Halliburton Company (HAL) is trading higher by more than 2% in Tuesday's premarket after beating fourth-quarter 2020 earnings estimates and meeting modest revenue guidance. The oil equipment provider posted a profit of $0.18 per share, $0.04 better than expectations, while revenue fell a whopping 37.6% year over year to $3.24 billion. Earnings per share (EPS) marked a 44% profit decrease compared to the same quarter in 2019.

Kay Takeaways

  • Halliburton is trading higher after meeting quarterly estimates, despite a 37.6% revenue decline.
  • The stock has been in a major downtrend for more than six years.
  • The rally that started in March 2020 is approaching steep resistance in the mid-$20s.

The company has cut costs, slashed its dividend, and laid off workers to deal with a long-term industry slump. Demand is now recovering in lockstep with rising crude oil prices, underpinning the stock's impressive performance into January. Even so, oil service companies have been forced to provide steep discounts to maintain business, lowering revenue while generating Halliburton's fourth straight year of negative returns.

In addition, the strong recovery wave that started at a multi-decade low in March 2020 is rapidly approaching resistance in the mid-$20s. The crude oil contract is approaching a major technical barrier as well, suggesting that the fossil fuel rally will falter, giving way to range-bound action that could last for months or years. As a result, sector investors may wish to tighten stops and take partial profits to lock in a portion of the big bounce.

Wall Street is taking a "wait and see" approach, posting a consensus "Hold" rating on Halliburton stock based upon five "Buy" and six "Hold" recommendations. Two analysts still recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $12 to a Street-high $25, while the stock is set to open Tuesday's session just $4 below the high target. Further upside will be difficult to achieve without upgrades and higher targets.

Tip

Cost-cutting refers to measures implemented by a company to reduce its expenses and improve profitability. Cost-cutting measures are typically implemented during times of financial distress for a company or during economic downturns. They can also be enacted if a company's management expects profitability issues in the future, where cost-cutting can then become part of the business strategy.

Halliburton Weekly Chart (2014 – 2021)

Chart showing the share price performance of Halliburton Company (HAL)

TradingView.com

The stock broke out above six-year resistance in the mid-$50s in February 2014 and posted an all-time high at $74.33 in July. The subsequent pullback failed the breakout in October, signaling a downtrend that has now been in force for more than six years. The decline initially found support in the upper $20s in 2016, establishing a trading floor, ahead of lower highs in 2017 and 2018. It broke range support at the end of 2018, posting steep losses into March 2020's 46-year low.

A recovery wave stalled at 50-week exponential moving average (EMA) resistance in August, yielding a higher September low, ahead of a November breakout that posted an 11-month high ahead of this morning's report. Price action is now testing resistance at the .786 Fibonacci sell-off retracement near $21, with a breakout favoring a rapid advance into the January 2020 peak at $25.47. That level marks resistance that could take weeks or longer to overcome.

The stock has entered a weekly stochastic sell cycle that favors lower prices into February. However, the monthly indicator is grinding through a buy cycle that has gathered strength in recent weeks, with the conflict between time frames predicting two-sided price action favoring bulls over bears. Even so, long-side exposure here may not be worth the trouble, given the few points into resistance and Wall Street's most optimistic targets.

Tip

Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur. They are based on Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced. The Fibonacci retracement levels are 23.6%, 38.2%, 61.8%, and 78.6%. While not officially a Fibonacci ratio, 50% is also used.

The Bottom Line

Halliburton is trading higher on Tuesday despite reporting a 37.6% decline in quarterly revenue. 

Disclosure: The author held no positions in the aforementioned securities at the time of publication.