Anyone with a TV or an Internet connection surely knows what a disaster falling oil prices have been for energy stocks…but it can be hard to tell what to do about it. For any particular oil and gas stock, will the weakness be temporary, or does it have farther-reaching implications? That’s where technical analysis can be a real asset to your investing strategies.
The Profit Scanner, powered by Recognia, is designed to help sort through the noise and paint a picture of what’s next for individual stocks. And there are five stocks in particular that the Profit Scanner expects to continue on their downward trajectory.
First up is Halliburton Company (HAL). The oilfield services stock broke out to the downside on Tuesday, Nov. 18, as HAL investors seem to have rejected the company’s buyout deal with rival Baker Hughes Incorporated (BHI) — mainly because of the price tag. Halliburton will pay a large premium to purchase BHI and is also on the hook for $1 billion to $3.5 billion in “breakup fees” if the deal falls through.
At the close on Nov. 18, the Profit Scanner identified the Downside Breakout event in HAL’s chart, which carries a downside target of $40.25 – $41.75 in the intermediate term — or a 14% – 17% drop from the Tuesday close. Three other, short-term bearish signals have also emerged in HAL’s chart since Nov. 13, when WTI crude oil traded down through $75 per barrel.
Several other oil and gas stocks started flashing intermediate-term bearish signals on Nov. 13 as well, with the four-year low in oil prices apparently triggered by news that OPEC has no plans to come to the rescue with reduced production levels. At the Nov. 13 close, the Profit Scanner identified a bearish Continuation Wedge pattern for both Schlumberger Limited. (SLB) and Chesapeake Energy Corporation (CHK).
The SLB and CHK charts are excellent examples of the bearish Continuation Wedge, which consists of two converging trendlines both slanted upward against the trend, and suggests a temporary interruption to a downtrend. During this time, the bulls attempt to win over the bears, but in the end the bears triumph as the break below the lower trendline signals a continuation of the prior downtrend.
In the case of oil-services giant SLB, the bearish pattern carries further downside of 11% – 15%, while for exploration and production stock CHK, it implies downside of 28% – 35% from the Nov. 13 close.
That same day, the Profit Scanner also identified a bearish pattern for two other big-name energy stocks: Apache Corporation (APA), another exploration and production company, and Helmerich & Payne, Inc. (HP), a global drilling company. Here, the technical pattern was the bearish Symmetrical Continuation Triangle.
Like the Continuation Wedge, the Symmetrical Continuation Triangle basically implies that the prior downtrend will continue. It takes the form of two converging trendlines as prices reach lower highs and higher lows. Volume falls, and the price range gets increasingly narrow, reflecting uncertainty in the market direction. Before the triangle can reach its apex, the price breaks down below the lower trendline on a noticeable increase in volume, confirming the continuation of the downtrend.
As with HAL, SLB and CHK, the chart work suggests that another big selloff is in store for APA and HP in the intermediate term. The Profit Scanner’s downside target for Apache is $63.50 – $65.50 (a 9% – 12% drop), and its downside target for Helmerich & Payne is $66 – $69 (a 13% – 17% drop). If you own any of these five stocks, you may want to hedge or reconsider the position; if you’re looking for a bearish play on cratering oil prices, these stocks could be just the ticket.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.