Shares of oilfield service company Weatherford International Plc (NYSE:WFT) rallied late last week as oil services stocks got a lift from a sliding U.S. dollar. WFT stock bottomed in mid-January, but over the past two months, Weatherford has consistently improved its technical picture and now is on the verge of gaining better upside momentum.
Active investors and traders could (and should) look to hop on this relative strength.
A Little Background on Weatherford
On the news front, Weatherford has seen a number of research calls as of late. On Feb. 18, BMO Capital initiated coverage on the company with an “outperform” rating and a $16 price target. Last week, Credit Suisse added WFT shares to its top investment ideas, saying the company will focus on margin expansion in what has been a tough environment for oil services stocks since oil prices began to crash last summer.
I would like to remind readers that once oil began to slide below the $60 mark late last year, most analyst models — and likely the forecasts of the oil-related companies themselves — became obsolete as few of them used such a low input price of oil. Analysts and companies had to update their models, and from a price-action perspective, this means that many stocks had to suffer through a multimonth basing period before they could see a more sustainable rally.
However, the price action from recent weeks suggests that we might be looking at a better tradeable bottom.
WFT Stock Charts
Over on the long-term weekly chart, we see that WFT stock has exhibited plenty of volatility over the years, but also has a well-defined area of support (blue box) around the $8-$9.50 area. We also note that the January lows in the stock came on oversold levels, as measured by the Relative Strength Index (RSI), not seen since late 2008 just as the stock bumped into the blue support line.
Through a longer-term lens, this looks to be a favorable area for a Weatherford bounce.
On the daily chart, we see that while WFT stock didn’t bottom until January, the RSI indicator bottomed in December and thus flashed notable positive divergence from price — a positive sign.
The stock then worked itself higher, and in early March bumped into the 100-day simple moving average (blue line). By mid-March, WFT stock found support at its 50-day moving average for the first time since last summer. The rally in the second half of last week subsequently pushed WFT above its 100-day MA for the first time since February of 2014.
The series of higher lows since January also formed a bullish inverse head-and-shoulders pattern that could see the stock release higher.
Active and tactical traders and investors could look to buy WFT stock on a push above last Thursday’s highs around $13.15 with a price target around $15.30, which would also fill the down-gap from last November.
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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.
