Dividend income investors are always looking to lock in attractive yields in reliable companies like Chevron Corporation (NYSE: CVX). While CVX currently offers a dividend yield of 4%, its chart structure is shaping up in such a way that investors might get another opportunity to grab around 10% higher yield. This article will discuss the price action of the stock.
At the outset, I want to say that this is not a bearish article, but I do recommend waiting for lower levels. This is simply because the stock is less than 10% off from its 52-week high of $119, which should not perturb an investor.
The weekly Chevron price chart below is indicating that the stock has violated the uptrend that kept it going upward since August 2015. After repeatedly sustaining above the oblique support trendline, the stock finally gave a close below it last week. The significance of this trendline cannot be stressed enough: The stock enjoyed a formidable higher-top, higher-bottom cycle on the back of strong buying interest following the trendline and hit a two-year high in December. Consequently, the stock recouped a significant percentage of the losses incurred during the sobering oil crash of 2014-15. Last week's breach, if not overturned soon, will signal a near-term top.
To make sure that the uptrend has been violated, I will wait for a weekly close below $107. This price level is very significant for the stock as below it, the stock can easily drop another 10% to $96-$98. If the stock manages to regain the lost footing next week, we can easily see a sustained rebound ahead. By this, I mean a weekly close above $110 could resume the uptrend.
But why is $107 so important? First, this level represents the support from the July-2016 peak. Second, this level marks the 23.6% Fibonacci retracement of the entire run-up of the stock. Third, the 200-day simple moving average of the stock is at $107.09. Technically, Chevron is near its strong support region and it remains to be seen whether the stock will reverse from here or slip.
If the stock violates its immediate support, an investor can see CVX dropping to sub-$100 levels. To be precise, the next strong support level is at $98, which has been protected by the bulls on past several occasions. It would also be in close contact with the 38.2% Fibonacci retracement level of $100.13 (please consult the weekly price chart above).
Chevron also seems to be facing selling pressure from the 30-day and the 50-day SMAs of $111.32 and $112.84, respectively. The bounces are getting sold into from the pressure exerted by this couple of averages. Now the market is probably in a wait-and-watch mode to see if the 200-day SMA is breached or not. If it is breached, then we should see more attractive levels in CVX. The daily CVX chart helps in understanding this information.
Assuming that the stock falls to $98, the dividend yield would be pushed to the higher end of the multi-year range. An investor would be able to lock in approximately 4.4% in fixed income from this stock then. To make things interesting, it is worth noting that Chevron has yielded more than 4.25% only 6.1% of the time since September 1995 to date. It is a no-brainer to figure that the 4.4% yield would have stayed for an even lesser time.
Chevron is at a crucial price level now. The stock can decisively go in either direction. But, since the stock has disrespected the medium-term uptrend on the weekly charts, it is worth watching if there is room for more correction. With the help of technical analysis, I believe that the stock can strive for $96-$98 if the very important cushion of $107 is not protected by the bulls.
Another 8%-10% correction would be extremely delightful to the dividend income investors who closely track Chevron, since the yield would be pushed to the higher end of the two-decade range. In conclusion, it's worth noting that CVX looks a lot more interesting now and investors stand a chance to benefit either way the stock moves.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.