The Energy sector continues to move counter to the rest of the market as crude oil prices have been stubborn in not moving higher, despite rising demand numbers. The blame for this can be placed on the fact that domestic production numbers are on the rise, offsetting the cuts that OPEC made last year. The results? An equilibrium in crude oil prices that make it more difficult for energy companies to operate with higher profitability.
Today’s three big stock charts look at the outlook for Energy Select Sector SPDR (ETF) (NYSEARCA:XLE), Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) as they flash signs that a short-term bounce is likely to lead to lower prices over the intermediate-term outlook.
Energy Select Sector SPDR (ETF) (XLE)
Energy SPDR shares are continuing their longer-term slide, which started in December. So far, XLE has surrendered about 8%, but the intermediate-term charts suggest that investors should get used to this trend.
Within the last week, the 50-day moving average of the Energy SPDR ETF has transitioned into a bearish pattern. Historical testing of this trend indicates that the odds of a continuation in the decline each day is around 2:1. Energy having been one of the most crowded trades in 2016 lends more potential to the forecast that this trend will remain in place as investors migrate from the sector.
XLE just broke below its 20-week moving average and is now wrestling with chart/round numbered support at $70. Looking at the weekly chart, both the $70- and $71-levels have been the site of support or resistance for the Energy SPDR shares. This indicates that a break below each is likely to accelerate selling pressure.
From a monthly view, the importance of $70-level becomes more clear as this price provided support in 2015. When this price was broken, the stock saw a volatility selloff and the same price, $70, turned into resistance.
The short-term oversold readings of the Energy SPDR ETF suggest that we are likely to see some buying on the technical support of $71. That said, the intermediate- and long-term charts suggest that this will be an opportunity for those looking to exit positions at slightly higher prices before the next large decline.
Exxon Mobil Corporation (XOM)
Shares of Exxon Mobil have seen an increase in selling volume this week as the stock moves to break into bear market territory.
Currently, XOM’s shares are hovering just above their 20-month moving average. This trendline is observed by technicians as the line of demarcation between a bull and bear market trend. For those watching the number, the 20-month currently sits at $81.38 with Exxon Mobil shares trading at $81.39.
Like XLE, XOM shares are trading in short-term oversold territory, telling us that some opportunity traders may take advantage of a slowdown in selling pressure. This is likely to create a short-term bounce that could take Exxon Mobil stock to $83, but not much further.
After a break of the 20-month trendline, XOM will likely target the next level of support from the chart. Currently, this support comes at $77.50, but it could quickly fail to hold shares if crude oil prices begin a consistent decline.
Chevron Corporation (CVX)
Finally, one more company from the energy group that should remain on the caution list: Chevron. The daily charts for CVX show that the 50-day moving average has just transitioned into an intermediate-term bearish pattern. This bodes poorly for the stock as it reflects that trend is no longer the “friend” of shareholders.
Longer-term, Chevron shares are challenging $110. We saw this price hold the stock from declines in January and February on heavy volume. This suggests that the price is being heavily defended by traders.
The monthly chart for CVX shows the importance of $110. This price point served as significant resistance in 2013 and 2014. Subsequently, the break back below $110 in 2014 saw increased selling volume.
Finally, according to the monthly chart, Chevron shares are coming off of a long-term overbought condition not seen since 2013.
For now, traders and longer-term investor’s eyes should be focused on $110 for Chevron shares as a break below this price on a monthly close will draw selling interest into the market.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
