Chevron: A Shift in Strategy After Quant Downgrade

 | Jul 31, 2017 | 2:26 PM EDT
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We favored the long side of Chevron Corp. (CVX) in our last review in June, with a strategy of "If you recently purchased shares of CVX based on our technical write-up, I would hold with a sell-stop below $104. Strength above $110 will make the chart look still stronger."

Now that CVX has rallied close to $110 and is testing the 200-day moving average line, a fresh look would be helpful. In addition to the updated price action, TheStreet's Quant Ratings service has downgraded the shares of CVX. Over the past two years my use of and respect for the quantitative service has grown. The strategy may be to book some profits, but let's look at our charts and indicators before reaching a conclusion.

In this daily bar chart of CVX, above, we can see how dips or probes below $104 have been bought the past two months. In the past week prices rallied above the flattening 50-day moving average line and went on further to test the rising 200-day average line. The daily On-Balance-Volume (OBV) line has been "lackluster" since February so we do not get the impression that there has been much in the way of aggressive buying.

The daily Moving Average Convergence Divergence (MACD) oscillator has spent much of its time this year below the zero line. The MACD oscillator is just now edging above the zero line.

In this weekly bar chart of CVX, above, we can see that prices have rallied to the underside of the rising 40-week moving average line. The volume pattern has been flat to declining so far this calendar year and this is not in the recipe for a rally. The weekly OBV line has been flat since February, reminding us that buying and selling is in balance.

The weekly MACD oscillator is below the zero line and narrowed toward a possible crossover and cover shorts buy signal.

This Point and Figure chart of CVX, above, is both bullish and bearish. The chart shows a possible upside price target of $119.27 after the breakout at $108.68. The chart also shows resistance above $109.77.

Bottom-line strategy: Chevron's recent advance does not seem to be well supported by improving technical studies. A quantitative downgrade at this juncture tells me that taking profits on recent longs is probably a good idea. A pullback to around $106 would be what I anticipate. Should this pullback materialize, we can look at CVX again.

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