In this review, we suggest considering the personal composite instrument (PCI) XOM_Brent. It reflects the price dynamics of stocks of the American oil company Exxon Mobil Corporation (NYSE:XOM) against a physically delivered Brent crude oil futures contract. Will XOM_Brent prices rise?
The growth of this PCI means that stock prices of the oil company Exxon Mobil rise faster than oil prices. This may happen amid good financial results. Last year, the net profit of Exxon Mobil increased almost 2.5 times and amounted to $19.7 billion. The revenue increased by 18% to $ 237 billion. In the 1st quarter of 2018, the increase in net profit and revenue was 16% compared to the same period of 2017. The company plans to increase its net profit 2.4 times by 2025. It is suggested that this will happen due to an increase in the production of shale oil in the Permian field, an increase in exports of liquefied natural gas, high world oil prices, and due to the tax reform of US President Donald Trump. This forecast was made by the company based on the average oil price for 2017. For Brent, it was nearly $54.6 per barrel, which is much lower than the current prices. Higher world oil prices may improve the financial performance of Exxon Mobil and contribute to the growth of this PCI.
On the daily timeframe, XOM_Brent: D1 is in a downtrend. The price decrease has slowed down and technical analysis indicators have formed bullish signals. Before opening a buy position, it is necessary to breach above the resistance line of the downtrend. The further price increase is possible in case of an increase in stock prices of Exxon Mobil amid steadily high world oil prices.
- The Parabolic indicator gives a bullish signal.
- The Bollinger bands® have narrowed, which indicates low volatility.
- The RSI indicator is near 50. It has formed a positive divergence.
- The MACD indicator gives a bullish signal.
The bullish momentum may develop in case XOM_Brent exceeds the last fractal high and the upper Bollinger band at 0.492. This level may serve as an entry point. The initial stop loss may be placed below the last fractal low, the minimum since October 2014, the lower Bollinger band and the Parabolic signal at 0.45. After opening the pending order, we shall move the stop to the next fractal low following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 0.45 without reaching the order at 0.492, we recommend to close the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Position Buy
Buy stop Above 0.492
Stop loss Below 0.45