Medium term
Trade view / 27 November 2015 at 8:33 GMT

Still bullish on ExxonMobil stock

Trader / TheSteadyTrader.com
United States
Instrument: XOM:xnys
Price target:
Market price:
Background

Shares of oil-related stocks bounced sharply off their August and September lows along with the broader stock market while decoupling from the price of oil, which until earlier this week was still pushing lower. While headline news of more oil gluts was partially to blame for the still dropping price of oil, the surging dollar with the dollar index reaching par earlier this week, is the other issue facing the commodity.

My base case around higher oil prices in the medium term, and thus also firmer oil-related stocks such as ExxonMobil (XOM:xnys) is built around the following points:

  • While I expect another big surge in the US dollar starting in the second quarter or thereabouts next year, in the near to medium term the dollar looks increasingly overbought. Dollar weakness should also translate into a bid in the price of oil for a while.
  • Both investor sentiment and positioning is very weak in oil related stocks, which is to say that it would take little for these stocks to see another rally.
  • As we see on the multi-year chart of ExxonMobil versus the price of oil (in blue) below, positive divergence has built up over recent weeks where oil related stocks rallied. This could be a leading indicator that oil too may soon see a bid and thus further spark a rally in these stocks.

Exxon Mobil Corp
Source: eSignal

On the daily chart we see that shares of ExxonMobil have created a series of higher lows since September, all the while the yellow 21-day moving average offered good guidance. The stock is now again pushing up against its 21-day moving average, horizontal resistance as well as its 200-day moving average. A push back above those areas should release the stock higher again through a multi-week/month lens.

Exxon Mobil Corp
Source: eSignal

Management and risk description

From a seasonal perspective stocks have a tendency to pull back a little in the early to mid part of December, which could also affect shares of ExxonMobil. Buy the dip.

Parameters

Entry: Buy the CFD or stock around the $80 mark

Stop: $76.50

Target: $87.00, i.e. around the early November highs, as a first upside target

Time horizon: into year-end 2015 or early 2016

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more

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