Everything Points to Exxon Mobil (XOM)

Every now and again, the stars align for a particular stock, and everything you know and see points to a trade. That seems to be the case right now with regard to Exxon Mobil (XOM), a stock which, whatever way you look at it, looks like a must-own.

There are two types of analysis that are used for picking and trading stocks, fundamental and technical. Fundamental analysis involves looking at a company’s performance and financial health or, more accurately the prospects for those things in the future. Technical analysis, meanwhile, is about past price performance, market conditions and the positioning of market participants.

Historical information is important only in as much as it gives us a clue as to the future. Over time fundamental factors dominate, as a company’s stock price is, in essence, simply a reflection of its financial health and prospects, but obviously buying something that looks likely to lose ground in the short term due to technical factors makes no sense. Ideally then you look for a stock where long term fundamentals and short term technical analysis both point to gains, and XOM fits the bill.

The fundamental factors are pretty well known, starting with the price of oil. I have my doubts about the long term prospects for OPEC’s recent agreement to cut production, but for now it is definitely supportive. West Texas Intermediate (WTI), the U.S. crude oil benchmark has jumped approximately twenty percent from $45 on November 30 when the agreement was announced to close to $54 today.

As U.S. producers step up production in response and with a strong dollar that could be the extent of the gains but they are still substantial. Natural gas is less important to Exxon, but those prices have also recovered and are trading at their highest in nearly two years, which can only help.

The price of oil, however, is not the main part of the story here. The Trump administration has made it clear already in the first week that they will be doing everything they can to help the fossil fuel industry. Regulations are already being rolled back and Federal opposition to major pipeline projects has disappeared overnight. Nor do those things look likely to change, assuming that Scott Pruitt and Rick Scott are confirmed as the heads of the EPA and Department of Energy respectively.

Add to that the prospect of Exxon lifer and recently retired CEO Rex Tillerson as Head of State and it is hard to imagine a better scenario for the oil giant. Tillerson may have divested himself of any financial interest in XOM but that doesn’t change the fact that a lifetime in a corporate culture tends to shape anybody’s outlook and makes it likely that he will see what is good for Exxon as being good for the country.

All of those factors combined to cause XOM to surge around twelve percent following the election, but the stock has since retraced to within sight of where it was before that move. This morning’s disappointing earnings miss from Chevron (CVX) makes it likely that XOM will open even lower this morning, and even closer to the major support level around $82.

As you can see from the chart above that level has proven to be significant three times over the last year and, while that doesn’t guarantee it will be again, it at least makes for a logical point just below which to set a stop loss order.

There is no such thing as a certainty in trading, but when a fundamental and technical analysis both suggest that a stock has a reasonable chance of going up and a limited downside that is about as good as it gets. That is the case with Exxon Mobil at these levels and that makes buying it a great trade.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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