Earnings season kicked off with the banks earlier this week and now energy stocks are entering the fray, with Schlumberger (SLB) - Get Report hitting in the lead-off spot. The company is scheduled to report its fourth-quarter results on Friday before the stock market opens.
The stock has been enjoying its run, rallying 36% from its October lows to its recent high on Jan. 3.
However, the stock lately has been struggling. While that may be frustrating for investors - particularly as the S&P 500 continues its march higher - it’s actually a good thing for bulls.
When a stock surges into earnings, then reports anything short of a stellar result, the stock is oftentimes set up for failure. Just look at Bank of America (BAC) - Get Report. Shares rallied hard over the last few months and into earnings. Despite a top- and bottom-line beat, the stock fell on Wednesday.
Schlumberger is up slightly on Thursday, but not enough to undo the last few weeks of struggles. Let’s look at the charts to examine a few key levels.
Trading Schlumberger Stock
At current levels, Schlumberger is down about 6% from this month’s high. On the plus side, that makes expectations more manageable ahead of earnings and doesn't elevate expectations to unrealistic levels.
That said, just because Schlumberger is in retreat doesn't mean that it will rally on the numbers.
On the downside, shares have fallen back below the key $40 level, which has played a notable role of support and resistance over the past 12 months. Further, short-term momentum has clearly waned, with shares below the 20-day moving average.
Schlumberger’s longer-term trends are still in place. For instance, the stock is just above uptrend support (blue line) and the 50-day moving average. If earnings weren’t due up in less than a day, this would be a reasonable level to buy the stock. For some long-term investors, it may still be a reasonable level to nibble. For traders though, it’s best to wait for the company to report.
What’s the play? No matter what the initial reaction is, bulls need to see the 50-day moving average and uptrend support hold. Below and it puts key support near $36.50 on the table. There it will find the 61.8% retracement for the 52-week range, as well as the 200-day moving average. Below this level thrusts Schlumberger into no man’s land.
On a rally, see how it handles $40. If SLB can’t reclaim this mark, then we need uptrend support hold up in the coming days. Over the key $40 mark though and the January high is on the table; above that and Schlumberger stock can gain momentum.