s. This barrier has the potential to limit upside well into 2021.
The monthly stochastic oscillator entered the oversold zone in March and crossed into a buy cycle that is now gathering momentum. This placement should support a bounce back to the 200-month EMA, which isn't likely to budge on a second attempt. However, greater-than-expected buying power would negate this bearish view, favoring continued upside into 50-month EMA resistance now declining through $110.
Exxon Mobil stock topped out in the mid-$90s in 2007 and sold off to the mid-$50s during the 2008 economic collapse. A 2010 support test completed a double bottom reversal, yielding a steady uptick that reached the prior high in the summer of 2013. A December breakout made limited headway, topping out near $105 in 2014. The subsequent downtick found support in the $60s, yielding a bounce that carved the first in a long series of lower highs in 2016.
The downtrend tested the 2015 low successfully in December 2018, generating another lower high in April 2019. The stock then ticked lower in a slow drip, breaking that support level on heavy volume in February 2020. The selloff ended just 51 cents above the 2002 low a few weeks later, yielding a bounce that failed to reach the .382 Fibonacci selloff retracement or long-term moving averages.
Exxon Mobil has also crossed into a monthly stochastic buy cycle, but the bull signal hasn't exerted much influence over second quarter price action, and the stock is about to end the month with a bearish gravestone doji that predicts even lower prices. Exxon could easily reach and break the March low with this pattern, raising doubts that its rival will continue to tick higher because the two stocks usually trade in tandem.
The Bottom Line
Big Dow energy giants continue to struggle despite an 80-point crude oil bounce and could easily test first quarter lows.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.