Exxon Mobil Corp.’s fourth-quarter profit was up 2% to meet consensus expectations on Wall Street but shares of the oil giant were down Tuesday on its lighter-than-expected production. While still in good shape by most accounts, technical analysts see potential short-term problems.
Many investors equate a company’s success with its stock’s success, thinking that a solid company is always a good buy. However, the market can push share prices above what may be considered to be “the right price.” Here is why investors may want to wait for lower prices before adding Exxon Mobil to their portfolios.
As a blue chip stock and member of the Dow Jones Industrial Average, Exxon Mobil is no fly-by-night company. However, that alone is not a good enough reason to buy it at just any price. The financial crisis significantly hurt other big names such as Citigroup and General Motors so Dow membership is not a guarantee of investment success.
Technical analysts look at charts to find areas of supply and demand, as well as the sustainability of trends. When they look at Exxon Mobil, they see a strong level of resistance overhead in the 88 area. Rallies were stopped twice there in early 2011 so it was not a surprise that sellers became aggressive (supply swelled) as the stock approached that price last week.
When earnings were reported Tuesday, selling accelerated and the stock dipped below its January 13 low. On its own, that was not a big deal, but It represents a break of the short-term rising trend from November. It also confirmed the stock as being an underperformer vs. the market for more than a month.
Again, the major trend from September is still to the upside so all we can say at this point is that Exxon Mobil is experiencing a correction.
Keep an eye on the 80 area. If it can stabilize there, then the rising trend can continue. And patient investors will be rewarded by being able to buy at prices 10% below their January peak.
But if it falls below 80 then there will the major change in trend for the worse. Let’s cross that bridge if and when we get to it.
Michael Kahn, CMT, writes the twice weekly Getting Technical column for Barron’s Online and publishes the daily Quick Takes Pro newsletter. Sign up for his free, no-spam technical analysis chart of the day at www.QuickTakesPro.com.