Schlumberger Is Poised for a Breakout

Schlumberger's recent bullish action has set the stock up well for an upside breakout.
By Gary Morrow ,

After a rather rough start, Schlumberger (SLB) - Get Report closed on Friday at new July highs. In late trade the day before, the stock moved higher following its second-quarter earnings report but was unable maintain this momentum during Friday's early going. By the close, though, Schlumberger bulls were rewarded with a 2% gain on the heaviest upside trade since January.

This bullish action has set the stock up well for an upside breakout.

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Heading into last week's earnings report, Schlumberger had been in a steady yet choppy uptrend. After bottoming in mid-May, following two weeks of trading below the 200-day moving average, the stock returned to within striking distance of its 2016 peak by early June. As the consolidation that began in early May continued, Schlumberger drifted lower again but was able to bottom well above its upward-sloping 200-day. Despite the Brexit selling wave, the stock extended its streak of higher monthly lows to five straight. It now appears fairly certain that the July low will extend the run to six straight.

Following Friday's solid gain, Schlumberger investors should take a more positive view of the stock. The strong foundation that has been building since January's low could carry shares much higher.

In the near term, investors should consider the stock a buy near current levels. A close back below last week's low near $78.50 would be a warning sign of more back-and-fill action to come. On the upside, the stock's next hurdle is the April high near $82. Once past, Schlumberger will have little in its way until its begins to approach $84. The stock's 40-week moving average is in this area. The last time Schlumberger closed above this important long-term indicator was August of last year. A pullback before this supply zone is convincingly taken out is probable.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long SLB.

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