Chevron Stock Rose Into the Earnings Report - Here's How to Trade It

Buy Chevron on weakness to the monthly value level at $88 and to the 50-day SMA at $82.63. Reduce holdings on strength to the quarterly risky level at $105.77.
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Oil giant Chevron CVX reported better-than-expected revenue before the open on Friday. The stock opened lower but is above its value level for May at $88.

Chevron appears to have avoided problems associated with the largest slump in crude-oil prices in history. 

Shares of the San Ramon, Calif., oil company have risen 70% since mid-March despite reduced demand for oil due to the covid-19 pandemic. For more details look at the story posted by TheStreet.com.

The stock opened Friday at $91.51, down 24% year to date and in bear-market territory 28% below its 52-week high of $127 set on July 25, 2019. 

The stock is also in bull-market territory 77% above its March 19 low of $51.60.

The stock is cheap with a p/e multiple of 14 and dividend yield of 5.45%. Given this dividend, the stock is a member of the Dogs of the Dow.

The Daily Chart for Chevron

Daily Chart for Chevron

Daily Chart for Chevron

Courtesy of Refinitiv XENITH

The daily chart for Chevron shows that the stock has been below a death cross since October. This sell signal occurs when the 50-day simple moving average falls below the 200-day simple moving average, indicating that lower prices lie ahead.

Between Nov. 4 and Jan. 6, investors could have sold the stock at its 200-day SMA at $120.15. This sell signal led the stock to its March 19 low of $51.60.

This is May 1 and we have a new monthly value level for CVX at $88. If this level holds, the upside is to the second-quarter pivot at $105.77. 

The 50-day SMA is another level that needs to hold at $82.63.

The Weekly Chart for Chevron

Weekly Chart for Chevron

Weekly Chart for Chevron

Courtesy of Refinitiv XENITH

The weekly chart for Chevron is positive, with the stock above its five-week modified moving average of $86.59. 

The stock is well below its 200-week simple moving average, or reversion to the mean, at $113.64.

This reversion to the mean was a magnet between the weeks of Nov., 11, 2016, and Jan. 31, 2020. A move below this level warned that a crash could follow.

The 12x3x3 weekly slow stochastic reading is projected to rise to 46.89 from 40.83 on April 24.

Trading Strategy: Buy Chevron on weakness to the monthly value level at $88 and to the 50-day SMA at $82.63. Reduce holdings on strength to the quarterly risky level at $105.77.

How to use my value levels and risky levels:

The closes on Dec. 31, 2019, were inputs to my proprietary analytics. Semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.

Second quarter 2020 levels were set established based upon the March 31 closes. The monthly level for May was based upon the close on April 30.

New weekly levels are calculated after the end of each week.

New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.

To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.

A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.

A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.