Now that oil is back from the dead, there are some changes we are seeing in the commodity-related names. One of the obvious changes has been the performance of the major, integrated names against the refiners. Names like Chevron (CVX) and Exxon Mobil (XOM) appear set for another leg higher, while refiners like Valero Energy (VLO) and Tesoro (TSO) struggle to hold support.
CVX's stock has enjoyed a sensational run from the low $80s in early February to the $100 area over the last four weeks (see chart, above). Although it has moved sideways for much of the last month, this channel has squeezed the Bollinger Bands tightly, with the potential now for a volatility breakout to the upside.
Note how the 8-day and 21-day Simple Moving Averages (SMAs) have converged, and price remains above both. This lends support to the breakout idea.
We haven't seen a bullish cross on the long-term Moving Average Convergence Divergence or StochRSI, so one might shy away, given the lack of a catalyst from trend and momentum, but both appear to be turning higher. And we do see the shorter-term Full Stochastics swinging higher and looking to lead price.
When we compare the correlation of CVX to VLO over 20-period moving averages, there isn't a lot to say. The stocks run from periods of high correlation to highly inverse correlation. One stock strengthening doesn't necessarily equate to another failing.
Glancing at the VLO setup (above), it is pretty much everything CVX is not. Price is in a channel, here, but this is a bearish-flag setup rather than a bullish flag. The 8-day SMA is under the 21-day SMA, and both sit above price.
The MACD is the one positive point on VLO, but the Full Stochastics have rolled over against bears, and the StochRSI is mired in a long-term oversold pattern. A close under $54 would spell trouble.
I thought it interesting to check out the long CVX versus short VLO chart. Any way I look at this, it is bullish on the pair in that format. A close over 1.91 in the ratio could trigger another 10% outperformance by CVX. That doesn't mean CVX will rise or VLO fall, but merely the relationship of long CVX, short VLO has a 10% upside potential -- no matter the combination or direction of the move between the two. CVX and VLO could both rise, could both fall or some combination of the two.
This is an important relationship to watch. The S&P 500 has favored a rising value in this pair, although it isn't do-or-die, merely something to keep an eye on if you are looking for possible trouble a few months out in equities.