Exxon Mobil (XOM) stock has once again embraced mediocrity and relative weakness. With this morning’s down gap the oil giant is testing its 52-week low in true bearish fashion.
The promising April rebound has all but fizzled and lower prices look to be in the offing if XOM doesn’t get its act together.
Shareholders hoping that XOM stock would continue to follow in the footsteps of rebounding oil prices should crumple up such optimistic thoughts and toss them in the nearest garbage chute. As shown below, Exxon and oil prices have largely decoupled over the past six weeks.
While crude oil has held fast to its gains XOM, along with many oil stocks, has crumbled. At 0.12 the correlation between both has almost descended to the lowest levels of the year. As a reminder a reading near zero suggests there really hasn’t been any correlation between both assets.
Unfortunately for XOM bulls the energy sector kingpin has been moving entirely to the beat of its own drum.
And if XOM shareholders were hoping the strength amid the broader stock market would help keep XOM aloft, well, best buckle up. The S&P 500 is on the ropes with deterioration aplenty beneath the surface.
If you think XOM fails its current support test near $83, consider grabbing some put options. Despite residual weakness in the stock, demand for options has remained tepid keep the cost for puts and calls on the cheaper end.
Buy the Aug $85 puts for $3.40. The risk is limited to the initial $3.40 debit and will be lost if XOM sits above $85 at August expiration.
The reward is unlimited allowing the potential for big profits should XOM stock really tumble.
At the time of this writing Tyler Craig had no positions in any of the aforementioned securities.
