Stocks staged a broad-based rally on Tuesday despite a continued drop in the price of oil. Oil stocks such as that of services company Schlumberger Limited. (NYSE:SLB) also lifted nicely on the day, taking them into positive territory for the year after being lower by nearly 15% in late January.
While many of oil stocks like SLB are likely to find resistance again, for now, there’s plenty more upside for active investors and traders to gobble up.
When Schlumberger reported its latest batch of earnings on Jan. 22, the ensuing up-gap and rally marked a near to medium-term bottom. SLB stock has been acting much healthier since and now looks to be gravitating toward its 200-day simple moving average.
Just before Schlumberger stock topped out in summer 2014, it took an already steep ascent into a vertical position, which is something we often witness before a major top. I will thus once more reiterate that gravity works as well in the stock market as it works in the physical world around us.
A simple but effective rule that I reiterate daily to my subscribers is, “Don’t fight gravity.”
SLB Stock Charts
On the multiyear weekly chart, we see just how steep Schlumberger’s rally became in summer 2014 and how persistent the downtrend has been ever since.
A series of lower highs and lower lows ultimately in January brought the stock back to the upper end of a multiyear support band (blue box), where the most recent bounce resulted from. The bounce thus far has brought the stock back to its defined downtrend line from the summer 2014 top where through this lens resistance could come into play. The January 2016 lows in the stock, however, came on a notable higher low in momentum versus the momentum low in September 2015, which could lead to a break of the black diagonal 2014 downtrend line.
On the daily chart, we see that the January selling pressure pushed SLB stock below horizontal support from last fall. But the V-shaped reversal that occurred in the second half of January quickly pushed the stock back above this red dotted horizontal. The ensuing retest of this line last week also resulted in a 50% retracement of the rally off the January lows into the late January highs.
With Tuesday’s additional 2% rally, SLB stock is now bumping into its blue 100-day moving average for the third time in three weeks, and the odds increasingly favor Schlumberger moving higher toward its red 200-day MA, which has acted as resistance since October 2014.
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