Oil prices have tumbled about 15% over the past two weeks as a supply and overproduction glut is freaking out the bulls. However, Exxon Mobil Corporation (NYSE:XOM) is holding up relatively well, and that has me taking a closer look at XOM stock.
The drop in oil has eaten up all of the commodity’s gains following OPEC’s deal to reduce production back in late November. That news sent crude oil spiking at the time.
However, U.S. demand has been limp. CNN Money reports that “Recent US gasoline demand, a closely-watched metric, is down by nearly one-quarter of a million barrels per day from last year.”
Shale producers continue to churn, too, and the combination of these two factors have weighed heavily on oil, which is near $45 per barrel.
This dip in oil has naturally spilled over to oil-related stocks, as investors are fleeing the space in what increasingly looks to have a capitulation character to it. Interestingly, while all of this is taking place, Exxon stock has managed to hold its own.
While XOM stock is about 10% lower in 2017 thus far, it might be the company’s large-cap nature and current dividend of 3.8% that, at least so far, is keeping shares from accelerating lower in sync with the oil price.
I’d like to start my analysis by taking a relative look at Exxon Mobil using the below ratio chart, where I divided the stock by the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE). Even though XOM makes up more than 23% of the XLE — making it by far the largest holding — the stock has notably outperformed the fund over the past couple months.
However, to be fair and clear, this relative outperformance is not due to any great rally in XOM stock, but just relativity. It has simply been “less bad” than the broader energy sector.
Nonetheless, the relative strength picture is a good place to start sniffing out potential buying opportunities. And on this chart, we see that relative strength recently led to a (relative) breakout.
On the actual multiyear chart of Exxon Mobil, we we see that it is so far finding support at the 50% retracement line of the entire rally from the 2015 lows up to the summer 2016 highs.
From a momentum perspective, the stock is nowhere near dramatic oversold levels, but that could also be looked at as a reflection of the recent relative strength.
Finally, on the daily chart, we see that XOM stock for the better part of the past two months has largely trotted sideways in a well-defined range.
While less risk-averse traders could look to initiate a partial long position in XOM stock or longer-dated call options or options spreads, from where I sit, I would first like to see a break and hold above $83.50-$84 on a daily closing basis.
If and when the price of oil stops its downward spiral — potentially soon, as we start heading into the summer driving season — I could also see XOM start to break out of this range to the upside.
A first upside price target then becomes the $87-$88 area, followed by $90.
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