Using Technical Analysis to Identify Valid Buying Opportunities

If you're working a value-focused oil stock portfolio, it may be easy to find several services that offer a fundamental view of this type of stock. When looking at the list, however, one may be faced with the difficult decision of choosing the stock or stocks in which to invest.

It may help the decision process if we use technical analysis to determine which stocks are at or near value areas based on the trend and price analysis. With stocks at such lofty levels at this time and traders seemingly hesitant to buy strength for fear of entering at a top, it may be beneficial to use technical analysis to identify valid entry areas using a simple technique.

Fundamentally speaking, these stocks have made several lists consisting of highly rated oil and gas stocks for 2014. The consensus identifies a few of the best stocks as:

TOT - Total SA

BP - BP PLC

OXY - Occidental Petroleum Corp

XOM - Exxon Mobil Corp

CVX - Chevron Corp

Technically speaking, if we define an uptrend as a series of higher-tops and higher-bottoms then these stocks are all in clearly defined uptrends. While they all may be in the buy and hold category, value-based buyers tend to look for better-than-market entries.

Looking at Total SA (TOT) weekly chart, one sees a clearly defined uptrend. Based on the short-term range of $56.03 to $73.52, technical analysis identifies the best value area as $64.78 to $62.71.

BP PLC (BP) is another stock with a strong uptrend, however, recent price activity suggests investors have been shying away from the long side since the market reached a top at $51.56. Using the weekly chart to identify a value-zone in the direction of the trend, $49.35 to $48.83 has been identified as the next possible downside target and entry zone.

Occidental Petroleum Corp (OXY) reached a new 52-week high this week, but with the Dow and S&P trading at all-time highs, some investors may prefer to enter on a pull-back. Based on the recent rally from $91.20 to $100.76, a correction into $95.98 to $94.85 might offer the best entry price for the value sensitive investor.

Exxon Mobil Corp (XOM) is another oil stock that has declined from its 2014 high despite the Dow and S&P 500 reaching new highs for the year. This divergence suggests investors may feel the stock is overvalued at current price levels. The fundamentals haven't changed according to our search, but investors may be seeking a better entry level.

Given the short-term range of $93.01 to $103.45, one value area investors may be interested in for their next buy is the retracement zone at $98.23 to $97.00.

The last highly rated fundamentally based value stock to look at is Chevron Corp (CVX). If one studies the chart, the shrewd investor will notice that the stock has had trouble since May 2013 with the $127.00 area, having made five tops since then near this price, leading to sizable pullbacks.

This year's range is $109.27 to $127.27. If you think the stock is too expensive at $127.27 but unlikely to trade down to $109.27, then a 50% to 62% retracement of this range into $118.27 to $116.15 may offer the best entry price for new investors.

The combination of fundamental and technical analysis offers investors the opportunity to buy value-based oil stocks at value price areas. When faced with choosing from a list of fundamentally sound stocks, investors may want to look at the chart to find an area that offers a good entry price opportunity in the direction of the main trend. This is an especially beneficial technique to use when faced with the decision to buy stocks at or near extreme highs.