(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
The price of oil has tumbled over the last few weeks, dropping from an intraday high around $73 on May 22, to roughly $64.25 on June 15, a drop of almost 12 percent. If the price of the commodity continues to drop it may spell bad news for stocks like Exxon Mobil Corp. (XOM), Valero Energy Corp. (VLO), and ConocoPhillips (COP), with each poised to fall by roughly 7 percent or more in the coming weeks.
The outlook for oil doesn't look much better, based on the technical charts, the price could drop to roughly $61.20 before hitting its next level of technical support, a decline of about 5 percent more. Should that happen, oil would suffer a total decline of over 16 percent from its recent peak.
The price of oil fell below a significant technical uptrend on June 15. It puts the commodity at risk of declining $61.20.
Exxon finished trading on June 15 sitting around a critical support level of $80.80, with the stock closing the week at $80.66. Additionally, volume levels spiked on the sell-off on June 15 as well, a sign that sellers were numerous. Furthermore, the relative strength index (RSI) has been moving sideways since the middle of April, despite a rising stock price, suggesting a bearish divergence. If Exxon is unable to hold technical support around the $80.80 level, then the stock may fall to around $75.5, a drop of about 7 percent.
Valero's stock has fallen below a critical uptrend, and that would suggest shares may be on a course to fall to technical support at roughly $100, a drop of about 13 percent from its current price around $115. The RSI has been trending lower as well, and at its current level of 42, the RSI would need to fall below 30, before reaching oversold levels.
Conoco like Exxon fell on heavy trading volume on June 15. The stock is also resting right above a critical technical support level at $64.65. The crucial next level of support comes again at $60.20, a decline of about 8 percent from its current price of roughly $65.35. The RSI is also trending lower, and currently sits at 40, and still has further to decline before reaching oversold levels below 30.
With oil surging for most of 2018, the sudden sell-off has likely caught many investors and traders offsides. Should oil continue to slide, the sell-off in the sector is probably far from over.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.