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Is Marathon Oil about to Start a New Downtrend?

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Marathon Oil and crude oil prices

In the last one month, Marathon Oil (MRO) stock has underperformed crude oil (USO) and natural gas (UNG) prices. Marathon Oil was down ~7%, whereas crude oil and natural gas were down ~3% and 2%, respectively. More than 50% of Marathon Oil production contains crude oil, and thus its stock price is more dependent on crude oil than natural gas. The underperformance of Marathon Oil was more evident in light of the S&P 500’s (SPY) marginally positive performance of ~0.3% over the last one month.

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Reasons for weakness

The recent weakness in Marathon Oil can be attributed to overbought conditions due to big gains in its stock price in November 2016 and the first half of December 2016 when MRO stock rose from $12.32 to $19.28. This rally in Marathon Oil was driven by the big jump in crude oil prices on the heels of the OPEC agreement to cut production by 1.2 million barrels per day.

MRO’s peers Devon Energy (DVN), Occidental Petroleum (OXY), and ConocoPhillips (COP) were down ~4%, ~5%, and ~4%, respectively, in the last one month. The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) is down ~7%.

Price action

After rising 56% from the start of November 2016 to mid-December 2016, MRO appears to be consolidating its gains. MRO is locked in a narrow but declining trading range of $17.21–$19.28 during this time of consolidation. MRO’s 50-day and 200-day moving averages stand at $16.94 and $14.77, respectively. Often, 50-day and 200-day moving averages act as support levels for the stock price. In fact, the rally in MRO’s stock from its November 2016 low started by taking support from its 200-day moving average.

Next, let’s look at the possible trading range for MRO stock for this week based on its implied volatility.

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