Markets just love symmetry. I have no idea what it means in the case of Chevron but I just point out that the stock has moved up in two, vector equal, and identical legs since the beginning of ‘03. As it is possible to make a case that the stock has made a complete 5-wave sequence from the low of about $7 in 1982 (see also previous blogs) we would step aside.
All three yield about 3% and have p/es of about 10x to 13x. Royal Dutch is the only one to have a perfectly clear B-wave, but then it also consumes an inordinate amount of time (4 years) doing nothing. Exxon sports a clear wedge (as the c in the B-wave) which is equally bearish. It also does that Mnt. Everest thing by climbing to just over $100 and falling back from exhaustion. Chevron is the only one of the three that (arguable) has a 5th wave going into the recent top. 5th waves are normally completely retraced (and then some) during the next retracement. What all three have in common, at least using EW rules, is that they are about to lose 1/2 of their value.
Interestingly, only Royal Dutch resembles the actual movements in the value of crude oil. Of course these are integrated oil companies so there is no compelling reason why they would track the stuff all that closely. But other than Fed. policy there is also no compelling reason why the American oil giants should outperform. BP, by the way, is still trading at about 40% below its peak. It resembles RDS.a but at much lower relative values. It yield about 5% and trades at a p/e of 7x. On a relative basis it might actually be a buy. It is the only one that may have completed an A-B-C correction (or a more complex A?) as can be seen on the semi-log scale chart below;
Royal Dutch (the ADRs) and Chevron are about the same in size at roughly 225 bln. As you can see, we hope, Royal has followed the price of crude oil quite accurately whereas the Chevron guys have chosen to ignore the fundamentals almost entirely. Whether or not the various counts in these charts is correct is not all that important, but we do expect oil to drop back to the $40 level or so sometime in the future. The triangle, if there is one, would suggest that oil might actually go up, but the B-wave looks pretty compelling. In any event the extraordinary spread between the two integrated companies is, in our opinion, about to collapse. The spread now at about 100% since 2006 is probable as good as it gets. Sell one Chevron against a buy of two shares of Royal. Given the higher dividend on the Royal (by almost 2%) you actually will have a positive carry.
See the blog on this stock from a few days ago. This is just added to show that there is a plausible count for the internals of this 5th wave that covers most of this chart. If correct it would be perfectly reasonable to expect this entire 5th wave to be retraced. This charts count is supported by a number of typical EW features. Wave 3 of 3 is the extended wave as is often the case. Wave 5 of 3 is clearly a wedge. Wave 2 almost retraces wave 1 completely. Wave 5 is from 55 to 118 or 73 points tall. Wave 3 runs roughly from 30 to 100 (see prev. blog), given that that is a monthly chart that does not show the extremes, the two legs are essentially the same size, with 3 slightly longer. A break now of support at about $100 would be very negative for the energy stocks.