Dow components Exxon-Mobil, Corp. (XOM) and Chevron, Corp. (CVX) have failed to reward shareholders so far in 2017, drifting lower while the WTI and Brent crude oil contracts struggle to mount strong resistance in the low-50s. Healthy dividends have eased the pain but an aggressive distribution wave has still taken hold, with funds and retail investors giving up and heading back to the sidelines.
Fortunately for bulls, relative strength cycles are slowly turning in favor of fresh upside that lasts six to nine months at a minimum. Those recovery waves should relieve high anxiety levels, keeping current shareholders in the game while attracting fresh buying interest. The energy giants probably won’t reach new highs during this period but it should relieve performance pressure, perhaps setting the stage for better times in coming years.
XOM Long-Term Chart (2002-2017)
The stock took off in a powerful trend advance at the end of the Dot.com bear market, lifting from the upper-20s to mid-90s in the second half of 2007. It ground out a triple top pattern into 2008 and broke down, joining world markets in the economic collapse. The decline settled in the mid-60s during the October crash, giving way to a quick bounce that recouped half the annual losses into December.
A slow and steady decline tested the bear market low in 2010, with aggressive buying interest completing a double bottom reversal, ahead of a rally that stalled in 2011 just 7-points below the prior high. It took the stock another 2-and-a-half years to complete the round trip, ahead of a 2013 breakout that slowed to a crawl when it mounted triple digits. It posted an all-time high at $104.72 in July 2014 and turned sharply lower, failing the breakout just three months later.
The subsequent decline ended after the August 2015 mini flash crash, yielding a two wave recovery that reversed at the .786 Fibonacci retracement level in July 2016. Price action since that time has carved a pullback that’s held the .386 retracement while monthly Stochastics has dropped into the deepest oversold technical reading in two years. This bodes well for a strong bounce that tests the 2016 high as a minimum target.
CVX Long-Term Chart (2002–2017)
The stock rocketed higher through the 1990s, topping out at $56.47 in 1999 and entering a shallow correction that bottomed out in the low-30s in 2002. It gained ground at a rapid pace into 2008, grinding higher in a rising channel that signaled broad institutional sponsorship. The stock plummeted in the second half of the year, finding support in the mid-50s in October, ahead of a successful test at that level in March 2009.
It stairstepped into the lower-80s in 2010 and took off in a strong end of year rally that built momentum through the first quarter of 2011. Price then eased into a broad rising wedge pattern that yielded a 2014 all-time high at $135.10, ahead of a steep decline that come to rest at $69.58 in August. A bounce into 2016 failed, giving way to a January test that completed a double bottom reversal.
A rally into the second quarter stalled just above $100, yielding narrow sideways action, ahead of a post-election rally that ended at the .786 selloff retracement level in December. A slow motion pullback since that time has reached support at the 50-month EMA while the long-term Stochastics oscillator is now headed into the oversold zone. This raises odds for a bullish reversal that tests the 2016 high as a minimum target.
The Bottom Line
Energy giants Exxon-Mobil and Chevron have dropped into long-term support levels while relative strength indicators near completion of long-term sell cycles, increasing the likelihood of turnaround rallies that reach 2016 highs.
<Disclosure: the author held no positions in aforementioned stocks at the time of publication.>
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