The Short-Term Chart Picture
Looking at Exxon (XOM) since its peak on March 30, the chart shows a fairly clear downtrend. The stock ran up into its descending trendline on a brief spike, and then that line was broken with aggression yesterday, crushing through the 145 level. That 145 mark had been a fairly important area of short-term support. With the level broken to the downside, it now flips into potential resistance.
From a bullish perspective, the obvious question is whether the stock can muster any kind of bounce — in which case it might rally back up toward that 145 level. That possibility is oil-dependent. But based purely on the evidence currently on the screen, a continuation of the downtrend in the short term looks like the more likely outcome at this moment.
Reconciling the Downtrend With Longer-Term Strength
It is worth being fair about the broader context: on both a year-over-year and a year-to-date basis, the stock has actually been up. The recent downtrend, however, lines up neatly with the downward move we are seeing in oil prices. Adding to the picture, Bank of America updated its price target on the name and still sees some additional upside potential from here.
The Daily Chart and the Head-and-Shoulders Top
The daily chart tells a noticeably different story than the short-run view. While the short run shows a downtrend, the daily timeframe reveals a large head-and-shoulders top — a left shoulder, the head, and the right shoulder. The 145 (roughly the 1445) level was the area that gave way yesterday, and that breakdown turns 145 into a new area of short-run resistance.
With oil moving lower early this morning, there is potential for the stock to test its 200-day moving average, which sits in the ballpark of 134. That said, the situation is still being worked out. There is a clear need for the stock either to recapture the 145 level or to validate the 200-day moving average as some semblance of short-term support before the picture clarifies.
The Example Trade: A Short Call Vertical Spread
What approach fits this setup? Because a significant level of short-term support has been broken, the chosen approach uses short-term contracts in the form of a short call vertical spread, using 145 as the defined risk level. The structure involves selling the 140 call and buying the 145 call as protection. Brought in as a credit, the trade carries a maximum profit of 185 and a maximum loss of 315. This gives a well-defined risk profile while leaning bearish for the remainder of the week.
Did the direction of oil prices set this approach? Yes, absolutely. Had oil bounced in any way this morning, the consideration might instead have been an opportunity for Exxon to rally up into the neckline of that head-and-shoulders top — a more bullish or neutral setup. But given the negativity in oil in the short run, the expectation is that some volatility will come out of the position over the next two days. That makes this an opportunity to capture some of the implied volatility and benefit from the form of time decay, which works in favor of the credit spread as expiration approaches.
The Core Logic
The trade ties directly to the technical and macro backdrop: a broken support level, a head-and-shoulders top pointing toward a possible test of the 200-day moving average near 134, and falling crude oil all align to support a defined-risk bearish position designed to profit from continued weakness and declining implied volatility through the end of the week.
