Exxon Mobil: On The Move, But Maybe Not In The Direction You Think (NYSEARCA:XLE)

General Views of New York

Bruce Bennett/Getty Images News

By Levi at StockWaves, Produced with Avi Gilburt

Crude oil is a market where fundamentals certainly matter. However, it’s also in the commodity family. Commodities are famously driven quite strongly by sentiment. There are times, especially at important turns in price, where the fundamentals do not seem to make sense.

At Stock Waves we use both fundamentals and technicals to help us identify high probability setups across the markets. One such setup is now developing in Exxon Mobil (NYSE:XOM). But, first, please allow me to briefly review what our view has been in energy producers and then we’ll dive into where we see the oil majors heading in the next few months.

Back on May 27 of this year our senior analyst, Zac Mannes, put out an important and timely update to members. In part, this was the main message:

We have now started to raise awareness for our subscribers that we are heading into thick resistance as the confluence of Fibonacci price levels for the targets for most of those moves. There is still room for extensions, but the risk ‘skew’ is no longer very favorable.”

In addition, Zac posted a chart of XLE which showed a likely top at the $92.25 area. XLE did indeed find an important swing high at $93.31 on June 8th.

XLE chart

MotiveWave

So, it has been our stance that energy producers would find themselves in a corrective pattern for some time ahead, through the summer months and into the fall period.

What’s the current fundamental view for crude oil and energy producers?

Our lead fundamental analyst, Lyn Alden, recently published this note regarding both.

A Fundamental Note on Oil: This is an environment for the price of oil where managing timeframes is important. In the tactical sense, there are plenty of bearish variables. In the structural sense, there are plenty of bullish variables. The US Strategic Petroleum Reserve is actively selling oil into the market, and will do so up until the election.”

Lyn SPR

YCharts

Meanwhile, the Fed is aggressively tightening monetary policy into an economic slowdown, and spiking dollar relative to other currencies in the process. The price of oil in yen, euro, and pound sterling for example is not as weak as the price of oil in dollars.”

PMI

Lyn Alden

Lastly, the biggest oil importer in the world, China, has been using a zero-COVID policy that results in rolling lockdowns and reduced oil demand. Those are among the key tactically bearish fundamental variables. The structural undersupply issue is the longer-run bullish variable. There aren’t many long-lifetime new projects coming online. Big emerging market sources of demand like India continue to grind higher over the long run.”

When Treasury market illiquidity or other issues cause the Fed to re-liquefy the global financial system, and/or the next period of economic acceleration comes, and/or technical signals show a clear reversal, I will be tactically bullish on oil again, in line with my structural bullish oil view.”

And, specifically regarding XOM, here are Lyn’s comments:

Many oil stocks, like XOM, are trading at reasonable valuations compared to the current and likely future price of oil. And many of them, XOM included, pay higher dividend yields than the broad market. However, it’s the rate of change that matters, and they tend to trade directionally similar to the price of the underlying commodity.

My view on most oil producers is therefore similar to my view on oil: tactically unclear until we get past the SPR drawdown and other macro factors, but long-term bullish.”

How Does XOM range vs. its peers?

Note the profitability chart from here on Seeking Alpha:

Profit

Seeking Alpha

With XOM being the clear leader among the major energy producers, our question now is where is the likely turning point in this current correction? Let’s look at the technical view.

Current Technical View for XOM

It was the technical view and the structure of price that helped us identify the last major swing high in price at the end of May / beginning of June. It follows then that this same methodology will continue to aid us as we seek the next major low.

As some prefer to trade the ETF, XLE, we also present that chart here as an overall template for the major energy producers.

XLE

TradingView

XOM

MotiveWave

At the moment, specific near term resistance for XOM is at the $93 area. There will be bounces along the way toward our ultimate target for this correction, but for as long as they remain below $93 then we see $65-$73 as the likely low, perhaps sometime in the mid-Fall time period.

The structure of price will help us identify when the corrective move is likely to complete. Since this is probably a C wave of a larger fourth wave correction, it will be composed of 5 waves down from the B wave top. We are now in the third wave down of those 5 waves. Once wave 3 finishes, we will anticipate a 4th wave bounce and the final 5th wave down.

Where Might This Scenario Be Wrong?

Should price sharply climb above $93 then we would revisit this expected scenario as currently illustrated in the attached charts. It’s also plausible that the structure of price concludes in a manner different than what is shown here. We will continuously update the charts for our members in the Stock Waves room.

Conclusion

While we do not see this current price level as long-term favorable for energy producers and crude oil, they will once again bask in the warm sun of extended gains. The 5th wave higher should take both oil and the oil majors to lofty heights. We will be closely tracking the structure of price to help us identify high probability setups in this and many other names that we follow.

I would like to take this opportunity to remind you that we provide our perspective by ranking probabilistic market movements based upon the structure of the market price action. And if we maintain a certain primary perspective as to how the market will move next, and the market breaks that pattern, it clearly tells us that we were wrong in our initial assessment. But here’s the most important part of the analysis: We also provide you with an alternative perspective at the same time we provide you with our primary expectation, and let you know when to adopt that alternative perspective before it happens.

There are many ways to analyze and track stocks and the market they form. Some are more consistent than others. For us, this method has proved the most reliable and keeps us on the right side of the trade much more often than not. Nothing is perfect in this world, but for those looking to open their eyes to a new universe of trading and investing, why not consider studying this further? It may just be one of the most illuminating projects you undertake.

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