(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
The rise can be tied to a technical breakout in the price of Western Texas Intermediate Oil prices. At $57 per barrel, WTI oil has officially entered breakout territory, and that means oil prices could rise by another 9 percent, towards $62 a barrel. If that should happen, the stock prices of Exxon, Chevron and the sector will increase as well.
The breakout that is occurring in oil can be seen in the chart below, when the price of oil closed above $54 per barrel. With that happening, $54 will now act as support should there be a pullback in the price. Given the length of time oil has stayed below $54, that price is likely to serve as a significant and robust support level.
The breakout in oil has also caused the Energy Select SPDR ETF (XLE) to break out as well. This occurred at the beginning of September. Additionally, the ETF recently rose above the 200-day moving average, confirming the breakout.
The energy ETF could increase to about $78.50 before running into any resistance, and that would be a rise of nearly 12 percent from current levels of around $70. (See also: Top 4 Oil Stocks for November 2017.)
Part of the reason why things are looking up for both Exxon and the Energy Select SPDR is that Exxon makes up 23 percent of the ETF, so where Exxon goes, so does the ETF.
On Exxon's chart, we can see that a subtle double bottom technical pattern occurred around the end of August and the beginning of September. Exxon shares have since rallied sharply, nearly 10 percent, to their current level at $83.50. Exxon is sitting at a technical resistance level, and the stock seems primed to break out and rise by nearly 9 percent to $91.
Chevron also has a monster weighing in the XLE ETF, at 16.6 percent. Like Exxon, Chevron has a big say in the direction of the group. The stock has been trending higher overall since bottoming in late-2015, but has gone nowhere during the past year.
The stock is nearing a technical resistance level. Should Chevron stock break that resistance level at $120, shares could quickly rise towards $130, or roughly 12 percent, from its current price of $116.
With oil officially in breakout territory, the energy sector will likely follow, with a slew of other breakouts occurring along the way.
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.