Oil services giant Halliburton Company (HAL) rallied about 2% in Monday's pre-market session after beating second quarter earnings estimates by a few cents and meeting conservative revenue expectations. The stock is trading near a nine-year low after the most ferocious downtrend since 2008, driven by a sector-wide slide that may soon enter its sixth year despite robust U.S. energy production.
Crude oil diverged from this group in 2017, with West Texas Intermediate (WTI) and Brent futures contracts gaining ground through the first half of 2018 while the VanEck Vectors Oil Service ETF (OIH) broke 2008 support and fell to the lowest low in its 18-year public history. Sector components have struggled to make money in recent years, loaded up with debt in a rising interest rate environment. Battered bulls hope that recently dovish Fed policy will finally signal a long-lasting bottom.
The VanEck Vectors Oil Service ETF entered a powerful uptrend in 2002, gaining ground into 2008's all-time high at $76.25. It dropped like a rock during the economic collapse, finding support at a five-year low near $20 in December 2008. A strong bounce stalled at the .618 Fibonacci retracement level in 2010, while a secondary impulse ended at the .786 retracement in 2011. The fund tested that high in 2014 and turned sharply lower, bouncing at the 2008 low in 2016.
The 2016 support level broke in 2018, yielding a decline into the lower teens, which marked the first swing low after the fund started to trade in 2001. It has been testing that level for the past seven months while accumulation readings have ticked higher, indicating modest bottom fishing. A rally above the July 1 high at $15.27 could be meaningful in this price structure, completing the next leg of a potential double bottom reversal.
Halliburton stock posted new highs in 2008, 2011, and 2014, stalling in the mid-$70s ahead of a downturn that reinstated resistance in the mid-$50s a few months later. The initial selling wave found support at the 2011 and 2012 lows in the upper $20s in 2016, generating two tests at resistance, followed by a 2018 decline that broke 2016 support in May 2019. The stock is now trading at the lowest low since June 2010.
The most recent downdraft broke support at the .786 Fibonacci retracement level of the six-year uptrend, raising the odds that the stock will complete a round trip into the 2008 low in the lower teens. However, it has been testing the 2010 low for the past three months and is now deeply oversold, potentially offering bulls a final opportunity to remount broken support at $27.50 and set off a notable buying signal.
Schlumberger Limited (SLB) ran in place on Friday after meeting second quarter earnings estimates and beating revenue expectations. The oil services sector's highest-capitalized component topped out at $114.84 in 2007, following a multi-year uptrend, and reversed in 2014 after mounting that high by just four points. The subsequent decline has unfolded in two broad sell-off waves that reached the 2009 low at $35.05 in December 2018.
The 2019 bounce posted a five-month high in April, giving way to renewed downside that undercut the prior low in May. The stock has gained ground since that time, while accumulation readings have turned modestly higher. However, there isn't much to do in this range-bound pattern until an uptick mounts the April high at $48.88 and sets off a buying signal or a decline breaks the May low at $34.46, exposing a trip into the upper $20s.
The Bottom Line
Halliburton's upbeat earnings report has triggered a modest uptick in the oil services sector, but intense buying power will be needed to end the ferocious five-year downtrend.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.