ConocoPhillips Is Buying Concho Resources - Here’s the Trade

ConocoPhillips is buying Concho Resources in a $9.7 billion all-stock deal. Let's look at ConocoPhillips, which is trying to break out over resistance.
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ConocoPhillips  (COP) - Get Report shares were rising slightly to start the week, as we get some “Merger Monday” action.

The company will buy Concho Resources  (CXO) - Get Report in an all-stock deal valued at $9.7 billion. Last week’s rumors bore fruit, with the two companies agreeing to a deal.

Concho shares were up about 1% on the news, but that comes after the jump last Wednesday of 10.2% when M&A reports started surfacing.

But ConocoPhillips’ desire for Concho started more than a week ago. From TheStreet’s morning coverage of the deal:

“ConocoPhillips, Bloomberg reported, had been hinting about a potential deal for months. In July, Lance said the company was encouraged by the low premiums needed for acquisitions in the shale sector, citing Chevron's  (CVX) - Get Report deal to buy Noble Energy  (NBL) - Get Report for about $5 billion.”

With the deal now known, let’s look at how to trade the stock.

Trading ConocoPhillips

Daily chart of ConocoPhillips stock.

Daily chart of ConocoPhillips stock.

ConocoPhillips has traded better than many of its energy sector peers. Although the stock is still down notably from the 2020 highs - off 47.5% - that’s showing some relative strength compared to others in the space.

In any regard, Conoco looks like it’s itching to trade higher.

The stock continues to grind along the 50-day moving average, which has been resistance. Further, the stock is trapped in a downward channel, with channel resistance coming into play near the 50-day moving average as well.

That sets up a notable level near the $35.50 mark. If ConocoPhillips stock can close above this area, it could propel shares into a breakout, sending it north of these two key resistance points.

Almost immediately, that would put the 38.2% retracement on the table, up near $37.

If ConocoPhillips stock can clear this level, we could get a quick squeeze up toward the $40 to $41 area. There shares will find the 200-day moving average and the highs from July and August.

On the downside, let’s keep an eye on the 20-day moving average, which the stock is trying to hold now. Below keeps $32.50 on the table. If Conoco loses the $32.50 mark, it puts the October low in play at $31.07.

That’s followed by the 23.6% retracement at $30.65 and channel support. A close below channel support would be a bad look for the stock and bulls may second guess their long position.