Chevron Corporation (CVX) — I recommended selling CVX stock short at $90 with a downside target of $75 in the Dec. 11 Trade of the Day. The trade was entered on Dec. 15, and shares fell to a low of $75.33 on Jan. 20 before rallying to close at $83.54 on Friday.
Chevron and Exxon Mobil Corporation (XOM) are generally considered to be the two strongest companies in the oil industry. Since it is possible that crude prices are bottoming, it’s time to cover short sales in the group.
CVX stock rose more than 3% on Friday as a result of a Bloomberg report that said Chevron will likely divest itself of its 75% interest in its South African business. The stock may retrace some of that advance this week, but look for analysts to increase their earnings estimates if there are legs to this report. Currently, S&P Capital IQ Equity Research projects earnings of $3.83 per share in 2015, down from $10.14 in 2014, and $3.76 in 2016.
The Dec. 11 short sale recommendation was supported by the failure of the stock to successfully attack its 200-day moving average. Shares executed a dramatic sell signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR), on Dec. 17 and double-topped several days later.
CVX stock then plummeted to last week’s low near $75 on what appears to be a selling climax. Above-average buying appeared on Thursday and Friday. MACD is moving up from an oversold condition and the stock may have experienced profit-taking from short covering as it bounced to $80.
Traders can exit the short position in CVX stock now at the market or wait for a pullback to $80, which would result in a profit of 11%.
