Oil And Oil Services

As we begin this new calendar year, the markets continue to surge into new highs even as some fatigue seems to be settling in among some individual issues.  Plotting the performance of select sectors versus the benchmark S&P shows that many of the strong momentum groups remain strong and not exhibiting conspicuous weakness.

Technology stocks remain at the top of the performance pack as indicated by the orange line in the above chart. (charts by stockcharts.com)  Other leading sectors all hover around the general track of the S&P, indicated by the red line somewhere in the middle of the pack.

What is interesting from the comparative performance chart is the conspicuous laggard among the set: that of energy shown by the pink line in the chart above.  Upon looking more closely we notice that the absolute movement from the lows made in August to the present position has produced quite a swing, in fact out performing the S&P during the last quarter of the year.

Drilling down into the constituents of that energy group, we find that the large integrated oils all supported this movement, including XOM, BHP and CVX.  Logically, oil drilling and services companies should also reflect this price trend.   Not surprisingly we find that oil services companies moved significantly during this period including the large cap issues such as Haliburton, HAL and Schlumberger, SLB. Using the SCTR statistic, we filter out the stocks that show strong accumulation, have strengthening chart patterns and have lots of potential room to run.

We can see in the chart above that the black line representing the oil services segment has been a laggard for most of last year, but as in the larger energy group, shows outperformance during the last quarter.  In reviewing the very long term charts, we observe that this group has been in a long down trending market since the collective group breakdown in 2014.  It is still presumptuous to assume that this trend has changed, but price action of the group indicates that this may be occurring.

The chart below shows the recent activity in Noble Drilling, NE which shows many hints of a bottom being made.

The price has moved decisively above the 50 and 200 day moving averages.  The price has broken away from a recent set of resistance tops and is now in the process of testing those tops.  The mid 4 dollar area near the moving averages should be good support on this pullback.  Another compelling chart is the point and figure chart of this issue, shown below:

This chart projects a test of at least the 7 to 8 dollar area where another threshold of resistance may appear.  Finally, a chart which shows the seasonal tendency of this issue is referenced and statistically at least, there is compelling reason to be in this issue during this time of the year.

The sum total of all of these observations makes a compelling case for NE to advance in the shorter to medium term.  As in any other trade, a drop below all of the support thresholds below the 4 dollar area will cause this forecast to be suspect.  We feel the that risk reward is compelling to be positioned on the long side of NE as representing the oil services group.

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