More yo-yo stock market action to start the week. On Tuesday we saw divergence in the US markets, as the SPX was up with positive breadth on the NYSE, while the NASDAQ was down with negative breadth. In looking for some direction, the charts for major foreign markets may give us the clues we are looking for.
Using ETFs as a proxy, China, Brazil, Canada and Australia all show a similar pattern – coming off support with money flow building. Oil is showing a pattern that looks quite a bit like these ETFs. My read on this is that US stocks may follow their lead. That does not mean I am a longer term bull, but there probably is a long trading opportunity in these markets right here, right now.
Returning to the US markets, one of the leading groups on Tuesday was energy, and ExxonMobil (ticker: XOM) is to me the most interesting of the group. The stock has been in a long term downtrend and has fallen below the levels of the financial crisis, when it held up relatively well. More than most of the other oil majors, XOM is taking a major position in natgas, with its impending acquisition of XTO Energy and its overseas LNG projects. Now selling at a P/E under 14, with a 3% yield, this might be a good buy at these levels.
In spite of all the uncertainty surrounding the oil majors, the stock should have limited downside and yields nearly as much as a 10 year Treasury (3% vs 3.18% – if inflation ever shows up, which would you rather hold?). Over the past 40 years, XOM has outperformed the S&P 500, with more pronounced outperformance over the last decade. It’s a fine long term core holding that can be accumulated at attractive prices.