Will Chevron Break Out?

With shares of Chevron (NYSE:CVX) trading around $118, is CVX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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T = Trends for a Stock’s Movement

Chevron engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, upstream and downstream. The upstream segment is involved in the exploration, development, and production of crude oil and natural gas. The downstream segment engages in refining crude oil into petroleum products. Energy is an essential aspect of most business and consumers’ lives. As population growth and global expansion continues, Chevron is well-positioned to capitalize.

T = Technicals on the Stock Chart are Strong

Chevron stock has seen a long-term uptrend over several years. Currently, the stock is consolidating at all-time high price levels so it looks poised to head higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Chevron is trading above most of its key averages which bullish price action in the near-term.

CVX

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Chevron options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Chevron Options

19.39%

93%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

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Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Chevron’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Chevron look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

43.41%

-31.38%

-4.94%

5.83%

Revenue Growth (Y-O-Y)

0.95%

-9.92%

-9.2%

0.6%

Earnings Reaction

1.17%

-2.77%

0.91%

-0.01%

Chevron has seen mixed earnings and revenue growth rates over the last four quarters. From these figures, the markets have been somewhat pleased about Chevron’s last four earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Chevron stock done relative to its peers, BP (NYSE:BP), Exxon Mobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS), and sector?

Chevron

BP

Exxon Mobil

Royal Dutch Shell

Sector

Year-to-Date Return

6.88%

-2.52%

1.03%

-7.34%

5.39%

Chevron has been a performance leader relative to its peers and sector, year-to-date.

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Conclusion

Chevron is bellwether in the energy space that is able to provide the goods and services demanded by consumers and businesses around the world. The stock has seen a strong uptrend over the years and is currently trading at all-time high price levels on decent earnings and revenue figures. Relative to its peers and sector, Chevron has dominated the competition year-to-date. Look for Chevron to continue to OUTPERFORM.

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