Wait to Buy Chevron -- Lower Prices Ahead

A pullback is developing in Chevron, which will create a low-risk buying opportunity for patient investors.
By Gary Morrow ,

Chevron's (CVX) - Get Report powerful rally off the early October lows has reached a heavy resistance zone this week. A pullback could provide a low-risk entry opportunity for patient bulls.

Following Monday's breakout move, Chevron added another 3.35% of upside on Tuesday. The very heavy volume advance that day pushed the stock past its downward sloping 200-day moving average for the first time in over a year. Shares have continued to retreat from this week's high, and a pullback appears to be developing. For investors, this will create a low-risk buying opportunity as long as this week's failure at the 200-day is well-contained.

When Chevron reached its lows on Aug. 24, the stock had fallen over 36% from its April highs. This devastating selloff drove the stock's weekly moving average convergence/divergence indicator to its deepest oversold reading since the fourth quarter of 2008. Once Chevron regained its footing during September's narrow consolidation, it was set up well for a powerful rebound move. On Oct. 2, the rally began with a 4% surge on very heavy trade. The stock stalled just below $92 after gaining 19% from the October low. Another two-week consolidation gave way to Monday's 4.5% jump, providing a very bullish start to a new week.

Despite the impressive action to start this week, Chevron was unable to power through heavy resistance. The resistance zone that has contained the highs includes the stock's January lows as well as the 200-day moving average. A pullback from this area now appears to be underway. For patient investors, it may prove wise to wait out lower prices before putting money to work.

Initial support is at the October high just below $92. A base here would keep the current bull trend intact. If Chevron closes below $90, which would mark a fresh November low, a much deeper pullback may be in order. This would certainly turn the failure at the 200-day moving average into a significant top.

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Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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