The price of oil continues to plummet, and the stock market has joined in for the ride. Naturally, none of this has been positive for oil-related stocks, including shares of Chevron Corporation (NYSE:CVX) stock, which are now down more than 30% for the year.
While there will ultimately be plenty of calamity in the smaller oil-related companies with defaults and possibly arrests, the large integrated oil stocks like CVX stock will likely survive and thrive in the longer run.
As a result of the year-to-date selloff, Chevron stock now sports an attractive dividend yield that medium- to longer-term investors could take advantage of.
On July 31, Chevron reported its second-quarter earnings, which missed analyst estimates by a few miles. CVX was severely hit by the collapse in the price of oil, and despite cost cutting and downsizing the workforce, the margins compressed dramatically. In addition to lower revenue, Chevron also had a big spike in amortization of assets, partially because of projects being delayed and as such a further effect of the drop in oil prices.
CVX Stock Charts
Looking at the multiyear chart, we see that in July 2014, after CVX stock became overstretched above its multi-year support line, a big and nasty mean-reversion move lower set in as the price of oil began to tumble. After an already steep decline of steady selling since April, last week CVX stock dropped vertically and by so doing snapped the aforementioned multiyear line of support.
As a result of the latest cascade lower, Chevron’s Relative Strength Index and MACD are reaching all-time extreme oversold readings.
This alone is no reason to buy Chevron stock, but it certainly puts the recent drop in context and puts the odds in favor of at least a slowing down of the sell-off.
On the daily chart, we more clearly see last week’s drop, which now also has the stock overextended on the downside below its 21-day simple moving average (yellow line). The daily Stochastic oscillator has been in oversold territory since May, which is an extended period of time to be at such extremes and now favors a ebbing out in CVX stock.
As a result of the year-to-date selling, CVX stock now has a nearly 6% dividend yield, and while some analysts warn of the company having to cut its dividend, Chevron would be attractive even at 4% if we consider the technical oversold readings on the multiple time-frames discussed.
Investors could look to buy initial positions at current levels while active investors should wait for a bullish reversal day to play a sharp oversold bounce back toward the $80 area.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.