The drop in the price of oil and oil-related stocks over the past 14 months or so has been severe and has yet to lead to a better and more sustainable bottom-building formation in the aggregate. Shares of Exxon Mobil Corporation (NYSE:XOM) and other large integrated oil stocks, however, have shown more promising signs, including some bullish options action that active investors could look to sink their teeth into.
After Exxon Mobil reported its latest earnings in late July, XOM stock took another dive that had a real flush-out and bull capitulation character to it in late August.
Last week, the stock saw a first flurry of bullish option bets, which was seconded on Tuesday when the Oct $77.50 strike calls were traded 19,600 times, a notable and big burst in daily volume. Options activity can often be a clue to the next directional move in a stock as smart-money investors position themselves.
While this recent flurry in XOM stock calls clearly is more of a near-term bet, longer-term investors can take some comfort in the stock’s 4% dividend yield.
XOM Stock Charts
Looking at the multiyear weekly chart of Exxon stock, we see that the drop in XOM since the summer of 2014 by late August of this year resulted in a bump into horizontal support stretching back to 2011 (blue horizontal).
The August selloff in the stock also resulted in the RSI indicator reaching oversold readings last seen during the financial crisis in 2008. Ditto for the MACD oscillator, which through the technical lens now acts as a put of sorts. Longer-term asset allocators would thus likely find XOM a decent bargain at current levels.
Moving on to the daily chart, we see that XOM stock has been struggling to overcome its yellow 21-day simple moving average since May, which is usually a clear sign of weakness. After the V-shaped reversal from late August, Exxon Mobil stock has been consolidating in a triangular shape just below the 21-day moving average.
Given the oversold readings from the longer-term chart above as well as the near-term bullish options bets as of late, odds currently favor XOM stock to finally attempt a break back above this 21-day moving average.
However, with Thursday’s Fed interest rate announcement looming large, traders would likely be wise not to jump the gun on this trade and wait for a clearing above the $74 area on a daily closing basis.
If this can be accomplished, then upside could open up into the high $70s fairly quickly.
Another way for traders to take advantage of the current situation in XOM stock would be to sell out-of-the-money puts or puts spreads, particularly if the stock were to see another leg lower.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
