Coming into October last year, Chevron (CVX) was stuck in a sideways pattern.
OPEC production cuts and geopolitical unrest failed to ignite the U.S.’s second-largest oil and gas stock for over a year.
Matters only got worse when CVX sold off into its disappointing Q3 earnings announcement in October. It lost 17% in less than a month.
After a period of consolidation, CVX tried to rally into the end of last year. But that move petered out.
Now CVX is trying to rally again. So let’s check where it’s heading from here…
Falling Through Support
The left-hand side of the chart below shows the tail-end of CVX’s sideways pattern. That finished in October.
Throughout this period, the 50-day Moving Average (MA, blue line) meandered sideways. The 10-day MA crisscrossed it multiple times:
Chevron (CVX)
Source: eSignal
As is common with a rangebound market, momentum also fluctuated. The Relative Strength Index (RSI) flipped constantly between its upper and lower range.
But there was a dramatic change in early October.
CVX made a lower high on October 19 (‘A’ to ‘B’). But then it went into freefall…
The 10-day MA crossed steeply below the 50-day MA and kept accelerating lower. The RSI fell sharply into its lower band.
We checked in on CVX back in November (red arrow). At that time, the chart showed us that this severe selling had put the RSI into oversold territory. It hinted that CVX could be setting itself up for a bounce.
The RSI was steadily trending higher (showing increasing momentum) while CVX was tracking sideways. A converging pattern like this often sets up a reversal.
CVX did eventually rally in December. The RSI broke back up through resistance. And the 10-day MA bullishly crossed above the 50-day MA.
But that rally soon fizzled out…
Take another look:
Chevron (CVX)
Source: eSignal
CVX drifted lower. And the RSI slipped back through support.
Then, after bottoming out in January, CVX rallied again, making a higher high and higher low.
The 10-day MA crossed back above the 50-day MA. The RSI gained traction back in the upper half of its band.
And after briefly dipping below support earlier this month, the RSI is again trending higher (orange line).
So what am I looking for around here?
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A Developing Pattern
As CVX’s rally develops further, I’ll be watching several technical signals…
For a start, we’ll want to see the 10-day MA stay above the 50-day MA with both trending higher.
And with the RSI back in its upper range, we’ll need this positive momentum to remain.
I’ll also look at a pattern developing with the MACD.
As you can see, the blue MACD line recently bounced off the zero (0.00) line. It crossed above the orange Signal line in what is typically a bullish move.
Since then, though, the two lines have started to converge…
For CVX to test the $160 level, I’ll be looking for the MACD line to start accelerating above the Signal line from here.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict