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We all know about the decline in oil prices that went on over the last six months of 2014. The price of crude fell from as high as $107.68 in late June to a low of $43.58 in January. The price has bounced slightly in the last few weeks and is now hovering in the $52 range. With the drop in oil prices, most oil companies have seen big drops in the price of their stocks. ConocoPhillips (NYSE: COP) was among the stocks hit by declining oil prices.
ConocoPhillips stock hit an all-time high of $86.24 back in July, but has fallen as low as $60.64 in recent weeks. The good news is that the stock may have seen its low for this pullback. The stock bottomed at $60.42 last February and could now be using that previous low as support. We see on the daily chart that the stock has bounced back recently and did manage to move above the prevailing downward sloped trendline, but has slipped back below the trendline in the last few days.
Over the course of the last few months, the 10-day moving average has tried to cross back above the 50-day moving average on two occasions and is attempting a third time right now. If you look back to a year ago, we saw a bullish crossover from the moving averages in March and that was just before the stock took off on a four-month rally that saw the stock gain 32%. That is what I think is getting ready to happen again.
The stock is overbought on the daily chart, but is just coming out of oversold territory on the weekly chart and is approaching oversold based on the monthly slow stochastic readings. Looking at the monthly chart, we also see that the stock has recently hit an upward-sloped trendline that connects the lows from the last six years, going all the way back to the end of the bear market in 2009.
ConocoPhillips stock looks to be a low-risk/high-reward trade at this point. If you buy the stock at its current price and set a stop-loss at $60, you are looking at a maximum loss of 10%. If the stock rebounds from here and goes on another tear like it did in 2014, you are looking at a gain of over 30%. Obviously the success of the trade will depend on what happens to oil prices in the coming months, so you will want to keep an eye on that as well.
There are many oil stocks that could rebound should oil prices rebound, but what I like about COP is that it is one of the least favorite stocks in the oil sector. My sentiment composite rating is right at 11 and that is the second highest among the top 10 holdings in the Energy Select Sector SPDR (NYSE: XLE). When you combine the sentiment readings with technical backdrop, COP has more upside potential than downside risk.
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