Dow component Exxon Mobil Corp. (XOM) meets with analysts this week, in a gathering that’s likely to pique investor interest due to Trump administration policies that will favor big oil in coming years. Of course, the company now enjoys an intimate connection with the Oval Office, due to former CEO Rex Tillerson’s ascension to Secretary of State. Along with favorable policy, that political advantage should equate to higher stock prices in coming years.
The company just outlined plans that include a 16% year-over-year spending increase as well as capital and exploration commitments that average $25-billion per year through 2019. Add those metrics to the growing benefits of a stable crude oil futures market and OPEC policy that’s allowing U.S. producers to recover from the bear market at a rapid pace. Taken together, the future looks bright despite short-term headwinds that have dropped the stock to an 11-month low.
XOM Long-Term Chart (1993-2017)
The stock cleared the 1987 high at $12.53 in 1991 and entered a shallow uptrend that lifted into a more vertical trajectory in 1995. It posted outstanding gains into the 2000 high at $47.48 and rolled over, joining the broad stock universe in the Dot.com bear market. The downtrend finally bottomed out in July 2002 at a 4-year low in the upper-20s, ahead of a recovery wave that took more than two years to reach resistance at the prior high.
A breakout into 2005 caught fire, lifting the stock in a powerful uptrend that continued into the middle of 2007 when momentum dried up in the lower-90s. Five breakout attempts at that resistance level into May 2008 failed, yielding a breakdown that accelerated to lower ground during the economic collapse. Selling pressure finally ended in the mid-50s at a 2-year low, ahead of a proportional bounce that stalled in the low-80s.
It undercut the bear market low by 29-cents in July 2010 and turned higher in an uptrend that took three years to reach the 2007 high, ahead of a 2014 breakout that ran into a buzzsaw of selling pressure. It turned sharply lower after posting an all-time high at $104.76 in July 2014, failing the breakout in a decline that finally came to an end in August 2015. Price action since that time has carved a recovery wave that stalled in July 2016 at new resistance in the low-90s.
XOM Short-Term Chart (2015–2017)
A Fibonacci grid that stretched across 2014 into a 2015 downtrend organizes chaotic price action, highlighting the July 2016 reversal just below the .786 retracement level. The decline since that time has unfolded into two waves that have now landed on the .386 retracement, a natural support level. Even so, the stock continues to trade under the 50- and 200-day EMAs in the mid-80s, with those barriers marking the dividing line between bullish and bearish technical outlooks.
Price action has now compressed between the failed breakout in the mid-90s and rising lows trendline in the mid-70s. The selling wave since December looks washed out, raising odds for a bounce that tests moving average resistance. Given the importance of those levels, it makes sense stand aside until they’re remounted on healthy volume, with a buying spike between $86 and $88 setting off actionable buy signals.
On Balance Volume (OBV) matched price action in the first half of 2016, posting a higher January low in an accumulation phase that peaked with price in July. It’s acted better than price since that time, holding above the fourth-quarter lows while the stock has dropped to an 11-month low. This bullish divergence points to continued buying interest, despite laggard behavior.
The Bottom Line
Exxon Mobil has underperformed broad benchmarks in recent years, but that’s likely to change during the Trump administration, with beneficial big oil policy generating new profit channels that lift the stock to much higher ground.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>