Chevron (CVX) is the second-largest U.S. oil and gas producer. Yet for the last year or so, it has meandered in a sideways pattern.
Despite OPEC production cuts, geopolitical unrest, and mixed global economic data, CVX went into October trading around where it had been in December last year.
Then a sharp sell-off in mid-October and disappointing Q3 earnings saw CVX lose 17% in less than a month.
That put it into oversold territory.
So let’s check out the chart to find potential trades…
The 50-day moving average (MA, blue line) in the chart below shows how lackluster CVX has been this last year.
CVX had a slow rally into the end of 2022. We then saw a gentle fall, followed by a gradual rise since the middle of this year.
But there have been some tradeable moves within this broad sideways pattern.
An example of those moves is CVX’s sell-off from January to March followed by its bounce from there into April.
These moves coincided with a clear reversal in momentum, shown by the relative strength index (RSI).
But I want to concentrate on the action from July onward.
CVX’s gentle rally began in July. And we saw the 10-day MA cross above the 50-day MA with both slowly trending higher.
The RSI gradually tracked higher too. It eventually gained a firm hold in the upper half of its range (above the green line).
These bullish signs were promising. But that rally reversed as the result of a diverging pattern (left orange lines).
CVX was making higher highs (upper orange line).
Yet the RSI was tracking lower from near-overbought territory (lower orange line).
When momentum steadily falls like that, it eventually pulls the stock price lower.
And that is what we saw. Take another look:
CVX did manage to counter-rally to a lower high in mid-October. But then it reversed sharply again.
That move coincided with the RSI falling straight down through support. That fall developed further as CVX gapped lower after Q3 earnings.
The sharp angle of the 10-day MA accelerating below the 50-day MA shows the strength of that sell-off.
Now the RSI is in oversold territory, and another potential reversal pattern is developing. So what am I looking for next?
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A Converging Pattern
In September, a diverging pattern between the stock price and RSI led to a change of direction.
But a converging pattern can also cause a stock to reverse.
And we’re seeing this develop now with the right orange lines.
When the RSI steadily climbs out of oversold territory (lower gray dashed line), it makes it harder for a stock to keep falling.
If that buying momentum remains, it will push the stock price higher.
And that’s what I’ll be watching for from here…
The RSI rallying through resistance could quickly see CVX trading back around $145–150.
Editor, Trading With Larry Benedict
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