On Friday, shares of the ever-controversial oilfield services provider Halliburton (HAL) — the number two ranking company within the oilfield industry — finally witnessed something it hasn’t seen much of since early May … an upswing.
The massive 5.4% move for HAL stock was buoyed by an uptick in the West Texas Intermediate index amid a very poor September jobs report, though a struggling labor market theoretically tempers the potential of an interest rate hike by the Federal Reserve.
The layman can easily be forgiven for believing that HAL stock is on a resurgence. Last Friday’s move was its second biggest of the year, the first being the 10.5% catapult launch on Aug. 27.
In addition, Wall Street was abuzz in the waning days of September regarding a proposed deal between Halliburton and third-place oilfield services provider Baker Hughes (BHI). The joint effort makes sense, particularly given the harsh volatility in the crude oil sector — one that will likely leave a very high body count.
But for HAL stock investors, there’s still a long road ahead. Aside from the stringent compliance requirements set forth by the U.S. Justice Department for the BHI deal, Halliburton has been caught flat-footed with the magnitude of the collapse in Brent crude oil, which has lost 58% of value since late June of 2014. In response, Halliburton slashed 2,000 jobs, largely from its North American operations, which is most affected by depressed oil prices.
The latest cuts adds insult to injury for oilfield workers, which now means that Halliburton has terminated nearly 16,000 positions since HAL stock peaked on July 23 of last year. Sadly, there’s very little that the oil company can do. Halliburton’s clients have been forced to trim down business expenses by a third, which naturally equates to idling oil rigs — a condition experts believe will worsen in the months ahead.
And if technical performance is a guide, it’s a fairly bleak forecast for HAL stock. Despite the recent robust move, HAL stock is still in the red at a loss of around 6% year-to-date. In fact, annual returns on HAL stock have generally declined since 2009, mirroring the current underperformance of the broader S&P 500, which is down 4% YTD.
To top it off, HAL stock flashed a death cross last year a day before Halloween, a condition that has yet to change. Death crosses for HAL stock are a rare phenomenon — it has only occurred 28 times since March of 1973.
The problem, however, is that when the harbinger does flash, HAL stock has a tendency of taking a relatively long time to recover. The average return three months after a death cross signal is a 5.4% loss, and even after half-a-year, average returns are a paltry 3%.
The overall message is quite clear: The oil markets are undergoing major housecleaning, which leaves HAL stock highly susceptible to further volatility.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
