Shares of Exxon Mobil (NYSE:XOM) are finally hitting some resistance after a major move higher. XOM stock is finally stalling out as it approaches some serious resistance levels. Now that oil is looking overbought as well, I expect a period of consolidation or pullback in Exxon Mobil stock over the near term
Looking at the Exxon’s chart, I’m seeing XOM scrapping the top of its range. XOM is fast approaching major resistance at the $84 area. This has proven to be a formidable level in the past. MACD is poised to generate a fresh new sell signal on any further weakness.
Click to Enlarge Momentum has remained positive for the longest stretch over the past year but is tepid at best. Exxon is trading well above the 20-day moving average of $81.15, which has also been a bearish indicator.
XOM stock finally ran into some selling pressure yesterday after an extended rally. Shares failed to make fresh new highs yesterday, opening lower and closing near the lows of the day. This type of price action many times signals a short term top in the stock. The buyers may finally be exhausted and the sellers have gained control.
Exxon is the largest oil company in the U.S., so it makes sense that the stock price is highly correlated to the price of crude oil. Recently XOM stock has begun to dramatically outperform the price of oil, as seen in the chart.
Click to Enlarge I expect Exxon stock to revert back toward the traditional relationship to crude. This means XOM should be a relative underperformer over the next few months. Considering my less than-bullish-outlook for oil prices in the intermediate term, I think Exxon Mobil stock will languish at best and likely pullback.
Bottom Line on XOM Stock
Traders should look to short XOM stock on any rallies for the foreseeable future. Options traders may want to use the resistance level at $84 to structure bear call spreads.
The June $85/$87.50 call spread can be sold for a 50 cents net credit. Maximum gain is $50 per spread with maximum risk of $200 per spread. Return on risk is 25%. The short $85 strike price provides a 3.75% upside cushion to the $81.93 closing price of XOM.
Exxon Mobil stock will go ex-dividend by 82 cents in May. Anyone short the shares on ex-date is liable for that dividend. Earnings are due May 3.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.
