The reflation trade for oil and oil stocks year-to-date has already been one of epic proportions, in part due to a sliding dollar, central banks sneaking in comfy comments and fund managers having to chase higher everything that shows any sign of life.
In the case of integrated oil company Chevron Corporation (NYSE:CVX), shares are currently about 37% off their January lows, and although the price action looks constructive in the longer-term, the odds favor consolidation in the near-term.
When we talk about CVX stock, we simply cannot ignore its current 4% gross dividend, which is all the more attractive given low interest rates. Chevron also has benefited from the calamity we have seen in lower-quality energy stocks that had investors looking for safer ground in sector names with stable balance sheets.
I do think the worst for CVX is behind it, but as we will see on the charts below, chasing Chevron stock higher from current levels may be a high-risk, low-reward play for now.
CVX Stock Charts
On the multiyear weekly chart, we see that Chevron over the years has continuously found great support at its blue 100-week simple moving average. But as these things go, support holds until it doesn’t … and by September 2014, CVX stock broke below this blue line and began to cascade lower right into the August 2015 lows.
The stock then bounced, and by January of this low it marked this chart with a significantly higher low, which ultimately gave way to a further squeeze right back to this 100-week MA.
Given the steep slope of the ascent off the January lows, CVX stock stands a decent chance of at the very least pausing here for some time before resuming its climb.
On the daily chart, we see that the 100-week moving average from the above chart also lines up nicely with some horizontal resistance (blue box). Furthermore, note that this current juncture also measures a 50% retracement of the entire slide from the 2014 highs down into the January lows.
So, looked at through these two time frames, we have a defined confluence area of resistance around the $102-$104 zone where CVX stock likely will have a challenging time staging a sustainable break above for the time being.
Active investors and traders could look to short Chevron or buy put spreads upon a confirmed bearish reversal that sees the stock below $100.60; I would suggest targeting the $94-$95 area.
More structural investors on the on the other hand will likely find a better medium-term entry point in CVX on the long side in the low to mid-$90s.
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