Chevron May Have A Rough Ride To Endure In The Short-Term

Chevron Corporation CVX shareholders have had to endure some fairly tough times in recent months and years as crude oil dropped from just under $100 per barrel to just under $50 in a hurry.

CVX stock obviously took a hit right along with the underlying commodity. Recently, however, a bounce in crude led to a bounce in the stock. The question now is whether crude will be able to proceed past $63 on the upside – and whether CVX will be pulled up as a result.

If crude can't break out and instead plummets back down to below $50 per barrel, how far will CVX shares drop in sympathy? Below is a look at the technicals for Chevron to get a better idea.

What the bulls see in CVX

• A very healthy 4.3% dividend yield

Very cheap valuations:

• $208.6 in estimated enterprise value versus only $187 billion in market capitalization
• A price-to-book ratio of only 1.21
• A price-to-sales ratio of only 1.08
• A PE of 16 versus projected EPS growth of over 60% in the next year
• 8.38% net margins that spin off over $25 billion in positive free cash flow annually

A fairly clean balance sheet picture:

• 21.61% debt-to-equity ratio
• A current ratio of only 1.4

What the bears see in CVX

• Debt of $33.93 billion that easily trumps cash on hand of only $13.11 billion
• Negative levered free cash flow of $9.53 billion for the year

The technical take on CVX

Technicians note that Chevron Texaco shares appear destined for a move down to "abc correction" support at $84.18 (from $99.87 heading into last weekend). The stock could easily bounce up to $103.75 without altering the current bearish technical set-up. The support at $84.18 not only represents the "correction support" level noted above, but also long-term uptrend line support.

Overall

Chevron Texaco is likely going to continue to be tethered to the price of crude oil. Some technicians are calling for a move in crude back down to below $50 per barrel.

If that occurs, it is easy to envision CVX shares dropping to or even below the "correction support" level noted earlier. However, with valuations already very compelling and a huge dividend, it won't be long before the buyers of CVX come streaming into the market.