Shares of oil-related stocks and other dollar-sensitive groups outperformed during Wednesday’s choppy trading session, and among them was Schlumberger Limited (NYSE:SLB). After rallying and marginally overcoming a technical hurdle, SLB stock is now well-positioned to push higher, and active investors looking to trade Schlumberger have some clearly defined risk to work with.
Schlumberger reported first-quarter earnings after the close of trading April 16. Profits came in at 76 cents per share, well below analyst expectations of 91 cents, while revenues stood at $10.25 billion, also below the $10.46 billion analysts were looking for. The top and bottom lines were both lower, though SLB’s share buyback program and cost-cutting efforts seemed to calm investors a bit.
The big force that has affected share prices and analyst models for oil service stocks since last summer was, as we’re all aware at this point, the precipitous selloff in the price of oil. Oil prices began dropping last summer from above $100 to below $45 when it was all said and done in mid-March. It is thus unlikely that analysts (at least in the early going) had an appropriately low price of oil as the input to their models when valuing any oil-related companies.
This fear of “How low can oil prices go?” also dragged SLB stock lower.
SLB Stock Charts
Looking at SLB stock through a multiyear lens, we see that the sharp decline from summer 2014 into early this year brought the stock back to its multiyear support line (blue arrow). From this angle, however steep the selling might have looked, it was a healthy move as it erased overbought readings from Schlumberger’s lofty price levels of last summer.
Zooming in on the daily chart, we see that while the price of oil did not bottom until mid-March, SLB stock did bottom in mid-January and made an important higher low in mid-March, coinciding with the low in oil. By late March, Schlumberger had broken above its summer 2014 downtrend line (red dotted line) and by mid-April further overcame horizontal resistance from late 2014 (black horizontal line).
After the April 16 earnings report, SLB rallied a little higher and right into its 200-day simple moving average (red line), but then quickly settled into a consolidation phase.
On Thursday, the stock rallied 1.75% on the back of the weakening U.S. dollar, and as a result, it marginally closed above the 200-day MA for the first time since last September.
Active investors could look to buy SLB stock above $94 for an initial move toward the round $100 mark. Any meaningful bearish reversal would call off the near-term bullish call on the stock.
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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.
