Understanding Moving Averages in Energy Last Week

At the beginning of 2017, Chevron (CVX), ExxonMobil (XOM), BP (BP), and Royal Dutch Shell (RDS.A) stocks fell, likely due to these companies’ dismal 4Q16 earnings.

Declining oil prices further pressured these stocks, and CVX’s and RDS.A’s 50-day moving averages fell but stayed above their 200-day moving averages. BP’s 50-day moving average broke below its 200-day moving average at the end of March 2017.

Remember, whenever a short-term moving average crosses below a long-term average, it’s seen as a bearish technical sign. In 4Q16, XOM’s 50-day moving average broke below its 200-day moving average. The company saw changes in its critical managerial positions in December.

In 2Q17, integrated energy companies posted their 1Q17 earnings. XOM, CVX, RDS.A, and BP all surpassed their earnings estimates for 1Q17. But crude oil prices, amid volatility, fell.

Given these contradictory signals, integrated energy stocks showed a diverse performance in 2Q17. BP’s 50-day moving average passed above its 200-day moving average, but Chevron’s 50-day moving average broke below its 200-day moving average.

Shell’s (RDS.A) and BP’s (BP) 50-day moving averages are now just 1.8% and 0.10% above their 200-day moving averages, respectively. If oil (UCO) (BNO) prices fall, it might pressure Shell and BP stocks. That could lead to their 50-day moving averages to break below their 200-day moving averages—a bearish technical sign that could cause an acceleration in the fall of these stocks.

Thus, it’s vital that oil prices hold at current levels or rise from here on. XOM’s and CVX’s 50-day moving averages are now 3.1% and 3.0%, respectively—both below their 200-day moving averages.