Exxon Mobil (XOM) Is Ready To Lead The Market Higher…
Just a few short weeks ago everything was hunky dory in the markets. First quarter earnings were coming in strong and market indexes were trading at multi-year highs. Investors were bullish and markets were poised to add to already fantastic year-to-date gains.
But then Greece stole the show…
Growing worries over a Greek exit from the Euro sent investors running to the sidelines. As a result, both the Dow and the S&P 500 are down 6% from the May 1st highs.
Nearly every sector of the market has taken a hit in recent weeks. Even traditionally defensive consumer staples are down amidst all the uncertainty.
But nowhere is the market weakness more noticeable than in the energy sector…
In fact, the Energy Select Sector SPDR (XLE) is down nearly 10% in just the past few weeks. XLE is an ETF holding industry leading oil companies like Apache (APA), Occidental Petroleum (OXY), and Anadarko Petroleum (APC).
What’s going on?
With the price of oil sinking to $90 a barrel in recent trading, investors are throwing the baby out with the bathwater when it comes to oil stocks.
Take a look…
As you can see, May has been a rough month for APC, OXY, and APA. Each one is down over 12%, with APA performing the worst at -16%.
But take a closer look and you’ll see something very interesting.
XLE isn’t down as much as the individual stocks that make it up. That’s because Exxon Mobil (XOM), XLE’s largest holding, is performing remarkably well in the current market downturn.
In fact, since markets started bleeding red on May 1st, XOM is down a mere 4.4%. The stock is showing fantastic relative strength.
What’s relative strength?
Relative strength is a simple, yet essential concept for investors to understand. It’s measured by tracking price trends of stocks relative to others in the same industry- just like I did above.
Knowing which stocks outperformed in the past can give you a leg up on finding tomorrow’s winners. And XOM is a prime example. Given the stock’s recent strength, I think it’s a prime candidate to lead oil stocks higher in coming months.
But relative strength isn’t the only thing XOM has going for it…
The 800-pound gorilla of the energy space has a remarkably bullish chart. Look around the sector and you’ll find most oil names are trading close to their 52-week lows. Not XOM. It’s trading closer to the 52-week high.
And that’s not all…
XOM also appears to have limited downside risk. The stock’s long-term uptrend line (blue line) is just under the current market price. This important technical area will provide support for XOM should oil or the broad markets continue falling in coming weeks.
As good as all this sounds, Europe remains a major headwind.
Investors are scared to death Greece will lead us into another market meltdown like we saw last summer. As a result, sentiment towards stocks has become overwhelmingly bearish in recent weeks.
But I just don’t think a meltdown is going to happen…
The potential consequences of Europe not solving their problems are just too severe. They have to come up with a solution. And once they do, US markets will react very positively.
Bottom line…
Now is a great time to add a high-quality oil company to your portfolio. And XOM’s high relative strength and bullish chart are great signs it will lead the way higher once Europe gets its act together.
Until Next Time,
Justin Bennett
Category: Stocks
