Chevron Corporation (NYSE: CVX) is suffering as their stock price has fallen from the $135/share last September, all the way down to $102.50 now. It seems that nothing can stop it from breaking the all-important 100 mark now.
That may be true in most scenarios, however, the “stars are aligning” for the company’s share price and I am favoring call options for CVX due to three important factors.
Firstly, in a period in which worldwide stock indexes are making record highs, oil companies have suffered an inversely correlated action. In other words, by the time equity markets, in general, are starting to show signs of weakness, it may be the time to buy Chevron as the correlation theory should apply at that point.
Secondly, oil is bouncing and the upcoming OPEC meeting is all about deciding if they should cut oil production or not. If that happens, then oil price is doomed to recover even more. For a company that is one hundred percent involved in oil exploration and distribution, the price of oil is key.
When oil fell from above the one hundred levels, all companies involved in oil production and distribution suffered. This is clearly visible on every chart. I am considering a rebound in oil prices and that should have an opposite effect as well.
Lately, the company suffered from having to relocate some of its explorations in order not to break the exploration site, but those costs are now behind them, and new sites in the Gulf of Mexico are bound to start production; hence revenue streams will increase.
Last but not least, the technical picture is looking brightly as the current levels are indicating an area with a potential triple bottom around the 100 mark and this is a reversal pattern.
In order for the price to bounce it needs to have a fundamental reason, and I can only think about the items mentioned above and the Federal Reserve meeting this month.
The press conference after the June meeting is critical in indicating if stock prices will starting to fall, (as I am expected). Then the main beneficiaries will be companies that suffered the most when stocks were rising, the so-called “defensive stocks”. Chevron is one of these.
As for the expiration date on the call option I mentioned at the start of this article, I am looking for an end of month expiry. However, we need to see the price dipping and hitting the 100 mark. That would be my striking price for a perfect end of the month call option.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
