In the dog days of summer, one already challenged blue-chip stock that’s continuing to feel the heat is Exxon Mobil (NYSE:XOM). Let’s take a deeper look at what’s been affecting Exxon Mobil stock and determine why the struggling energy giant looks ready to rollover.
Entering 2020, Exxon Mobil’s shares were already making a bit of an unwanted name for themselves as a part of the “Dogs of the Dow” buying strategy. At a tempting yield of 4.99% only constituent Dow Inc (NYSE:DOW) placed higher on the list.
Exxon now holds the ignominious top spot with an annual dividend of 7.84%. My advice to today’s investors is don’t be tempted.
Some of what ails Exxon Mobil stock can be blamed on the novel coronavirus. Global demand for oil linked to the pandemic has been estimated at a decline of about 30% and spurred today’s energy glut. But Covid-19 has only compounded an already challenged operating environment for fossil fuel producers.
To be fair, oil isn’t going away anytime soon. Petroleum-based products drive more than just our cars, it’s in everything, including our toothpaste. But the winds of change are also not just on the horizon, increasingly they’re here already. Alternative energy sources are increasingly competitive and chipping away at the top and bottom-lines of Exxon’s business.
Greener leadership within the energy markets from Nextera Energy (NYSE:NEE), First Solar (NASDAQ:FSLR), Brookfield Renewable Partners (NYSE:BEP) or smaller on-the-rise outfits such as Enphase Energy (NASDAQ:ENPH) and Ballard Power (NASDAQ:BLDP) are certain proof of this disruptive industry shift.
The point is, regardless of where blame for the old guard’s problems is placed, those challenges are unfolding right before our eyes. Now there’s chatter that Exxon needs to write down the value of its assets.
A growing number of analysts are chiming in that the company needs to take a sizable impairment charge similar to peers BP (NYSE:BP), Royal Dutch (NYSE:RDS.A) and Occidental Petroleum (NYSE:OXY). Word out of Edward Jones is Exxon risks losing credibility if action isn’t taken, while both RBC and Cowen believe the company has likely begun preparations for going down that same road.
Exxon Mobil Stock Monthly Chart
Charts are fluid. And when longer-term price movements are swayed enough to afford a revision, bullish or bearish, it would be foolhardy to dismiss those implications. Unfortunately, over the past few weeks Exxon Mobil stock has taken a decided turn for the worse. And a frozen, attractive-looking dividend may still not be enough to keep investors afloat.
Since rallying with the best of its Dow peers into early June and off the broader market’s historic correction, Exxon shares, along with the rest of the oil and gas sector, have negatively diverged in a big way. On the price chart a draw-down of about 20% has ominously established a bearish shooting star candlestick in June. The pattern began to form after challenging the 50% retracement level tied to its key Fibonacci cycle of the past year.
Now Exxon shares are near a test of the June candle’s low. The implications of a penetration are bearish, but not guaranteed of course. However, a flattening stochastics setup just inside neutral territory raises our concern Exxon investors are on the cusp of a second wave of selling pressure.
My advice today is to steer clear of Exxon Mobil stock until much more opportunistic prices nearer to the March bottom come into play. An improvement in technical strength without a larger decline could also lead to reconsideration. Right now though, that’s a much less-likely scenario.
And for those investors not persuaded by Exxon Mobil stock’s building, bearish possibilities and for those who can’t resist the siren song of income? Consider a flexible, defined and reduced risk collar is a strategy.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.