On Wednesday, March 1, the stock market made another explosive move higher after a generally well-received speech by President Donald Trump to Congress. Among the leaders of Wednesday’s rally were energy stocks — including Chevron Corporation (NYSE:CVX) — which had largely been lagging for the year-to-date.
Let’s face it: Profitable trading and investing is no easy task, particularly consistently staying on the right side of the market over a longer period of time. However, a straightforward and repeatable process with a focus on the “easy trade” at any given point in time can dramatically simplify the task for traders.
Often, I believe the “easy trade” can be identified by looking for new relative strength or relative weakness within the stock market’s sectors and industry groups.
Case in point? The energy sector of the S&P 500, as represented by the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE), has largely limped behind the broader U.S. stock market rally so far in 2017. But for the week-to-date, I’m noticing a pickup in relative strength that could ultimately lead this sector to play catch-up with the S&P 500.
Although this week is far from over and thus this newfound relative strength is still unproven, shares of CVX stock — at least in relative terms versus the energy sector — are exhibiting some promising price action.
CVX Stock Charts
Look at the ratio chart below. I’ve plotted Chevron stock against the XLE, and we see that so far this week, CVX is attempting to break past diagonal resistance that has been firmly in place for the past few years.
In other words, this chart displays that CVX stock is a strong stock within a sector that is beginning to show better relative strength. This, I like.
On the multiyear weekly chart, we see that Chevron — after breaking past the black horizontal as well as the 200-week simple moving average (red) in November 2016 — has since successfully retested this area around the $110 level and begun to bounce.
In many ways, this “retesting” of prior resistance is now taking the form of what I would label a bull flag pattern, which as the name suggests, implies a continuation higher in price. Through this lens, a next upside target is around the late 2016 highs near $120.
Zooming in on the daily chart, we see that last week CVX stock found support at its 100-day simple moving average (blue) and on Wednesday attempted to break out of a multiweek sideways consolidation phase marked by the blue box.
A break and hold above $114.50 would set Chevron stock up for a rally toward the aforementioned $120 area as a next upside target. Any bearish reversal from here — particularly a break below last week’s lows near $109.50 — would call off this bullish setup at least for the near term.
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