Friday, January 28, 2011

CVX Watch

Oil behemouth Chevron Corp. (CVX) announced a 10.3% upside earnings surprise before the market open on Friday, and the market responded by bidding down the price by 1.6%. News reports say concern over CVX reserves caused the decline.

phase pfeppstrend

The stock moved to neutrality on a signal divergence. The pps moved to bear phase, although the pfe portion of the chart is decidedly bullish.

CVX wasn't on my Watchlist as an earnings play. Although it has had its share of earnings surprises -- three to the upside, two to the downside over the last five quarters -- it has fallen short of my criteria because of its lower-than-I-like return on equity, 17.4%. The debt/equity ratio, however, is within my standards, at a paltry 0.1.

So, it wasn't an earnings play but could've been with only a bit of fudging.

Primarily, I've been watching CVX for its dividend -- 72¢ for this quarter, with an ex-dividend date of Feb. 14. In that regard, today's fall provides an opportunity for the trader who is not averse to a bit of risk, because it provides a bargain price to take advantage of a 3.1% annual dividend yield.

Price channel analysis shows CVX breaking out to bull phase on Dec. 7, with a breakout level of $86.19. However, the adx line, on Jan. 20, turned down while coasting along above 40. This is a signal to close the position according to my price-channel rules. The stock counts today as being in neutrality.

CVX hit a swing high on Wednesday in a rise that began with a swing low on Nov. 29 of last year.

Reversal Levels
  • $94.97, +1.9% (swing high)
  • $93.21 --- You are here.
  • $92.57, -0.7% (20-day moving average)
  • $88.85, -4.7% (50-day moving average)
  • $80.53, -13.6% (200-day moving average)
  • $80.41, -13.7% (swing low)

On the slow-trade chart, CVX fell into neutrality in June 2010, and there it has remained ever since. The stock has yet to exceed its pre-recession high of $104.63 set in May 2008.

Monthly chart
phase pfeppstrend

Bottom line: For my own account, I don't think the dividend yield is high enough to overcome the risk. At 3.1%, it's more than half the magnitude of today's fall so far. Also, it's less than a percentage point above the forward inflation rate implied by 5-year Treasury notes, and so has a fairly low real rate of return.

Without some capital gains to buttress the dividend, the stock has little to recommend it.

The price-channel analysis has the greatest weight for my decision. The adx is still declining, which means that the price is losing its trend. I've little desire to bet my cash on a sidewinder.

Table Abbreviations:
  • pfe - Location of the polarized fractal efficiency line.
  • pps - Person's Proprietary Signal mode.
  • trend - Trend of the polarized fractal efficiency line.

Key to the PPS/PFE tables
phase bull phase
bear phase
pfe +100 and above
+50 to below 100
0 to below +50
below 0 to above -50
-50 to above -100
below -100
pps bull confirmation
bear confirmation
trend uptrend
no trend

More on the PFE/PPS analysis

Read a detailed explanation of the analytical tools and how they’re used, including trading rules.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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