This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Ease Out of Peaking Oil Drillers

This column was originally published on RealMoney on April 26 at 1:38 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Back on Feb. 17 , the "Ocean's Seven" gang of oil drillers was poised for a rebound after hitting bottoms not long before. Now it's time to book some profits on the possibility that the oil drillers peaked between April 19 and 25.

Four of the seven oil drillers bottomed on Feb. 15, with the other three going deeper into the ocean floor into March. Now, six of the seven -- Baker Hughes (BHI - Get Report), Diamond Offshore (DO - Get Report), GlobalSantaFe (GSF), Halliburton (HAL - Get Report), Noble (NE - Get Report) and Transocean (RIG - Get Report) -- have reached 52-week highs over the past five trading sessions.

In February, I encouraged investors to add to positions on weakness to value levels. (A value level is a price at which my models project that buyers will emerge.) Now, with the energy sector 25.6% overvalued, the oil drillers have become overvalued and are becoming overbought. The only member of the Ocean's Seven that is trading around its fair value is Nabors (NBR - Get Report).

Nymex crude oil penetrated and held my monthly pivot at $67.40 on April 5 (a pivot is a value or risky level that has been breached in its particular time horizon; the stock will likely trade around this pivot), energizing another momentum run, which reached an all-time high at $75.35 last Friday vs. my quarterly resistance at $75.94. The weekly chart profile shows rising momentum and a level that is just below becoming overbought. My model projects that crude oil prices have set a ceiling for the second quarter, and this justifies profit-taking in the Ocean's Seven.

The oil drillers began reporting earnings last Friday, with Halliburton and Noble beating estimates. Baker Hughes and Diamond Offshore reported before the open this morning, both beating EPS estimates. But keep in mind that positive earnings have been anticipated with the recent highs in share prices. Next week, GlobalSantaFe is expected to report EPS of 62 cents on May 3, Transocean is expected to report EPS of 48 cents on May 4, and Nabors is expected to report EPS of 74 cents on May 7.

Investors who added to positions after my Feb. 17 column should reduce holdings by 50% on strength to a risky level, or have a sell stop to protect gains made since February. (A risky level is a price at which investors are likely to reduce holdings, according to my models.)

Drilling Down on the Oil Drillers
Company Name (Symbol) April 25
Closes
Rating % UV/
OV
Fair
Value
MOM 5-Week
MMA
Value
Levels
Pivots Risky
Levels
Baker Hughes (BHI) $75.93 HOLD 18.80% $63.92 RM $70.69 66.74 Q 73.70 M none
Diamond Offshore (DO) $93.81 HOLD 12.10% $83.71 OB $87.26 78.30 Q 89.15 Q none
GlobalSantaFe (GSF) $63.00 HOLD 17.50% $53.63 OB $60.62 53.04 Q 60.73 M none
Halliburton (HAL) $78.82 BUY 15.50% $68.24 RM $75.26 69.15 Q 84.31 M
Nabors (NBR) $37.47 BUY -3.10% $38.69 RM $35.95 31.86 A 37.98 Q 40.52 M
Noble (NE) $82.40 HOLD 13.50% $72.59 RM $80.21 77.29 Q 84.93 M none
Transocean (RIG) $84.00 HOLD 15.50% $72.76 RM $81.00 79.79 M 84.14 Q none
Key: OB, overbought; DM, declining momentum; RM, rising momentum; OS, oversold; M, monthly; Q, quarterly; S, semiannual; A, annual. A value level is a price at which my models project that buyers will emerge; a risky level is a price at which investors are likely to reduce holdings, according to my models. A pivot is a value or risky level that has been breached in its particular time horizon; the stock will likely trade around this pivot.
Source: Global Market Consultants

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
GSF $25.44 0.00%
NE $17.68 0.00%
BHI $65.53 0.00%
DO $32.53 0.00%
HAL $45.91 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs