Crude oil managed to break its nine-day losing streak Thursday, but energy stocks were still on a slippery slope. The S&P Energy ETF, the XLE, lost around 1 percent, with all but two companies closing in the red for the day.
Among the names getting hit hard, Chevron. The company was down nearly 1 percent ahead of the release of its second- quarter sales and revenue Thursday, with a full earnings report expected August 1.
Shares of Chevron are up about 4 percent this year, so is this selloff an opportunity for investors to fill up on a name that has so far lagged a very hot sector?
“I’ve got real mixed emotions here. While the stock looks bullish in the short term, I think we’re setting ourselves up for a longer-term trap here,” said Richard Ross of Auerbach Grayson, who pointed out on a year-to-date chart that the stock lost 12 percent in January alone. “Since then you see a very nice trend. We’re up 20 percent from those lows, we reclaim the 50-day moving average. You see that well defined trend line. And finally here at the tail end of the move we set up into what’s called a bullish pennant formation.”
Ross used the bullish pennant formation to calculate a measured upside target of $140 per share, but warned investors not to throw caution to the wind with Chevron just yet. On a longer-term chart, he pointed out some technical symmetry, which could set up for a sharp move lower.
“Go back to 2003-2008, a five-year bull run, right at the end we take out triple top resistance, the breakout proves false and we get a fast move down of over 40 percent,” he said. “Here we are today 2014 at the tail end of a five-year move, we take out triple top resistance, breakout to a fresh all-time high. Now the breakout hasn’t failed yet, but if history repeats itself, as I think it may, just like it may in the broader market, we could be set up for a very fast move down at a little bit of a bull trap here.”
Veracruz TJM’s Steve Cortes, on the other hand, had no mixed emotions about the Chevron, “I love this company, I love this stock,” he said.
“I think the most exciting thing about the company right now is what’s going on in liquefied natural gas. It has three major operations in Asia where that market I think is set to explode.”
Check out the video above for the full discussion on Thursday’s CNBC “Street Signs.”