The energy sector of the S&P 500 has been a notable under-performer compared to the broader equity market year-to-date. However, over the past few days this sector has flipped from short-term bearish to short-term neutral. As a result, a stock like Schlumberger (NYSE:SLB) printed a “buy” signal on Dec. 9 on my proprietary indicators. Let’s take a closer look at what may set up to be a catch-up trade into year-end and Q1 2020.
Over the course of my thus-far 20-year career as a trader and investor, I have found that few retail investors take advantage of what many successful professionals do: looking at markets in terms of relative performance. This is important because in order to gauge any given asset’s probability to make a directional move, we need to see how it is performing relative to the broader market or relative to another asset.
To wit, the energy sector of the S&P 500 has largely underperformed the broader U.S. stock market in 2019 to date. While this trend can continue, I am spotting some notable divergences that could soon put a pause or an end to this relative weakness and turn into outperformance.
SLB Stock Charts
On the multi-year chart of SLB stock we see that this past summer the stock fell and marginally undercut its lows from the year 2009. That marginal dip below those lows as marked by the horizontal line took place as momentum to the downside collapsed. Note how the MACD momentum oscillator at the bottom of the chart diverged from price.
To be sure, there is no major relative strength in the energy sector nor in SLB stock to speak of, but this bears watching closely.
On the daily chart we see that SLB stock in early November began breaking higher. It then began to base and find support above its yellow 50-day simple moving average. In fact, the stock has also been tracing out a series of higher lows and higher highs since early November. Although the stock is still trading below its red and downward sloping 200-day simple moving average, this line in the sand could soon be broken.
Active investors and traders could look to buy SLB stock around the $37 area with a next upside target around $41. Alternatively, one could look to buy a February $35-$40 bull call spread.
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