Schlumberger Limited (SLB) — In the April 10 Trade of the Day, I recommended SLB stock as a buy under $87 with a trading objective of $95. The trade worked out well with the target being hit in less than three weeks on April 30. This also turned out to be the high of the year, and SLB stock began a descent that took it to a low of $59.60 on Jan. 20.
The next day after the close, Schlumberger reported fourth-quarter results. Revenue of $7.7 billion fell short of analysts’ $7.8 billion estimate, and earnings declined 17% year over year to 65 cents per share. But this was still 2 cents better than expectations, and SLB stock rallied more than 6% on Jan. 22. The recent run up in shares is now presenting traders with an opportunity to short the stock.
Schlumberger has warned it expects to see continued weakness in the oil services markets. For the upcoming quarter, scheduled to be reported on April 21, analysts expect profits to decline more than 50% year over year, and full-year profits are estimated to fall almost 40%.
Analysts at S&P Capital IQ Equity Research said 2016 is likely to be a retrenching year for the company. They also note political risks could provide potential headwinds.
SLB stock is sensitive to signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR). Note the successful buy signals in early October and on Jan. 14 at $61.25.
On Friday, SLB stock triggered a CBR sell signal at $76, which is at the bearish resistance line and just below its 200-day moving average. It also occurred at the top of a pattern that indicates declining momentum. And selling volume increased to average from buying volume that was below average.
Sell SLB stock short at $75 with a trading target of $65 for a potential gain of 13%. A stop-loss order should be entered at $78.