Stock Markets Analysis & Opinion

Buffett Darling Occidental to Drop By a Third?

Warren Buffett started buying oil giant Occidental Petroleum (NYSE:OXY) in 2019 and has been steadily increasing Berkshire’s stake ever since to as much as 35% so far. In terms of the Berkshire portfolio, OXY is the sixth biggest position, accounting for nearly 5% of it. This shows just how much the Oracle (NYSE:ORCL) of Omaha likes the business.

The Covid-19 panic and the following pandemic oil glut decimated Occidental stock to as low as $8.52 a share in October, 2020. Fortunately for Buffett, the company survived and the share price recovered to over $77 in less than two years. Judging by Berkshire’s continued purchases, its Chairman and CEO thinks that OXY is still cheap at $62 and change now. The Elliott Wave chart below, however, suggests that it can get even cheaper.

Occidental Petroleum’s daily price chart reveals that the rally from $8.52 to $77.13 is a five-wave impulse. We’ve labeled the pattern 1-2-3-4-5, where the five sub-waves of wave 3 are also visible and marked i-ii-iii-iv-v. According to the theory, a three-wave correction in the opposite direction follows every impulse. Here, there was a regular a-b-c flat correction down to $55.51 in March 2023, whose wave ‘c’ is an ending diagonal.

Instead of seeing its uptrend resume, however, Occidental stock has been held in a trading range between ~$55 and ~$71 for over a year now. That range seems to have produced a textbook expanding triangle correction, labeled a-b-c-d-e, where each wave is larger than the previous one. If this count is correct, OXY’s wave (2/B) is evolving into a W-X-Y corrective combination, whose wave Y down has yet to develop.

The bigger picture shows that the next major support lies in the mid-to-low $40s area. From the current price of over $62, that’ll be a decline of roughly 30%, before the bulls can finally return in wave (3/C). Occidental Petroleum stock would be an even bigger bargain then.

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