Market At New All-Time Highs, Exxon Mobil Lags Behind
As the market races to new all-time highs almost on a daily basis, Exxon Mobil (NYSE: XOM), is changing hands $6 from its all-time high made on July 29 ($104.76).
Some analysts may attribute the decline to the recent slide in oil prices. However, Exxon has attempted to diversify its revenue stream from being so dependent on oil prices and may not be as vulnerable to fluctuations in oil prices as it has been in the past.
Interestingly, Exxon reached its all-time high two days before its latest earnings release on July 31.
After slipping from its all-time closing high price of $103.55 on July 29 to $103.25 on July 30, it shed more than $3 to close at $98.94 on the day of its earnings release.
The sharp decline took place despite the company beating Wall Street estimates by a significant margin: $2.05 versus $1.84 for EPS and $111.65 billion versus $107.13 billion on the revenue front.
Perhaps the unconfirmed rumors of a takeover of Range Resources (NYSE: RRC) for $110.00 per share on August 1, along with takeover chatter of Anadarko Petroleum (NYSE: APC) on August 8, has contributed to the recent decline and consolidation.
On many occasions, takeovers tend to exert downward pressure on the price of the buyer, unless synergies between the two companies can be immediately identified. If not, it might take some time for the two companies to streamline their operations and benefit from the mergers.
Although neither of these deals have materialized, Exxon has not bounced back to its pre-earnings levels. Instead, it has been range bound between $97.63 and $100.07 since August 5, and finding willing buyers around the $98.00 level several times over the previous fifteen trading sessions.
On the upside, it has been unable to clear the psychologically important $100 resistance level, with it only trading above that level one time over the same time period.
Following J.C. Penney's Footsteps?
Could it be possible that Exxon is delivering a trading set-up similar to J.C. Penney's post-earnings move? After delivering better than expected earnings on August 14, it traded lower to flat for a few days before building a base and rallying back to ten-month highs.
For now, Exxon is presenting an entry point with a solid risk-reward ratio. By purchasing the issue in the mid $98.00 handle, a reference point for an exit may be a breach of its August 7 low ($97.63). If attempting to hold longer-term, its dividend yield of 2.80 percent provides another few points of downside protection if the decline continues beyond its recent low.
On the upside, a short-term target may be the $100 resistance level and longer-term target may be its all time high of $104.67. Whatever target is used, an entry at its current level may provide investors an opportunity for nice upside potential with limited exposure on the downside.
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