Halliburton Company (HAL) stock has completed a six-month basing pattern and could break out, entering a 2018 uptrend with 25% to 30% upside potential. The bullish scenario also bodes well for the Vaneck Vectors Oil Services ETF (OIH), which has grossly underperformed broad benchmarks in 2017, dropping more than 25%. It also predicts that the WTI crude oil contract will continue a broad recovery, perhaps reaching the mid to upper $60s.
Halliburton accounts for more than 15% of OIH, taking the second slot in the sector fund below Schlumberger Limited (SLB) and highlighting how a 2018 uptrend will also benefit its rivals. In addition, a breakout would follow the market's natural tendency for laggards in one year to emerge as the following year's leaders. Even so, Halliburton shares face a huge challenge in attracting the buying power needed to complete a round trip to the 2014 all-time high in the mid-$70s. (See also: Schlumberger vs. Halliburton Stock: Which One to Choose?)
HAL Long-Term Chart (1992 – 2017)
The stock ended a steep downturn at a four-year low just above a split-adjusted $5.00 in 1992 and turned higher, carving a strong trend advance that reached $31.63 in the fourth quarter of 1997. That marked the highest high for the next eight years, giving way to a triangular trading range that persisted into the second half of 2001, when the stock entered a decline intensified by the Sept. 11 attacks.
A 2002 double bottom reversal set the stage for a new uptrend that caught fire during the mid-decade bull market, finally reaching the 1997 high in 2005. It broke out quickly but made limited progress, topping out at $41.99 in the second quarter of 2006 and easing into range-bound action, ahead of a final surge into the mid-$50s in July 2008. The stock relinquished those gains during the economic collapse, descending vertically to a five-year low in the lower teens.
A 2011 test at the 2008 high triggered a reversal, while a 2013 test yielded a breakout that hit an all-time high at $74.33 in July 2014. The bottom fell out into 2015, with the stock caught in a commodity plunge that finally ended in the first quarter of 2016. It retraced two-thirds of that loss into January 2017, reversing in the upper $50s and dropping to a 16-month low in August. Meanwhile, price action between May and December has completed an inverse head and shoulders basing pattern with resistance just above $46. (For more, see: Top 3 Companies Owned by Halliburton.)
HAL Short-Term Chart (2014 – 2017)
A Fibonacci grid stretched across the 2014-2016 decline organizes broad price action, with the rally into 2017 stalling at the .618 retracement level. The decline into the summer months cut through the .382 retracement, while basing pattern resistance has aligned with that level. This placement predicts that a breakout can reach the 2017 high, supporting gains in the 25% to 30% range.
Base resistance has also aligned with the .382 retracement of the 2017 decline, marking an initial upside target at the .618 retracement just above $50. Danger will increase in the low $50s because the stock will run into the descending highs trendline in place since 2014. If successful, a 100% retracement into the 2017 high will set off secondary buying signals that could eventually support a test at the bull market high.
On-balance volume (OBV) stalled at a lower high in the first quarter of 2017 and drifted lower into August, holding above the deeper February 2016 low. Fourth quarter accumulation barely registers on the indicator, indicating that funds and bottom fishers are still avoiding the stock. That should change after a base breakout and flip of the calendar into 2018, when sidelined capital will be looking for fresh opportunities. (To learn more, see: Uncover Market Sentiment With On-Balance Volume.)
The Bottom Line
Halliburton shares dropped to the midpoint of the two-year trading range in August and turned higher into the fourth quarter, completing a basing pattern that could offer excellent returns in the first half of 2018. (For additional reading, check out: The Biggest Risks of Investing in Halliburton Stock.)
<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>