(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
The decline in oil prices may accelerate as the U.S. dollar soars higher, and that's bad news for oil stocks. Marathon Petroleum Corp. (MPC), Apache Corp. (APA ) and Halliburton Co. (HAL) may fall by as much as 14%, according to a technical analysis.
Oil prices and the dollar tend to go in opposite directions, representing what experts call a negative correlation. Should the dollar continue to strengthen against other foreign currencies, the price of oil will probably decline. Oil prices, as measured by West Texas Intermediate Crude, peaked at roughly $75 a barrel on July 3 and have since dropped by more than 10%.
Halliburton provides services and products to exploration and production companies and is facing a decline of about 9% from its current price of roughly $42. The stock is already down nearly 27% this year, and should it fall as the chart suggests, it would be down by a stunning 33%. The stock is sitting on a level of technical support at $40.50. But should that support level not hold, then shares may decline further to roughly $38.50. The relative strength index (RSI) has been trending lower and suggests momentum is still very bearish.
Marathon Petroleum Corp.—an oil refiner, unlike Halliburton—is trading near its all-time high, currently around $81. But shares could be facing a decline of nearly 10% to $73.40. The stock has failed four times to break out and rise above technical resistance at $82.50, suggesting the stock will head lower toward technical support around $73.40, The RSI has turned bearish and has been trending lower since peaking at overbought levels around 87 at the end of July, suggesting momentum has turned bearish too.
Apache, an exploration and production company, may have the most to lose, falling by as much as 14%. Shares are currently resting on an uptrend, which started at the beginning of 2018. Should the stock fall below that uptrend, it may result in a drop to roughly $38.50 from its current price around 44.70. The RSI has been trending lower since April, despite a rising stock, a bearish divergence indicator. It suggests that bullish momentum is leaving the stock.
The technical charts are already pointing to shares of these three companies heading lower, likely following the price of oil. But should the dollar reverse and turn lower, oil and these three companies could quickly be on the rebound.
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.