2023 has been an eventful year for oil.
There have been successive OPEC+ production cuts, ongoing conflicts in the Middle East and Ukraine, and even drone attacks on U.S. ships earlier this month.
Yet despite all this turmoil you’d expect to push oil higher, WTI crude oil is fast closing in on its yearly lows.
One stock riding these bumps is Exxon Mobil (XOM). It’s the U.S.’s largest oil and gas producer.
In late September, it was pushing $120 a share.
But it recently traded down around $98. So let’s see what’s in store from here…
A Choppy Market
The chart of XOM below shows just how choppy things have been in 2023.
The short-term 10-day Moving Average (MA, red line) has been swinging all over the place.
Yet the 50-day MA (blue line) was recently tracking around where it was at the start of the year:
Exxon Mobil (XOM)
Source: e-Signal
These types of markets can be extremely frustrating for buy-and-hold investors. But they can offer plenty of opportunities for short-term traders.
You just need to know how to trade them.
In these pages, we often look for mean reversion trades. That’s where the stock price has shot too far in either direction, making it vulnerable to a pullback.
And that’s where momentum reversals fit into the picture…
In the chart, you can see three key peaks at ‘A,’ ‘B,’ and ‘C.’
Each peak reversed as our momentum indicator, the Relative Strength Index (RSI), fell from the upper half into the lower half of its range.
XOM was closing in on that third peak when we last checked inon it here.
(You’ll also note that these three reversals and subsequent downtrends also saw the 10-day MA bearishly crossing below the 50-day MA.)
Well, as the chart shows, the opposite also applies…
Take another look:
Exxon Mobil (XOM)
Source: e-Signal
Those rallies up to A, B, and C coincided with the RSI breaking into its upper range and the 10-day MA breaking above the 50-day MA.
If you look closely at the chart, you’ll also see multiple other smaller moves and countermoves (particularly from May to August). These also reflect these underlying swings in momentum (RSI).
But it’s the most recent action of the RSI that I’m focusing on right now…
As you can see, it’s been tracking in its lower range. And it has recently dropped into oversold territory (lower grey dashed line).
So what can we expect from here?
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Setting for a Bounce
The RSI went into oversold territory back in March (after it retraced from its peak at ‘A’). Then it made a ‘V’ (orange circle) and rallied higher…
And XOM bottomed out before rallying up to its peak at ‘B.’
Right now, I’m not expecting to see another rally of this magnitude. But XOM could still be setting itself up for a bounce…
Even if it’s just a brief one.
That could still be enough for a quick and profitable long trade.
If the RSI repeats that ‘V’ pattern from March and tracks up toward resistance (green line), then XOM could quickly trade back in the $102–$104 range.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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Where do you think oil will trade in 2024? Send in your thoughts to [email protected].