BY MARK SEBASTIAN
June 3, 2024
REPLAY
TRADE IDEA
Each week, my team will give an overview of a stock. I’ll discuss fundamentals, Licia will analyze the charts, and AG will break down the volatility.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Trader,
This week we are looking at the giant oil names. We threw around XOM, but settled on its slightly smaller twin CVX. Is it time to dive into long oil names … .or is the floor they seem to have found about to open up like a trap door…
Let’s break it down….
An option term got you down? Check out our Glossary here.
Chevron Corp (Ticker: CVX)
The conglomerate stock in Oil make money in a lot of places….obviously crude production and gasoline. But they are getting more and more into natural gas and other sources of energy. While crude is still the dog and the others the tail….its worth noting.
As I stated in my email….crude is stuck in a pretty tight range. It keeps trying to break out to no avail.
UNG: the nat gas ETF .
It’s coming off a nice run and is not at a decision point.
These firms also have to deal with Opec and Geopolitical stuff. We are at an interesting juncture for energy:
Generally, Democrats are bullish for Oil and Republicans are bearish….based on their energy policies. However, with the current admin aggressively releasing crude out of the SPR, we could actually see a crude rally with a Republican win.
Looking at CVX directly…This is a company that makes a lot of money and pays an over 4% dividend right now. The PE at 14.44 is actually a touch high for CVX…but with PE’s expanding below 15 is entirely reasonable.
The EBITA is 44 Billion, the net income on 20 billion though…what’s going on there?
CVX is always carrying a nice amount of debt, but with the rally in the stock the debt to equity ratio has pulled back nicely to about .1
With the recent pull back, I like CVX as both a short term buy and long term hold.
-Mark
Seems to me every time the crude oil futures catch a bid, they get slammed down.
They have been consolidating around the support/resistance level since the very beginning of May:
The Japanese Candlestick strategy calls that consolidation a box range.
Each time it looks like a break away from the line, it comes right back to it.
Chevron (Ticker: CVX) has sold off after making a double top and is sitting right on support of the lower level of the pitchfork:
Thursday’s large green bullish candle could become a bullish engulfing candle but of course we need confirmation with Friday’s action trading higher.
If that pans out, I like going long CVX up to $162.45 and we have a nice stop loss at the support at $156.65 and below there at $153.50.
Above $162.50, the previous highs at $167 will be the next target.
Licia
CVX and Big Oil could rock going forward
I just want to say I am overweight on oil producers. I own tech, some chips, financials and oil. The last several years oil companies are buying production and not looking for it. The early idea of green energy ran into Newton’s Law of Energy and Thermodynamics. I own a lot of nuclear and uranium too as the side AI bet is investing in all of the energy it will take to power server farms and robots.
There is no way we get there without oil and gas to do the lifting first. My opinion is that there will be a supply squeeze partly because of the current administration. That will not hit until the next one. Dollars spent for oil stocks now will see payouts later. Short term, there is endless demand for energy from AI.
1 year CVX chart with 30, 60, 90 day IV on the bottom
iV is very near the bottom as you can see from the chart. I think this is a trade similar to Walmart Inc (Ticker: WMT) where I just buy calls. They are too cheap and I don’t see how oil demand slacks in the face of relentless AI.
-AG
Out on Assignment
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Mark Sebastian
Founder & CEO, Option Pit
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