Crude oil is slipping to a 52-week low this morning with a push below $20. Energy stocks are plunging in sympathy with kingpins like Exxon Mobil (NYSE:XOM) dropping over 5%. With the modest rebound in energy now in peril, it’s time to take a fresh look at the trends and price levels that should drive Exxon Mobil stock moving forward.
Since the fate of Exxon is tied to that of crude oil, it’s impossible to analyze one without the other. So let’s begin with black gold.
The Oil Narrative
Oil is super sensitive to economic growth. When economies grind to a halt, demand for crude craters. Of course, the current downturn is a unique novel coronavirus-injected animal. State governments from California to New York have shelter-in-place orders, demanding residents stay at home for all but the most necessary of outings. That translates into millions of vehicles being off the road. Gas stations that were once gathering grounds for fuel-hungry autos have seen traffic streams slow to a trickle.
And this isn’t just a U.S. phenomenon. The global nature of the COVID-19 pandemic has countries everywhere implementing travel restrictions. Given the dearth of demand, is it any wonder why oil prices are courting levels not seen since 2001?
But it gets worse. Russia and Saudi Arabia are engaged in a price war that is flooding the world with oil. The fallout has American energy producers reeling and is destroying the prices of energy stocks. Massive supply plus lackluster demand equals dirt-cheap oil and untold pain for the oil industry.
It is against this backdrop that we must analyze Exxon Mobil stock.
Exxon Mobil Stock Charts
The gravity of Exxon’s ruin is displayed on its weekly chart. From its 2014 peak of $104.76 to last month’s low of $30.11, the oil giant lost 71% of its value. Consider that XOM has been one of the better performers. The damage has been way worse for smaller companies lacking the breadth of Exxon’s balance sheet. If you want to see a real bloodbath take a look at the Oil Services ETF (NYSEARCA:OIH). The fund underwent a 1-for-20 reverse stock split just on Wednesday to rescue it from the single digits.
Given the magnitude of the crash, the past month’s rally in Exxon Mobil has been suspect the entire way up. Despite rising as much as 55% off the lows, the weekly trend is still bearish. The benefit of this week’s rollover is we now have a new pivot high or resistance level to use for trading. I suggest placing an alert above $46.71. If we can rise above that, it will reverse the pattern of lower pivot highs and lows. Until then, making a case for bullish bets on the weekly time frame is challenging.
The daily view shows Exxon’s ascent was enough to turn the 20-day moving average higher, but it stopped short of climbing back above the 50-day moving average. If you’re looking for reasons for optimism, the RSI indicator rose above the 50-level for the first time since January. This speaks to just how strong the rebound has been. I’m viewing Wednesday’s whack as a test to see if dip buyers come out of the woodwork. The best-case scenario is for the stock to find a new support level above its 20-day moving average. That will carve out another higher pivot low and reinforce the fledgling daily uptrend.
I suspect for a more long-lasting recovery to take root; however, we will need oil to find a bottom. With the commodity already in the teens, you would think the low can’t be far off.
Pick Your Poison
I can find attractive plays for bulls and bears depending on which way you want to lean.
Bull Trade
Sell the May $35 put for $1.25. It obligates you to buy 100 shares per contract at a cost basis of $33.75.
Bear Trade
Buy the May $40/$35 bear put spread for $1.65. The risk is only $1.65, and the potential reward is $3.35 if Exxon Mobil stock sits below $35 at expiration.
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