Chevron: Take Your Foot off the Gas
Some of the most important analysis that I do is on the biggest stocks that our market has to offer. If you know which way the Dow Jones Industrial Average is going, chances are you have a good idea where the other major averages are headed. So if you're constantly looking at the Dow components, there are only 30 of them after all, you have a better chance of getting the overall market trend right.
Today we're doing a top/down analysis on shares of Chevron Corp. If you like this multi-time frame analysis of price, momentum and relative strength, click here if you're interested in seeing the rest of the Dow components.
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The first chart shows weekly candlesticks for chevron breaking a nice clean uptrend line from the October 2011 lows. This is a problem as the recent highs last year were not confirmed by momentum. Not only does this divergence increase the likelihood of lower prices, but now that broken support (shaded area) and broken uptrend line will be resistance on any rally attempts. That former demand is now supply:
The next chart shows how nice that false breakout at the end of December turned out for the bears. This is the classic fast moves from false moves scenario. In my experience, this sort of whipsaw reaction is typically strong enough break through multiple support levels very quickly, which is precisely what occurred here. In the short-term this broken support under 115 should be a problem. Demand that has shown up here in the past has run out and supply should overrule those levels on any retest.
Finally, here is the long-term relative strength chart of Chevron. If this is an area where we want to be allocating assets, we want to see outperformance, or at least signs of outperformance coming. In this case we have neither. In fact all I see are broken uptrends and the lowest levels in relative strength since early 2008. This one has been a serial underperformer for years and I see no evidence yet that this trend has changed.
So let's review. The uptrend since 2011 is finally broken after momentum had been warning of such a break all throughout last year. In the short-term, prices are breaking all key support levels after a vicious false breakout. And relative to S&Ps, Chevron is a serial underperformer and currently hitting 6 year lows. Ask yourself, is this something you want to own?
Now, what would change this picture? I would first want to see relative strength get back above this broke in support from 2008 and 2010. Some outperformance would be positive sign number one. More importantly, from a pure price perspective, I think some time around these levels would be constructive. Although we broke below all of that 2013 support, we are technically still above that 2011 and early 2012 resistance. If prices can build a nice little base here, then maybe I can see something changing.
But from where we're sitting today, I think this is the less likely scenario and much lower prices in $CVX are the higher probability. I'd be fading any strength in this name.
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Click here if you are interested in seeing similar technical analysis for the rest of the 30 components on the Dow Jones Industrial Average.
Tags: $CVX $SPY