UBS Upgrades Chevron as Bear Signal Sounds

CVX is near a historically bearish trendline following a rally off its late-December lows

by Karee Venema

Published on Jan 18, 2019 at 9:55 AM

UBS upgraded Chevron Corporation (NYSE:CVX) to "buy" from "neutral," saying recent weakness in oil prices has created an attractive opportunity for the energy name. The brokerage firm said the company's model is created to withstand such volatility, and can maintain its organic capex and dividend even on oil's move below the $50 per barrel mark.

Most analysts are already upbeat toward the Dow stock, with more than two-thirds maintaining a "buy" or better rating, and not one "sell" on the books. Plus, the average 12-month price target of $137.79 is a 21.68% premium to last night's close. And while Jefferies cut its CVX price target to $147 overnight, this still sits well above the equity's July 2014 record high of $135.10.

Elsewhere, though, skepticism is starting to grow toward the oil stock. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Chevron's 10-day put/call volume ratio of 0.63 ranks in the 79th annual percentile. This shows that while calls have outpaced puts on an absolute basis in recent weeks, the rate of put buying has been quicker than usual.

Meanwhile, short interest surged 16.3% in the two most recent reporting periods to 21.45 million share. While this is the most since last May, it also represents a slim 1.1% of Chevron's available float.

On the charts, CVX stock's December sell-off was contained near the century mark, with the shares bottoming at a two-year low of $100.22 on Dec. 26. Since then, the equity has gained 13% -- including today's 1.2% pop to trade at $113.35 -- but is now within one standard deviation of its 40-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, Chevron's 12 previous rallies into this trendline resulted in a one-month average loss of 1.3%.

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