ExxonMobil Lags Energy Sector

08/08/05 09:19:08 AM

by Arthur Hill

Despite new highs in the energy sector, ExxonMobil remains well below its March high and shows poor relative strength.

Security: XOM
Position: Hold

Figure 1 shows the energy SPDR (XLE). At 19.86%, ExxonMobil (XOM) is by far the largest component of this exchange traded fund (ETF). However, XOM cannot keep up with the group as the ETF moves to new highs and XOM wallows below its prior high. XOM is clearly underperforming its peers, and this is not a good sign (Figure 1).

Figure 1: Energy SPDR XLE. This exchange traded fund moves to new highs ...

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

On the XOM price chart, the stock retraced around 62% of its March-June decline and then consolidated as a triangle evolved over the last six to seven weeks (blue trendlines, Figure 2). These are neutral patterns that require at least a trendline break for a directional cue.

Figure 2: XOM. ... While ExxonMobil struggles.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The noose is tightening as the triangle contracts. The Bollinger Bands have been overlaid and these have narrowed over the last few months. Like the triangle, the Bollinger Bands do not offer directional clues, but suggest that a volatility expansion (move) is due.

Will the stock break to the upside and make up for lost ground, or will it break to the downside and lead a pullback in the sector? At this point, the onus is on the bulls to prove the bears otherwise. The stock shows relative weakness, and moving average convergence/divergence (MACD) is on the verge of turning negative (red oval). A move below the July low would trigger a bearish signal with a downside target to the low 50s. Conversely, a move above the late July high would trigger a bull signal with an upside target above the March high.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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