NEW YORK (TheStreet) -- Crude oil futures on the New York Mercantile Exchange began the year breaking below their 200-day simple moving average, a measure of the average stock price over a given period of time.
The Nymex's move down, in turn, pulled down shares of Chevron (CVX) and Exxon Mobil (XOM). Energy companies in the Dow Jones Industrial Average followed. Chevron broke below its 200-day on Jan. 10, followed by Exxon on Feb 3.
The 2014 rally in the energy sector began after crude oil set its 2014 intraday low at $91.24 on Jan. 9. Chevron didn't begin to rebound until setting its 2014 intraday low at $109.27 on Feb. 5. Exxon followed after trading as low as $89.25 on Jan. 6.
Crude oil rallied above its 200-day SMA when it was $99.39 on Feb. 7, and then traded back and forth around this key moving average before, hitting its 2014 intraday high of $107.68 on June 13.
Chevron moved above its 200-day SMA then at $120 on April 14. This stock set an all-time high at $135.10 on July 24.
Exxon rallied above its 200-day SMA then at $91.90 on Feb 18, and the stock set an all-time high at $104.76 on July 29.
Crude oil broke below its 200-day SMA at $99.77 on July 11, trading as low as $96.69 on Wednesday. Chevron fell as low as $124.58 on Tuesday, staying above its 200-day at $122.01. Exxon went as low as $97.78 on Tuesday, holding its 200-day SMA at $97.67.
The clear pattern so far in 2014 is that crude oil leads directional changes as Chevron and Exxon continued lower as the year began and then extended gains into July after crude oil peaked in June.
Let's take a look at the weekly chart for crude oil then provide "buy and trade" profiles for Chevron and Exxon.
The weekly chart shows how the crude oil bubble began to inflate from a low of $49.90 in January 2007. The bubble burst from an all-time high at $147.27 set in July 2008. The bursting of the oil bubble broke below its 200-week simple moving average in October 2008 when this average was $75. The bubble did not bottom until oil traded as low as $33.20 in January 2009.
Those familiar with my methodology know that I consider the 200-week simple moving average as the long-term reversion to the mean. The chart shows how the 200-week SMA has been a magnet since the middle of 2009. This week crude oil is only 90 cents above its 200-week SMA, which is now at $96.02.
The weekly chart is negative with the price of crude oils below its five-week modified moving average at $101.07. At the beginning of the year, I showed an annual risky level at $107.52; this level was tested when crude traded as high as $107.88 on June 13. If crude oil breaks below the 200-week, I do not know the downside risk as I do not show any value levels from my proprietary analytics.
Courtesy of MetaStock Xenith
Chevron ($125.75) has a negative weekly chart with its five-week MMA at $128.29. Monthly and annual value levels are $123.17 and $118.80, respectively.
In the decline from $135.10 on July 24, Chevron crossed below quarterly, annual and semiannual pivots at $134.81, $132.91 and $132.08, respectively. Investors could have booked profits on the way up through these levels. Now, investors should consider selling strength to these levels at risky levels.
Exxon Mobil ($98.98) also has a negative weekly chart with its five-week MMA at $100.96. I do now show any value levels.
In the decline from $104.76 on July 29, Exxon crossed below quarterly, annual and semiannual pivots at $103.19, $103.05 and $100.68. Investors could have booked profits on the way up through these levels. Now they are considered risky levels at which to sell on strength.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff
TheStreet Ratings team rates CHEVRON CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate CHEVRON CORP (CVX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, increase in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CVX's revenue growth has slightly outpaced the industry average of 1.0%. Since the same quarter one year prior, revenues slightly increased by 0.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CVX's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry average. The net income increased by 5.6% when compared to the same quarter one year prior, going from $5,365.00 million to $5,665.00 million.
- In its most recent trading session, CVX has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: CVX Ratings Report