When we last looked in on EOG Resources Inc. (EOG) in the middle of May, we concluded that after a five- to six-month correction, "EOG looks poised to break its downtrend and start a new move to the upside. Traders could probe the long side of EOG at current levels risking a close below $90."
As things turned out, this recommendation was not successful as prices dipped to $86 before turning up in the latter part of June. With crude oil futures knocking on $50 a barrel, another look at EOG is warranted.
In this daily bar chart of EOG, above, we can see how prices made a low in June and a slightly higher low in early July. Last week prices made a higher high than early July, starting an uptrend. Prices are trading above the now-flat 50-day moving average line and they are testing the flat 200-day moving average line. As prices turned more positive, the daily On-Balance-Volume (OBV) line also began to improve in the latter part of June.
In the lower panel is the 12-day momentum study, which shows higher lows in June as prices made lower lows. This difference is a bullish divergence and foreshadowed the rally in July. In July, the momentum study is making higher highs and not diverging from the price action.
This weekly bar chart of EOG now has taken on a bullish tone. Prices are testing the flat 40-week moving average line from below. It won't take much of a price rally to close above the 40-week average. The weekly OBV line has turned upward in the past few weeks, suggesting that buyers have become more aggressive. The trend-following Moving Average Convergence Divergence (MACD) is crossing to the upside from below the zero line. This crossover of the two moving averages is a cover-shorts buy signal as the crossover comes from below the zero line. Crossovers above the zero line are outright go-long signals as prices are actually trending higher.
In this Point and Figure chart of EOG, above, we can see a recent upside breakout and a potential price target of $105.02. Prices would need to decline to $91.77 to turn the chart bearish again.
Bottom line: After a seven-month decline, EOG has broken its downtrend and is trying to restart the bull trend. Prices have improved, but I would like to see more volume and a more bullish OBV line before committing to the long side. A pullback to $92, should it occur, is probably a buying opportunity risking below $88. The $105-$106 area would be our target.
