The prices of oil and energy stocks have been pulling back a little over the past few trading days as the dollar rallied and concerns over overabundant stockpiles once more made the rounds.
As a result, shares of oil company ConocoPhillips (NYSE:COP) have lost about 10% over the past week of trading, rejecting a crucial technical area of resistance and causing some notable technical damage that active investors and traders could pounce on for a trade to the short side.
When ConocoPhillips reported its latest quarterly results on April 28, they came in dramatically lower on a year-over-year basis but somewhat better than analysts had expected. The company also took further measures to cut capex as it announced 2016 capex guidance lowered to $5.7 billion from a previous $6.4 billion.
The stock’s initial reaction was higher, but by day’s end a bearish reversal took place that has put pressure on the stock since.
COP Stock Chart
Lots of technical ‘things’ have been taking place on the charts of COP stock of late, so for perspective let’s start with the multiyear weekly chart.
Here we see that this stock has had a defined line of support and resistance in the high $40s for many years. Most recently, the line had acted as support since 2010 until the stock finally broke below it this January. The reflex rally off the February lows pushed the stock right back to this line and now looks to want to act as resistance for the time being.
A simple technical analysis 101 rule is that former support/resistance tends to turn into new resistance/support and this simple rule now looks to take place on the longer-term chart of COP stock.
Moving on to the daily chart, we see that although COP stock rallied somewhat sharper off the February lows than I would have thought it could, ultimately last week after the earnings report it ran into a significant confluence resistance area.
First, note that the failed intraday rally after the April 28 earnings report left a bearish reversal behind on the daily chart, which was confirmed two days later on the back of follow-through selling. This area also matched up with the black diagonal and the top of the sharply rising wedge formation (red dotted lines) off the February lows.
Finally, note that the stock last week also reversed back below its red 200-day moving average after pushing above it for just a few days.
This technical confluence area of resistance and the bearish reversal that COP stock staged likely now targets the stock toward the high $30s through a multiweek lens.
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