Could Chevron Be About to Rally to New Highs?

Chevron (CVX) - Get Report begins a new week on the verge of an upside breakout. At midday, shares are trading just below last week's high as its four-week consolidation appears to be ending. A fresh rally from this constructive pattern could propel the stock well into new 2016 high territory.

Click here to see the below chart in a new window. 

In mid-April, Chevron began to show signs of exhaustion. The stock had rallied sharply off the March lows and had moved past heavy resistance near the November peak, but volume was beginning to ease. As April came to a close, despite reaching a new rally high, it was becoming clear that Chevron needed a healthy rest.

Since then, the stock has been drifting sideways as it worked off some of its overbought reading. During this process, Chevron remained above very solid support near the November and March highs. This encouraging action has set the stock up well for a renewed rally leg.

In the near term, Chevron investors should consider the stock a low-risk buy near current levels. The stock still has an important hurdle to clear near the April/May highs, but once past last week's peak of $102.70, momentum should begin to pick up enough to drive the stock to new yearly highs. On the downside, a close back below $99 would indicate a more drawn-out basing pattern will be on the way before a significant rebound can develop.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long CVX.