Trading Exxon Mobil as Energy Giant Slashes Costs

Exxon Mobil is rallying after it cut its capex by 30%. Here's an updated look at the stock now.
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Tuesday is a good day in the stock market, but it’s an even better day for Exxon Mobil  (XOM) - Get Report. Shares have risen about 6.2% on the day, roughly double the gain in the S&P 500.

But make no mistake about it, the run in Exxon has not been fun. The same can be said for BP  (BP) - Get Report, Chevron  (CVX) - Get Report and other stocks in the Energy Select Sector SPDR ETF  (XLE) - Get Report.

Giving Exxon a boost on Tuesday was the company’s decision to cut its full-year capex budget by 30% (to roughly $23 billion from $33 billion). Exxon will also lower cash operating expenses by 15%. Importantly, the company still apparently plans to pay its dividend, a yield that has climbed to more than 8.5% after the stock’s large decline.

Energy stocks have been under significant pressure, underperforming the broader market significantly. Not only did the coronavirus hurt the stock market, but it also caused oil demand to sag dramatically as global economies came to a halt. It didn’t help that global producers got into a price war, purposely causing oil prices to plummet.

Is the situation finally improving?

Trading Exxon Stock

Daily chart of Exxon stock.

Daily chart of Exxon stock.

We don’t need to hire Sherlock Holmes to uncover the decline in this one. Exxon blew through $65 support and plunged all the way down to a low at roughly $30. However, shares bounced hard off this level.

The rally is good to see, but Exxon is not out of the woods quite yet. First, the positives. Exxon hammered out a low near $30 and quickly shot higher. In doing so, shares put in a higher low in the mid-$30s. Lastly, Exxon Mobil reclaimed the 20-day moving average near $40.

On the downside, Exxon is correlated to the performance of crude oil. While it could rally alongside the commodity, it could also fall if oil prices decline. Additionally, there’s a lot of technical damage on the chart as shares have plunged to multi-decade lows. That takes time to recover from.

From here, the levels are clearly mapped out. On the upside, the 38.2% retracement is the next target, up at $45.50. Above that puts the 50-day moving average and 50% retracement in play at $48.94 and $50.23, respectively. Additionally, downtrend resistance (blue line) comes into play near this area. Upon first test, provided Exxon stock can even get there, I would expect the $50 area to act as resistance.

On the downside, it would be encouraging to see the 20-day moving average hold as support, along with the $40 level. Below that puts the mid-$30s back in play, which is the higher low area after the bounce from $30.

Should all of these levels fail to hold as support, it puts $30 back in play. At this point in time, I don't expect Exxon to take out the low unless oil prices move significantly below the current 2020 lows.