Chevron Corporation – The Gaps!

Despite several bullish attacks, the gaps remained intact. What did this lead to?

NYSE Arca Oil Index (XOI) – The Current Overview


Let’s start todays analyze with the quote from the last comment on the XOI posted on Dec. 28, 2023:

(…) How low could oil stocks go?

In my opinion, if the XOI moves lower from here, the first downside target for the sellers would likely be around 1,855.09-1,872, where the green support zone (created by the previously broken Nov. peaks) and the 50-day moving average (currently at 1,859.81) are.

If it is broken, the way to around 1,829.55-1,839.66 (…) would be open.

Looking at the daily chart, we see that the combination of the early-November peaks and the 61.8% Fibonacci retracement managed to stop the bulls and trigger a correction of the earlier upward move (as expected). Thanks to the sellers’ attack, the XOI moved lower in the following days (after the previous article was posted) and tested the first downside target.

Despite this drop, the green support zone created by the previously broken November peaks was strong enough to stop further deterioration, which translated into a rebound that took the index to a fresh high of 1,940.57 on Jan.4.

Positive development? Yes, but as it turned out, it was only temporary.

The bulls didn’t manage to hold gained levels, which, in combination with negative divergences (between the CCI, the Stochastic Oscillator and the index) lured sellers back to the trading floor. Thanks to their activity, the XOI moved sharply lower, invalidating the earlier breakout above the 61.8% Fibonacci retracement and the early-Nov. peaks.

This show of weakness and the sales signals generated by the indicators deepened previous declines, which resulted not only in a test of the first green support zone, but also in a drop to the next support area which you could read about in my recent comment on the XOI.

From today’s point of view, we see that the mid-Dec. low in combination with the 61.8% Fibonacci retracement (based on the entire Dec.-Jan. upward move) stopped the bears and triggered a quite sharp rebound, which left a strongly elongated lower shadow on the chart, creating a pro-growth candle formation (a hammer), which could be a first signal of reversal.

Nevertheless, the sell signals generated by the CCI and the Stochastic Oscillator remain in the cards, suggesting that the move to the downside may not be over – especially when we factor in the bulls’ weakness and their problems with the above-mentioned resistance area (there were two unsuccessful attempts to break above it and the third opportunity was quickly dashed by the invalidation of the earlier breakout).

Therefore, if the buyers fail to push the index higher, we’ll likely see a re-test of yesterday’s low and the nearest support area in the coming day(s).

Summing up, although the bulls managed to bounce off the support area based on the mid-Dec. low and the 61.8% Fibonacci retracement, their recent show of weakness raises some doubts about their strength and suggests that the sellers may want to try them in the coming day(s).

So now that we know what the current situation in the index looks like, let's check what's happened in the last few weeks on the chart of one of the energy companies.

Chevron Corporation – The Gaps!

Chevron Corporation – The Gaps! - Image 2

Shifting our focus to Chevron Corporation, a key player in the energy sector, in my last article on CVX posted on Dec. 21, 2023 you could read the following:

(…) Thanks to the recent price action, the price tested not only the 38.2% Fibonacci retracement and the upper border of the big red gap from Oct.27 but there was no breakout above it.

What does it mean for the price?

Additionally, oil stocks increased to the area where the size of the upward move is even bigger than the height of the blue rising trend channel (according to the technical analysis after leaving the channel, the minimum range of upward movement is equal to its height), which could encourage the buyers to take profits off the table.

(…) If this is the case and the bears come back to the market, we’ll likely see a decline to the previously broken upper border of the blue rising trend channel in the coming days.

Looking at the daily chart, we see that the situation developed in line with the above scenario, and oil bulls have failed in their fight against the big red gap from Oct.27, 2023. Although they tried to push the price higher several times, all their attempts failed and the bears entered the trading floor the previous week.

Thanks to their attack, the price moved sharply lower, reaching our downside target - the previously broken upper border of the blue rising trend channel during yesterday’s session.

What’s next?

On the one hand, the above-mentioned line (which serves as the nearest support) encouraged the bulls to fight, which resulted in a rebound. On the other hand, however, yesterday’s session started with another red gap (148.42-150.40), which in combination with the sell signals generated by the indicators doesn’t bode well for further improvement.

Therefore, if the bulls do not manage to break above this resistance and close the gap, it seems that the sellers may want to try their strength and willingness to defend yesterday's support. If it withstands the selling pressure, we’ll likely see an attempt to close yesterday’s gap, but if the bulls fail here, the way to around 145.60-145.98 (where the 61.8% Fibonacci retracement based on the entire Nov.-Jan. upward move and the 50-day moving average are) will be likely open.

Summing up, despite oil bulls attempts to move higher, the gap from Oct.27, 2023 defeated them by luring their opponents to the trading floor, who pushed the price to our downside target. In this way, the price tested the previously broken upper border of the blue channel, which continues to serve as the nearest support. Although it withstood the selling pressure, another red gap (created yesterday) in combination with the sell signals generated by the indicators doesn’t bode well for further improvement, suggesting that another attempt to move lower may be just around the corner.

If you’d like to know what the current technical picture of crude oil is or to find out what arguments the bulls have or what allies do the bears have, I encourage you to subscribe to Oil Trading Alerts, where you’ll find the answers to these (and many other) questions.

See you tomorrow.

Anna Radomska