Before looking at a trade setup today, allow me to make a quick comment on the broader market’s year-to-date environment, which I hope will provide ye faithful readers with perspective.
In making the rounds with my close circle of hedge fund colleagues this week, I again mostly heard comments of frustration about this current market environment and of investors forcing trades as a result of impatience. In a world where attention deficit disorder (ADD) has become a plague and most investors have a serious case of short-termism, many only remember the past couple of years of price action in equities — in short, it’s been difficult to lose money in stocks.
But for maximum pain, just when “buying the dips” has become a near reflex-like action on the part of market participants, then 2014 comes around, where being nimble and having stock-picking skill is once again a requirement.
This business of ours isn’t easy — but it’s also not nearly as difficult as many people make it out to be. We just need to keep in mind that forecasts and opinions are at best used for perspective and that the entire game really is an exercise in risk management.
The major U.S. equity indices are still churning below important near-term resistance lines, which are increasingly looking weaker and weaker such that an ultimate breakout past resistance remains likely sooner rather than later. As a result, I’ve been building a watch-list of stocks that I will look to buy above certain levels, or short below certain levels.
With that backdrop out of the way, let’s take a look at a specific trade idea.
Yesterday before the start of trading Exxon Mobil (XOM) reported first-quarter earnings per share of $2.10, crushing expectations for $1.88. But all was not rosy: Top-line revenue for the oil giant came in at $106.77 billion, down from $108.36 billion in the same quarter one year ago. Earnings per share also were down 1% on a year-over-year basis.
On the day, XOM stock traded lower by close to 1% after the earnings announcement, but through the longer-term lens it remain constructively positioned for at least one more push higher.
The weekly multiyear chart clearly reveals the important breakout that XOM stock did in late 2013, which after a retest lower into the prior resistance zone quickly pushed back up again. The sharp rebound off the February lows is a testament to the momentum behind XOM stock and plays well into my late-cyclical theme of liking energy stocks as an outperforming group.
On the daily chart, note the orderly ascent off the February lows, which pushed XOM stock higher after each consolidation phase. In Thursday’s trading, XOM stock came close to retesting its high from earlier in the week, which now offers active investors and traders a good reference point.
For my part, given the still-constructive posture that XOM stock finds itself in on both the longer- and near-term pictures, I would again be interested on buying XOM stock on a break above this week’s highs near $102.50 for a move toward a first upside target near $106.50, but using a clearly-defined stop at $100.70.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.