Just over a year ago, I wrote a piece suggesting that energy investors should rethink their view of the big, integrated multinational oil firms. The Chevron (CVX)s and Exxon (XOM)s of this world, I argued then, would likely be held back for a while by the very thing that had benefited them for so long, their international exposure. That, however, doesn't mean that they should be ignored completely. Even if their role as "safe" investments is under pressure, there are still opportunities for short-term gains in big oil, and the biggest of them all, Exxon Mobil, is a case in point right now.
There are both technical and fundamental reasons to believe that XOM, an underperformer even in the generally underperforming energy sector, is about to reverse that trend. Let's start with the fundamentals, as those influences are more impactful and longer-lasting.
International exposure had become a drag on Exxon because global growth was under pressure. China was slowing and feeling the effects of the trade war and Europe was moribund at best. The U.S. economy, meanwhile, was easily outpacing those of other developed nations. With phase one of a trade deal agreed on and Europe beginning to pick up now though, those factors will weigh less.
In addition, the spread between the global Brent benchmark and the American WTI has started to increase over the last few weeks and looks set to continue to do so. It is now clear that the OPEC+ output limits are being pretty well adhered…
Just over a year ago, I wrote a piece suggesting that energy investors should rethink their view of the big, integrated multinational oil firms. The Chevron (CVX)s and Exxon (XOM)s of this world, I argued then, would likely be held back for a while by the very thing that had benefited them for so long, their international exposure. That, however, doesn't mean that they should be ignored completely. Even if their role as "safe" investments is under pressure, there are still opportunities for short-term gains in big oil, and the biggest of them all, Exxon Mobil, is a case in point right now.
There are both technical and fundamental reasons to believe that XOM, an underperformer even in the generally underperforming energy sector, is about to reverse that trend. Let's start with the fundamentals, as those influences are more impactful and longer-lasting.
International exposure had become a drag on Exxon because global growth was under pressure. China was slowing and feeling the effects of the trade war and Europe was moribund at best. The U.S. economy, meanwhile, was easily outpacing those of other developed nations. With phase one of a trade deal agreed on and Europe beginning to pick up now though, those factors will weigh less.
In addition, the spread between the global Brent benchmark and the American WTI has started to increase over the last few weeks and looks set to continue to do so. It is now clear that the OPEC+ output limits are being pretty well adhered to, but the difference is being made up by increased U.S. production. That may put a top on oil in general, but it will also cause that spread to continue to increase, benefitting the more internationally focused firms.
Even if oil does struggle to show any gains overall then, a company with big global exposure such as XOM could still outperform.
The technical picture suggests that if the time to buy XOM isn't necessarily quite yet, it is rapidly approaching.
During the volatility that followed last week's attack in Iraq that killed Iran's top Revolutionary Guard commander, Exxon's stock moved around too. But, while oil collapsed from its immediate highs and finished the week well below where it started, XOM is still a little higher than last Thursday's close. That suggests that there are buyers around at these levels, and there is another technical consideration that may force their hand and push the stock higher.
The yellow and blue lines on the above chart are the 50 and 100-day simple moving averages, and as you can see, the 50-day will cross the 100-day soon, providing the stock doesn't drop significantly. That is what known as a "golden cross", something that is a well known and widely followed bullish signal.
These kinds of things are often self-fulfilling prophecies. If there are, as recent price action indicates, buyers of XOM around, a golden cross would prompt them to act for fear of missing out. That, again, should result in overperformance. To be safe, you could wait for the cross to occur, but given the recent support in a falling oil price environment, buying now with a sensible stop just below the 66.31 low looks reasonable.
Don't get me wrong; I don't yet think that XOM or any of the major oil companies have regained their status as safe long-term investments. Fundamental and technical considerations do suggest though that the worst performer among them, Exxon Mobil, will offer a low-risk investment with a decent potential reward over the next few months.
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