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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.

ConocoPhillips  (COP) - Get ConocoPhillips Report shares were rising slightly to start the week, as we get some “Merger Monday” action.

The company will buy Concho Resources  (CXO) - Get Concho Resources Inc. 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 Chevron Corporation Report deal to buy Noble Energy  (NBL) - Get Noble Energy, Inc. 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.

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TheStreet Recommends

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.