Energy Sector Shows Promising Vital Signs

The rally in the energy sector Wednesday offered some overdue relief for a downtrodden sector. The first good news in nearly two months sparked renewed interest in the sector, but energy stocks still need to heal before they can power forward in a healthy way.

First, the Good News

Both Schlumberger (SLB Quote) and Halliburton (HAL Quote), two energy-service giants, reported solid earnings. They exceeded expectations in the second quarter and, more importantly, didn't express the level of pessimism that many investors expected. In fact, Halliburton admonished analysts that third-quarter estimates were about 20% too low. And both companies suggested North American natural gas weakness could be offset by the growth in international demand from oil drilling. So far, with the exception of ExxonMobil (XOM Quote), energy earnings have generally exceeded expectations, and the third-quarter outlook -- while not wildly optimistic -- is certainly far from moribund. ...