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Oil Is Strong but Schlumberger Limited Stinks

The budding strength out of oil prices and energy stocks provides a perfect opportunity to re-assess the sector in search of trade ideas. You would think that companies in the space would be completing bottoming patterns and entering fresh uptrends, but curious enough, some constituents like Schlumberger Limited (NYSE:SLB) are still struggling. Indeed, SLB looks ripe for a short trade.

To set the stage, here’s a chart of crude oil. Take note of the persistent uptrend that took root in mid-June.

SLB Stock: Oil Is Strong but Schlumberger Limited Stinks

Source: OptionsAnalytix

The story of the week was oil’s breakout over $52.50, which quickly carried the commodity to test $55. Remember, the energy sector and oil prices are fast friends (for obvious reasons) so conditions don’t get much more favorable for oil stocks than when crude is ripping to new 52-week highs.

A look at both the Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) and the SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP) show just how substantial the recovery has been. Both sector ETFs have climbed back above their 200-day moving averages.

Meanwhile, one industry in the energy patch, the one that SLB shares call home, has remained under pressure.

Source: OptionsAnalytix

We’re talking oil services, which remains well below its 200-day moving average. The Vaneck Vectors Oil Services ETF (NYSEARCA:OIH) is a good proxy for the space. But at least OIH made a higher pivot low on its last descent. Not to mention the fact that it’s above its 50-day. SLB couldn’t even do that.

As the below chart will attest, SLB remains in a downtrend submerged beneath all major moving averages. The recent rally lifted the stock to resistance, creating a compelling shorting opportunity for those looking to capitalize on its weakness.

Source: OptionsAnalytix

The SLB Stock Takeaway

We end with two compelling takeaways.

First, if you’re searching for bullish trades in the energy patch avoid oil services and especially SLB for now.

Second, if you’re willing to bet the weakness in SLB persists then buy the Jan $65 puts for $3.20.

As of this writing, Tyler Craig held bullish positions in XOP. Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler’s recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.

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