Energy stocks regained ground Wednesday, July 21, tracking oil prices higher as bargain hunters bid up the volatile commodity after a month-long sell-off. Crude futures slumped as much as 7% earlier this week amid a global spike in the more infectious Delta COVID-19 variant and news that the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to ramp up output in the months ahead.
However, the commodity closed New York trade on Wednesday up 4.2% at $72.23 per barrel, as improved risk appetite offset data showing an unexpected rise in crude inventories over the past week, indicating that traders may have baked ongoing supply and demand imbalances into prices.
- Oil prices recovered 4.2% Wednesday as bargain hunters bid up the commodity.
- Look for further gains in Exxon Mobil after the stock found support at $55.50.
- The Energy Select Sector SPDR Fund may retest its 2020 high after buyers defended the $46.50 support level.
Below, we take a closer look at the largest energy stock in the S&P 500 index – Exxon Mobil Corporation (XOM) – and the sector’s bellwether exchange-traded fund (ETF) – the Energy Select Sector SPDR Fund (XLE). We'll also turn to the charts to identify possible tactical trading plays using technical analysis.
Exxon Mobil Corporation (XOM)
With a market capitalization surpassing $240 billion, Exxon Mobil ranks as the world's largest exploration and production company. The Irving, Texas-based energy giant produces 2.3 million barrels of liquids and 8.5 billion cubic feet of natural gas per day. It also boasts a global refining capacity of 4.8 million barrels of oil per day. As of July 22, 2021, Exxon offers an attractive 6.07% dividend yield but has slipped nearly 8% over the past month. However, year to date (YTD), the stock has gained 40.13%.
Exxon shares have remained entrenched in a sharp downtrend since reaching their 2021 high late last month. In better news for the bulls, buyers stepped back into the stock at $55.50, where price finds key support from a multi-month horizontal trendline. Gains continued to accelerate in Wednesday's trading session, and the stock could see further short-term upside. Those who enter at these levels should consider booking profits on a retest of the YTD high at $64.93 while protecting capital with a stop-loss order placed either under Monday's or Tuesday's low, depending on personal risk tolerance.
A horizontal line is often drawn on a price chart to highlight areas of support or resistance. In geometric analysis, a horizontal line proceeds parallel to the x-axis. Put another way, on a perfectly horizontal line, all values will have the same y-value.
Energy Select Sector SPDR Fund (XLE)
Like XOM, the energy sector fund's share price has declined over the past month before stabilizing this week. Buyers stepped in to defend the $46.50 level, where the price encounters significant support from the April swing low. Active traders who open a long position in this area should think about placing a take-profit order near key resistance at $56.50 and limiting the downside risk with a stop order situated somewhere under this week's low at $46.30.
Launched back in 1998, the Energy Select Sector SPDR Fund seeks to provide a similar return to the Energy Select Sector Index – a market-cap weighted benchmark comprising U.S. energy companies included in the S&P 500. Sector heavyweights Exxon Mobil and Chevron Corporation (CVX) carry the fund's largest portfolio weightings, with respective allocations of 23.55% and 20.46%. Other well-known companies in the ETF's basket of 23 holdings include ConocoPhillips (COP), EOG Resources, Inc. (EOG), and Schlumberger Limited (SLB). A daily turnover of nearly 30 million shares on a razor-thin average 0.02% spread helps to minimize trading costs. XLE controls $25.6 billion in net assets, offers a 3.92% dividend yield, and is trading 29.95% higher on the year as of July 22, 2021.
A swing low is created when a low is lower than any other surrounding prices in a given period of time.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.