Oil exploration and production giant Exxon Mobil (XOM) late last month bumped up against its long-time area of resistance around the $96 mark. What at the time might have looked like a stock with potential to pierce through resistance, however, once more established itself as the weaker of the two and proceeded to recede quite sharply over the past three weeks.
Traders that kept in mind the longer-term view of the stock, on the chart below, will have noted that the stock’s relative higher high in July vs. the 2011 highs came on waning momentum as indicated by the relative strength index (RSI).
Through this lens, while the stock continues to hold its intermediate-term support line, the longer-standing negative divergence between price and momentum indicate that beyond a near-term bounce, Exxon Mobil stands a good chance of establishing lower lows still.
To be sure, the charts of other integrated oil and gas companies such as Chevron (CVX) and BP (BP) look much the same, as they are immediate-term oversold but haven’t yet broken intermediate-term support lines.
XOM’s 9% slide from its late July highs also confirmed those highs as a breakout fake-out. Given the steep slope of the selloff, the odds at this juncture don’t favor selling Exxon stock into the hole. Even though better lateral support doesn’t come into play until the $85 area, those looking to sell or short Exxon Mobil stock will likely find better (higher) levels to do so in coming days. Ultimately, only a break below the $85 area on a weekly basis would put the stock’s medium-term trend (sideways) in jeopardy, for as long as $85 acts as support and the low- to mid-$90s act as resistance, the stock is technically medium-term rangebound.
As a side note, given that every stock has its own personality, it is only logical that every stock acts differently around the various moving averages. In the case of Exxon Mobil, the stock’s 50-, 100- and 200-day simple moving averages have not been of much use to investors as the stock’s nine-month sideways move hasn’t caused them to vary much.
Traders with a quicker hand, however, have found some use of the 21-day moving average, which the stock price is currently much extended below and thus asking for somewhat of a mean-reversion move higher in the near future.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free Weekly Market Outlook Video here. As of this writing, he did not hold a position in any of the aforementioned securities.