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Chevron Stock Looks Ripe for Downside

Chevron shows no relative strength


beatthebell_185x185Chevron (CVX), the nation’s second-largest oil company, reported disappointing third-quarter earnings Friday. Both the top and bottom line missed analyst expectations. The miss in earnings led Chevron stock to sell off 1.63% on the day on Friday, making the stock continue to look and feel heavy — both in absolute and relative terms vs. the broader U.S. stock market.

To get an idea of this heaviness, let’s look at the multiyear logarithmic chart of Chevron stock.  CVX had an orderly rise higher since 2003, and even the meaningful selling in 2008 only took Chevron stock back to a confluence area of support.  After another great rally off the 2009 lows however, the stock began to lose steam on a relative basis in April 2011, which we see with the MACD momentum oscillator’s top at the time.

Ever since, even though Chevron stock managed to rise to new all-time highs this year, the stock’s upside momentum has been waning.  From a pure pattern perspective, CVX currently trades in the middle of its long-term uptrending channel and thus has plenty of room to the downside should the slide in the the stock continue.

cvx multi year
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On the daily chart, the most important line in the sand is just around last Friday’s closing price near $118.  The line has acted as support since February, and although it was breached with the early-October selloff, still offers technical significance.  The sharp bounce off the Oct. 9 lows brought Chevron stock to its 61.80% Fibonacci retracement level, where it quickly found resistance and proceeded to move back lower.  From here, a measured move (barring any major bullish reversal) would bring the stock toward the $110 area, or about 7% below Friday’s close.

In summary, the lack of relative strength in CVX and the defined weak pattern on the daily chart make me stay away from Chevron stock on the long side.  There are many better stocks to buy at this juncture than the integrated oils.

cvx daily
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Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here. At the time of publication, Berger had no positions in the securities mentioned.

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