Shares of energy exploration services company Halliburton (HAL) staged a 1.8% bounce-back move Tuesday following a week in which HAL stock looked like it could break significantly lower. Now, however, Halliburton is threatening the bears with a bearish-to-bullish reversal, and if it can stick the landing, HAL stock could zip right back up to its July highs.
Energy stocks as a group have showed relative underperformance in the rally off the August lows — that is, until this week. As we have witnessed countless times over the past five years or so, whenever a sector begins to lag, it isn’t long until it turns back around and joins the frolic in the broader stock market.
That, my friends, is the blessing (and the curse) of a rampant bull market.
Will this time be different? It’s too early to tell, but considering that we do find ourselves in an aging cyclical bull market (albeit arguably still in a secular bull market) and heading into a seasonally more volatile period of September and October, there are plenty of potential headwinds.
To keep from losing your mind, you should approach this current market with a tactical approach — respect the specter of more volatile times ahead, but still view both sides in terms of trading.
HAL Stock Charts
In the spirit of keeping an open mind for trading opportunities in both directions, let’s note the still steep weekly chart of HAL stock.
The rally off the 2012 lows has been extraordinary, but the slope began to steepen even more in late 2013 and early 2014, which ultimately pushed Halliburton above its multiyear trend. HAL stock ran out of steam in July and has since retraced back to the upper end of the channel.
In the bigger picture, shares are well overextended, but as overbought readings can remain longer than most traders can stay solvent, fighting this trend until it breaks doesn’t seem like a good risk/reward move just yet.
On the daily chart below, note that after Halliburton’s July 21 earnings report, HAL stock rallied two more days before topping out on July 23 and mean-reverting lower. The stock then broke below its 50-day simple moving average (yellow line) for the first time since December 2013, which still serves as a near-term resistance level.
The consolidation period in August took place in a narrowing wedge formation, and Tuesday’s rally marginally broke the stock out of this formation to the upside.
Open-minded traders and investors now have two options:
- Wait for the stock to break past the $70 mark on the upside, which could then provide a trade toward the $74-$75 area.
- If the stock can find resistance around the $70 mark — which also just about coincides with the 50-day SMA (yellow line) — then the possibility of a lower high opens up, which could cause HAL stock to break below $67 and open up a short-side trade into the low $60s.
See and respect all sides of the market, and this game of trading becomes a heck of a lot easier.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.