Oil and its producing companies have been jumping since Monday. First, expectations that OPEC would cut more than 1 million barrels per day from production, its sharpest output cut since the COVID pandemic, pushed prices up ahead of its meeting yesterday.
But then, when OPEC and its partners agreed to cut 2 million barrels per day from production at its meeting on Wednesday, the price rallied further. The news "disappointed" the White House. The Biden Administration released a statement that the Department of Energy will release an additional 10 million barrels from the Strategic Petroleum Reserve next month and that the President will continue to "direct SPR releases as appropriate to protect American consumers and promote energy security."
Meanwhile, the only oil major to be in a clear uptrend is Exxon Mobil (NYSE:XOM), which registered a new all-time high on June 8. Exxon shares surpassed their previous high from July 28, 2014. Rising oil prices and soaring fuel, gasoline, and diesel prices helped XOM breach the $100 mark.
Reversing my bullish persuasion, I turned bearish on oil on July 6 when WTI completed a bearish flag, implying a much larger bearish triangle.
If I am right about oil, it stands to reason that XOM will follow lower. Therefore, the oil major might be developing an H&S top with an upward-sloping neckline, with a powerful weekly shooting star for a head.
Conversely, if XOM breaks through its June all-time-high downtrend line, it will have blown out the reversal pattern, turning it into a bullish, continuation triangle pattern. Statistically, when a structure completes—of the reversing or continuing variety—it triggers a technical chain reaction of orders, forcing the price further in its direction.
Trading Strategies
Conservative traders should wait for a pattern completion, either an H&S top or a symmetrical triangle, with a minimum 3%, 3-day filter, to avoid a trap.
Moderate traders would short XOM if it produced a long red candle beneath its current downtrend line.
Aggressive traders could short the stock now, counting on the resistance of the downtrend line and the psychological round $100 number, noting the price reached a high of $99.99 on Wednesday and closed lower.
Trade Sample - Aggressive Short
- Entry: $100
- Stop-Loss $105
- Risk: $5
- Target: $85
- Reward: $15
- Risk-Reward Ratio: 1:3
Trade Sample - Moderate Short
- Entry: $98 (After closing below $96)
- Stop-Loss: $100
- Risk: $2
- Target: $88
- Reward: $10
- Risk-Reward Ratio: 1:5
Trade Sample - Aggressive Long
- Entry: $100 (after closing above $102)
- Stop-Loss: $98
- Risk: $2
- Target: $106
- Reward: $6
- Risk-Reward Ratio: 1:3
Trade Sample - Moderate Long
- Entry: $99 (after bouncing off $98)
- Stop-Loss: $97
- Risk: $2
- Target: $105
- Reward: $6
- Risk-Reward Ratio: 1:3
Disclaimer: The author has no positions in any securities mentioned in this article.