Major equity indexes continue to drift higher despite unresolved drama in Washington D.C., which has led many to wonder just how serious the next sell-off may be if Congress fails to strike a deal on time. Amid the doom and gloom, however, there is a silver lining; upbeat U.S. employment data from last week and a rebound in China factory orders are two signs that the global recovery remains underway. With a slowly but surely improving outlook on the horizon, the beat down energy sector appears ripe with opportunities for gutsy bulls [for more market news and analysis subscribe to our free newsletter].
Energy juggernaut Exxon Mobil (XOM) has endured a healthy correction over the past two months; since recently peaking at $93.67 a share on October 19, this stock has shed upwards of 4%. However, what’s encouraging is the fact that it has managed to rebound off its 200-day moving average (yellow line) in recent weeks.
XOM briefly dipped below its 200-day moving average in mid-November, but he stock recovered as it managed to build out support above $86 a share. This rebound is encouraging and suggests that XOM is gearing up for further gains judging by the fact that it managed to bounce off this level previously in August of this year before climbing to $93.67 a share [see Most Popular Commodity ETFs].
From a fundamental perspective, there are several catalysts in play that may bolster XOM in either direction. On the bull side, a positive resolution to the “fiscal cliff” will likely boost equities across the board, while further evidence of improvement in China’s manufacturing sector is also bound to increase demand for energy-related assets. On the bear side, looming fiscal cliff woes pose a threat as tax rate hikes are expected to have a negative impact on stock prices, especially those that are loved for their dividend distributions like Exxon.
If momentum resumes as expected, the first potential resistance level that XOM will face comes in at around $90 a share, while major resistance lies at the $94 level. On the other hand, if pessimistic headlines swoop in and scare off investors ahead of the fiscal cliff deadline, stocks across the board may fall victim to profit-taking; in terms of downside, XOM has major support around $86 a share. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.
Disclosure: No positions at time of writing.