Oil stocks have been under pressure for months. Last year, the U.S. dollar was on a tear and that put downside pressure on all commodities, including oil prices. So most of the industry’s stocks were also under pressure for months. Chevron (NYSE:CVX) has been trading in a descending channel since mid May 2018. The good news is that Chevron stock has recovered sharply off the Christmas lows.
CVX stock came into the earnings event today up almost 15% from the December lows and it is adding to it here.
This morning the company reported earnings and while CVX beat on earnings, it missed on sales. Revenues were $42.4 billion and although they were up 12% year-over-year, they were almost $4 billion short of estimates. Wall Street is loving the results which benefited from a strong January for oil prices.
Chevron stock is rallying on the earnings headline and that makes it a good time to own it. Today I suggest that there could be technical reasons to chase it.
First, it is important to note that the fundamentals in CVX are solid. Management works hard for its shareholders. They raised the dividend, invested in the business and bought back Chevron stock, so I know that my money would be safe with them.
How to Trade Chevron Stock Today
There are cautionary notes but they are mostly technical. The potential problem with buying CVX stock here is that there is a chance it can fade into another mini correction. The fact that the 10-month trading channel is so wide has allowed CVX to have its rallies only to fade at the top of the channel.
It is now approaching such levels and the onus is on the bulls to breakout of it. To do that CVX stock would probably need to reach $118 per share. This is a moving target, but the trend line is clear.
Luckily, the current price action looks like a breakout from the neckline at $113.75 per share. This could carry it through to $120. So if I am long Chevron stock, I can stay in it. But if I am looking to add a new position, unless I have an urgent need to own it, I’d wait out a few candles.
Oil prices also have had a really strong January, so there is momentum there too and it helped. Technically, oil prices also are at a neckline that could trigger another 10% rally from here.
On that front there is also good news. The U.S. Federal Reserve sounds like it’s done raising rates, so the U.S. dollar should stop weakening a bit. That opens the door for oil prices to finish this rally. This is a market that is susceptible to headlines, especially to rhetoric from OPEC and that makes its forecasts erratic at best.
The sector is healthy. Exxon Mobil (NYSE:XOM) also delivered strong results and that stock is rallying on the headline. XOM also beat earnings estimates and missed on revenues. These companies are experienced enough to manage their operations to meet bottom-line goals, even when faced with top-line challenges.
So even though I fail to see the urgency to chase CVX stock, the chart pattern has a bullish technical posture. So trying to wait for the perfect entry point my be more work than it’s worth. Yes, there are more exciting stocks to own, but CVX stock belongs in a balanced portfolio.
Bottom Line on CVX Stock
Fundamentally, Chevron stock is cheap but it almost always looks that way. Nevertheless, this is a company that delivers a whopping 4% in dividends and this is on top of the fact that it sells at a modest trailing price-to-earnings ratio of 16. So owning it for the long term is not going to cause anyone much grief; it’s a stable source of income.
Ultimately, CVX is a reliable stock and depending on one’s goals, it can be part of portfolios here.
If I own it for its value and its hefty dividend, then I stay the course. If I want to trade it for the short term, then I ride the ongoing breakout here and perhaps catch the next one off the descending channel limits. And that one could target $125 per share.
Click here for a bonus video that I recently shared discussing Square (SQ). It can help looking at this one here too. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
