Shares of oil services stocks such as Schlumberger Limited (NYSE:SLB) have been under pressure in recent weeks at least in part due to downward pressure on the price of oil. Earnings are now out of the way for many of the large oil services companies, too, and their stock prices have reached important technical support areas over the past two days. SLB stock, however, looks primed for a bounce that could result in a new swing leg higher.
When Schlumberger reported its latest batch of earnings on Jan. 20, the stock proceeded to gap lower the next day. This also marked the beginning of the recent multi-week selling spree. As we will discover later, the “bearish reversal” on Jan. 20 was very classic and simply the inverse of the bullish reversal that currently looks to be in the making.
The January bearish reversal in SLB stock, to the wary trader at the time, offered a great short-side trade.
Before looking at the absolute charts of Schlumberger stock, let’s first check how the oil services stocks as a group — as represented by the Market Vectors Oil Services ETF (NYSEARCA:OIH) — recently fared versus the S&P 500.
On this ratio chart, we see that as a result of the recent weakness, oil services stocks in relative terms versus the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) are now retesting a previous breakout point from late November 2016.
While this in and of itself is not enough to make a blind buy case for these stocks, this is important context to respect. A daily close back above $81.50 could start a move higher.
SLB Stock Charts
Moving on to the multiyear weekly chart, we see that the recent multiweek selling has now pushed SLB stock back to confluence zone made up of its 100-week (blue) and 50-week (yellow) moving averages, which also coincide with the uptrend line from January 2016.
Note also that the stock a few weeks back found resistance at its 200-week moving average (red), which also coincided with the upper end of the trading range.
Finally, on the daily chart we see that SLB stock on Wednesday, Feb. 8, bumped into its 200-day moving average (red), which as discussed above is also the lower end of the trading range.
Note that on the day the stock closed well off its intraday lows, thus showing some seller exhaustion around a technically critical juncture.
Most important, however, is that SLB stock in coming days gives us a follow-through buying day (an up day) to confirm yesterday’s intraday seller exhaustion.
A daily close above $81.50 would open up a first upside target around the $83-$84 area. Any strong bearish reversal could be a stop-loss signal.
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