Shares of Devon Energy (DVN) made a small base in January, February and March of this year. Prices firmed until late April, and have been consolidating those gains over the past three months. Can prices break out and move higher, or will more consolidation and base building be needed?
In this daily chart of DVN, above, we can see that prices are above the rising, 50-day Simple Moving Average line. Prices are also above the 200-day moving average line, but its slope is still pointed down.
The On-Balance-Volume (OBV) line rose from February to April, telling us that buyers were more aggressive, but then it turned flat, telling us that buyers were more neutral. Momentum has been showing us a bearish divergence vs. prices since April: As prices made higher highs in May, June and July, the momentum indicator made lower highs. Weakening momentum does not mean that prices will turn down, but it does mean that prices are having a harder time moving north.
In this three-year weekly chart of DVN, we can see that prices are above the 40-week moving average line, but the slope of the line is still pointed down. While the daily OBV line is neutral for prices, this weekly timeframe suggests strong accumulation this year.
Momentum diverged from price on the daily chart, and we can see a similar picture on this weekly chart. Prices make higher highs, but the 12-week momentum study is weakening and diverging.
Bottom line: DVN could move higher in the days ahead, but with prices moving up at a slower and slower pace (momentum), we would be on guard for a reversal and more sideways price action.
