Despite a lackluster fourth quarter in terms of North American operating activity, leading oil and gas equipment and services stocks continued to carve out significant bottoming patterns. Indeed, rising oil prices between October and December certainly had a positive impact, but so did revenue generated from other regions. Longer-term domestic conditions look set to improve, with Polaris Market Research anticipating the U.S. midstream oil and gas market to reach $983.73 billion by 2026.
In the short term, oil prices remain supported by supply disruption in Libya caused by a military blockade at two large crude production facilities. A halt of oil exports at Libya's ports threatens to cut the Middle Eastern country's output by about 700,000 barrels per day. The stoppages could cut more than half of the nation's crude production, according to the National Oil Corporation, per Bloomberg.
Returning to the charts, the 50-day simple moving average (SMA) has recently crossed above the 200-day SMA in the three oil and gas equipment stocks outlined below. This closely watched signal, referred to by technical analysts as a "golden cross," typically indicates the emergence of a new uptrend. Let's pinpoint some tactical entry and exit points that active traders should watch.
National Oilwell Varco, Inc. (NOV)
With locations on six continents, National Oilwell Varco, Inc. (NOV) markets systems, components, and products for oil and gas drilling and production, such as downhole tools, drill pipe, and well casing. Analysts expect the 158-year-old oil company to post Q4 earnings per share (EPS) of 16 cents, up from 3 cents in the same quarter last year. In October, investment bank Goldman Sachs increased its price target on National Oilwell Varco to $33 from $29, citing revenue growth and cost-cutting for the revision. As of Jan. 23, 2020, National Oilwell stock has an $8.85 billion market capitalization, offers a 0.86% dividend yield, and is trading down 21.67% over the past 12 months. Year to date, the shares have fallen nearly 9%.
The oil and gas equipment firm's share price formed a broad inverse head and shoulders pattern between June and October, indicating that a significant bottom is in place. Since the start of January, the shares have retraced back toward the 50- and 200-day SMAs, providing a "buy the dip" opportunity for swing traders. The pullback also aligns nicely with an uptrend line that extends back to late August. Those who enter here should think about booking profits on a move back to this month's high at $25.81, where price may run into resistance from a horizontal line. Cut losses if the stock fails to hold above $22.
Schlumberger Limited (SLB)
Schlumberger Limited (SLB) supplies the oil and gas industry with technology for reservoir characterization, drilling, production, and processing. The $50.78 billion oilfield service giant continues its strategic shift toward providing bundled services, which it sees as a key industry trend over the next decade. Schlumberger's Q4 adjusted earnings came in at 37 cents per share on revenue of $8.3 billion. Both figures exceeded Street expectations, with international sales and strong digital software revenue contributing to the robust results. The stock trades at just over 20 times forward earnings, significantly below its five-year average multiple of around 30 times. While Schlumberger shares have slumped 12.92% over the past year, they have outperformed the industry average by 4.54% over the same period as of Jan. 23, 2020. A 5.16% dividend yield helps offset the share price depreciation.
A prominent double bottom appeared on the firm's chart in the back half of 2019, potentially ushering in a new uptrend to kick off this year. After a golden cross signal appeared in early January, the price has pulled back into a zone of support between $36 and $37, offering a high-probability entry point. Before committing capital, traders could wait for a reversal, such as a hammer or bullish engulfing pattern, to confirm a shift in sentiment. Those who take a position should seek an initial move to the 52-week high at $46.80, with a stop-loss order positioned underneath the December low at $34.52. Manage risk by moving stop orders to the breakeven point if the price rises to overhead resistance at $40.
Halliburton Company (HAL)
With a market cap of over $20 billion, Halliburton Company (HAL) offers a range of services and products to oil and natural gas companies. Its key business lines include cementing, completion equipment, and pressure pumping. Increased international revenue helped the Houston-based firm deliver a Q4 profit of $285 million, or 32 cents on a per-share basis. Revenue for the period fell 12% compared to the year-ago quarter but still managed to exceed analysts' top-line expectations. Wall Street has a consensus 12-month price target on the company's shares at $27.72, which equates to a 16% premium above Wednesday's $23.93 close. As of Jan. 23, 2020, Halliburton stock yields 3.03% and has tumbled 24.06% over the past year.
An inverse head and shoulder pattern combined with a golden cross signal this month sets a bullish technical landscape for Halliburton's share price. The retreat over the past two weeks looks to have found vital support at the $23.60 level, indicating that the bulls will defend this area. Also, the relative strength index (RSI) has stabilized near 50, giving price ample room to make a move higher before consolidating. In terms of trade management, consider setting a profit target near the April 2019 high at $31.45 and placing a stop beneath the January low at $23.37.