Exxon Mobil (NYSE:XOM) has had a disappointing year so far with the stock falling from north of $90 in Jan to $80.21 now. This underperformance is slightly more stinging when the US stock markets are trading at record highs. The stock recently hit a new 52-week low of $78.27 and some market participants are beginning to see lower lows for the stock. In this technical analysis article, I attempt to provide some helpful price levels for the investors to watch out and make use of them in their investing decisions.
To put forth my perspective, I will present three XOM price charts - daily, weekly, and monthly - and discuss each of them in an easily comprehensible manner.
The following daily XOM price chart reveals that the stock has been trading in a tight range since March 2017 (marked by the red lines). Exxon has been consistently trading well below the 200-day simple moving average and is finding it hard to sustain above the 50-day SMA of $81.02 as well. Another couple of moving averages - the 13-day exponential moving average ($80.38) and the 34-day exponential moving average ($80.74) - is exerting more pressure on the stock.
This is why some analysts and technicians are anticipating a decline in the stock. Now they could be perfectly right and the stock could correct and break down from the range since the support is gradually shifting lower. In such a case, XOM could revisit the previous consolidation zone of $72-$74. But, the important question to ask is: Would such a drop be sustainable?
I strongly believe that the monthly price chart is a very resourceful tool for the technicians and the investors alike. It evens out the day-to-day kinks in the stock price (removes the noise) and presents a very clear picture of the long-term trajectory of the stock price. Safe to say, it incorporates the fundamental progress of the business and speaks sufficiently about the investors' attitudes at different prices and different times.
As one can easily see from the monthly XOM price chart below, the stock is trading near its very strong support level. So, any dip, if it comes, could easily be temporary in nature and investors need not fret over it. If their cost-basis is higher, they can use the opportunity to lower their average purchase price. Although the upside has been capped following the oil crash (the downward sloping resistance trendline), the 15-year uptrend is still intact.
A strategy that investors generally employ to enhance their annual returns is by selling out of the money call and put options. With the weekly XOM price chart, I am going to make it easier for the investors to make decisions regarding shorting OTM options. The simple mantra to do this fairly successfully is as follows: Short out of the money long-term call and put options following overbought and oversold readings on the weekly price chart.
Too often, investors are unable to decide the levels at which they should start shorting call options or put options. Due to erroneous calculations and incorrect price levels, they are either not able to realize the returns desired or they lose money.
The 10-year XOM weekly price chart below has been overlaid with Bollinger Bands and supplemented with two important technical indicators - Relative Strength Index and Money Flow Index.
It is not hard to find that whenever the stock has hit overbought reading on MFI or RSI, shorting the out of the money call option has proved to be a rewarding trade. The conviction to short the OTM call would become greater if both indicators are flashing overbought signals simultaneously. Similarly, shorting the OTM put options has been a great strategy whenever the stock has slipped into the oversold territory. Given the steady nature of the stock, there are fewer instances of the stock getting oversold.
Regarding the time frame and the strike price of the shorted option, it depends on an individual's risk-appetite and the return required.
In the end, I just want to say that there is no point harping over the daily price action of the stock when the long-term uptrend is still intact. Instead, if investors have to concentrate on something, then they should be doing so on increasing their yields by implementing the options strategies in a relatively safe manner using the overbought/oversold readings on the weekly price charts. Done right, the strategy could easily provide more return than XOM's dividend yield of 3.84%.
Note: I cover several stocks in different sectors as well as the S&P 500, crude oil, gold and silver, U.S. dollar, etc. So, if you liked this update and would like to read more of such informative articles, please consider hitting the "Follow" button above. Thank you for reading!
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.