SLB and NOV: Market Metaphors

So, Schlumberger (SLB - commentary - Trade Now) says everything's not so terrific and it has been straight down ever since, as if oil were going back to $60. National Oilwell Varco (NOV - commentary - Trade Now) says business is uncertain and it drops a quick 20%.

Is this right?

No, if you think that a $3 downtick in the futures controls their business.

Yes, if you recognize that these stocks are up so, so high that you can say they have totally overshot where they should have gone.

I think these stocks are a terrific metaphor for what's happened to this market and why I think we may have seen the highs for the year, even as our market is well behind almost every major market in the world.

We saw a massive run in SLB to levels that insisted that business not stabilize at lower levels, but increase to higher levels, given the doubling of oil futures from the bottom.

We are seeing the same thing with this group that we saw when it peaked last year: the big projects go on and are very much NOT hostage to the price of oil. Mexico must upgrade. Brazil must drill. India's starting to get serious about oil. China needs more drilling.

However the swing drilling, though, the U.S. natural gas market is just plain bad -- and that matters. It matters because it is the marginal business that is on top of the given business and it is soft. Very soft. So, when these companies go around the horn, they mention all of the good, consistent markets that are going to generate big gains, which is why the stocks have generated big gains. However, they are not able to lift guidance, because the swing buyers aren't in there buying. The swing producers aren't in there drilling.

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