Exxon's Rally Is Showing Signs of Exhaustion

Exxon Mobil will likely need to pull back in order to set the stage for more upside
By Gary Morrow ,

Exxon Mobil (XOM) - Get Report was the third biggest gainer in the Dow Jones Industrials on Monday. The stock is set up well for more upside, but an extremely overbought moving average convergence/divergence reading should give investors a bit of a pause.

Exxon surged more than 4% on its heaviest upside trade since late August on Monday. This powerful surge lifted shares past a downward sloping 200-day moving average for the first time in well over a year. With this breakout-type move, Exxon has extended its rebound off the August lows to over 28%.

This huge rally, which began its second leg on Oct. 2, began to show signs of exhaustion two weeks ago. Heading into earnings, Exxon was beginning to test heavy resistance near its downward-sloping 200-day moving average just as bullish interest was fading. The stock appeared to have reached a mid-term top just below $83, and despite the aggressive buying wave that followed the stock's Friday morning earnings report, this resistance zone remained intact. As this week began, Exxon managed to power past this area and is set up well for more upside.

It's likely that Exxon will have a bit of a follow-through move as this week continues, but significant additional gains are unlikely. The stock's MACD indicator remains in an overbought state and will soon need to pull back before heading higher. For patient bulls, it may prove wise not to chase Exxon above the $87 area.

The stock has layers of support in place thanks to Monday's impressive action. Initial support rests near the July high/200-day moving average at $83.50. The lower band is marked by Exxon's August peak of $79.30. A short-term consolidation in this support zone would work off some of the current froth and set the stage for a continued bull move that could carry the stock back up to its 52-week high near $93.

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Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long XOM. 

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