When the broad-based rally gripped the market late last year, the energy sector headed the other way.
After peaking in September, oil stocks sank as buyers deserted the sector in droves.
One hard-hit company was Exxon Mobil (XOM), the sector’s largest U.S. stock. It dropped around 20% in just over a couple of months.
When we checked in on XOM in December (orange arrow in the chart below), it looked oversold. So we called for a potentially brief bounce that we could trade.
That played out.
But after hitting our target level, XOM rolled over.
Now it is trying to rally again. So let’s see what’s coming next…
Stronger and Longer
The chart of XOM below shows how volatile it was last year.
It mainly traded within a $20 range. But you can see a huge number of smaller moves (and countermoves) within its sideways trend.
During that period, the 10-day Moving Average (MA, red line) crossed the longer-term 50-day MA (blue line) multiple times in both directions as well:
Exxon Mobil (XOM)
Source: eSignal
When we looked at XOM on December 11, reversals in momentum had played a big part in XOM’s down moves after its peaks at ‘A’, ‘B,’ and ‘C.’
Each down move coincided with the Relative Strength Index (RSI) falling below support (green line) and into the bottom half of its range.
And the 10-day MA crossing beneath the 50-day MA confirmed the falls.
But the most recent major down move after ‘C’ was far stronger and lasted longer.
Unlike ‘A’ and ‘B,’ this down move pulled the 50-day sharply lower. The RSI remained stuck in its lower band too. This made it hard for XOM to mount any rally.
Yet in December, the RSI eventually dropped into oversold territory (lower gray dashed line). And that caught our attention.
We noted that if the RSI repeated its March V-pattern and rose to resistance, XOM could trade up around $102-104.
And that is what we saw.
But that move petered out. The RSI failed to gain a foothold in its upper band (red circle) and instead drifted lower.
Yet it finally broke through resistance last week.
Take another look:
Exxon Mobil (XOM)
Source: eSignal
West Texas Intermediate (WTI) crude oil’s recent strong positive momentum spurred this latest move.
Yet for this short-term bounce to become a genuine rally, it will need to show us a number of signals…
Signals of a Longer-Term Move
First, let’s look at the RSI.
It’s now back in its upper range. But we’ll need it to keep growing its buying momentum. The RSI falling below support would quickly squash any emerging rally.
Second, we have our MAs. The 10-day MA needs to cross and accelerate above the 50-day MA.
And third, I’ll be watching the MACD.
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When XOM rallied up to its peaks (at A, B, and C), the blue MACD line bullishly crossed above the orange signal line. And both tracked higher.
Compare that to the action of the MACD in May through August and October to the present. It meandered in its lower half (below the zero line) when XOM was stuck sideways or falling.
So if the MACD can repeat its bullish pattern, that would add further strength to any uptrend.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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