This has been a shocking year on many fronts. Crude oil prices fell into the negative by $37, and the United States Oil Fund (NYSEARCA:USO) needed to do a reverse stock split to stay in existence. Now, this morning, crude oil prices are over $40 — and quality stocks like Exxon Mobil (NYSE:XOM) stock and Chevron (NYSE:CVX) have clearly stabilized.
Today I want to focus on opportunities in Exxon Mobil stock for the rest of the year. Long term, fossil fuels are facing a raging battle from the environmental, social and governance (ESG) investing concept. The popularity of Tesla (NASDAQ:TSLA) also isn’t helping.
We’ve been trying to wean ourselves off fuel for a few years now, and things only are getting worse. An oil price war and a bleak long-term outlook are causing oil-producing nations to struggle. Then came the quarantine — bringing unprecedented disruption. The whole world stopped driving and flying, and demand came almost to a complete halt.
This was a perfect storm like no other.
Exxon Mobil Stock Is as Safe as It Gets
Exxon and Chevron are the only two energy companies I dare to trade under such conditions. Ever since oil fell from $100 per barrel, the Western suppliers’ formula was broken. There is tremendous risk betting on companies which must operate at a loss in order to service their debts. But that isn’t the case for XOM and CVX.
Exxon Mobil stock trades very similarly to Chevron, and I have had great luck buying dips. Case in point, in late April I shared a bullish write-up on XOM stock and it delivered a 23% rally.
Unfortunately for the bulls, XOM has given those gains back up. But therein lies today’s opportunity. Dips inside rallies are good news — not bad. Price action must revert to a starting point to build a better base for more upside. In this case, Exxon Mobil stock went back to its neckline from which it broke out. So, bulls should remain in control, creating support below its current level.
Fundamentally, XOM is not expensive. Exxon Mobil’s management has been very disciplined about expenses. The company is 100% dedicated to protecting its dividend, as it has stated on many occasions. In order to do so, it has become diligent with spending — and it can still cut more if need be. There is no urgency to tackle new projects while this malaise lingers.
Stick With Successful Strategies
Today’s idea is to rinse and repeat winning trades, like the one in April. Exxon Mobil stock has more upside opportunity than downside risk here. Bulls have the ability to take it closer to $56 per share. If that happens, they can reach $65.
It will not be easy, and there will be many resistance levels, starting at $50 per share. But with a solid base below them, bulls are comfortable buying dips and setting a higher-low trend to accomplish this.
Nevertheless, investors need to be realistic. Equities are extremely expensive right now given the risks still lingering. I don’t expert energy stocks like Exxon and Chevron to recover old glory. In fact, Exxon Mobil stock would be shortable near $65. That level is a massive pivot zone where I expect a lot of overhead supply. Once XOM gets there, the sellers will come out in full force.
Explore Other Methods Than Buy-and-Hold
The better way to chase the upside potential here is to sell puts or put spreads into proven support. In other words, I believe more in the gumption of the buyers below than in the chase of upside hopium. I can sell the XOM September $35 put and collect $1 for it. All this trade needs to win is for XOM to not fall more than 24% in the next few months.
And even if it does fall, the worst thing that would happen is that I would have to buy the shares at a huge discount from today. The alternative trade would be to buy the shares and hope for a rally.
These are uncertain times, and investors should be moderate in their convictions. No one should be comfortable enough to take full-size positions all at once. But Wall Street is acting oblivious to the lingering dangers. That’s why I refuse to load up on new risk without clear technical reasons.
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.
