Technicals Are Weakening for Oil-Service Stocks

NEW YORK (TheStreet) -- The technical patterns for stocks of companies in the oil-services industry are largely negative, even though eight of the 10 oil-service companies profiled here beat analysts' earnings-per-share estimates for the second quarter.

Six of the stocks have double-digit gains year to date, and four have double-digit losses.

Before profiling the specific stocks, let’s take a look at the daily chart for the front- month Nymex crude oil contract.

8 Stocks George Soros Is Buying in 2014

Courtesy of MetaStock Xenith

Crude oil ended 2013 at $98.42 and closed Wednesday at $97.38, down 1% year to date. As the chart shows crude oil is below its 21-day, 50-day and 200-day simple moving averages at $100.06, $102.62 and $99.77, respectively.

The year-to-date range is from $91.24 on Jan. 9 to $107.68 on June 13. The high was a test of an annual risky level at $107.52.

You can take a look at the weekly chart for crude oil in my Aug. 7 post. Chevron (CVX) and Exxon Mobil (XOM) show how crude oil has been trading back and forth around its 200-week simple moving average at $96.11 as the long-term reversion to the mean.

Put another way increased supply and reduced demand in a sluggish economy have offset the geopolitical risks in Iraq, Israel and Ukraine.

Gold Demand Shrinks a Year After the Infamous Market Collapse

Here are the post-earnings profiles for the 10 companies. Two “crunching the numbers” tables follow.

The biggest year-to-date winner is Nabors (NBR) ($26.84) with a gain of 58%. In second place is Weatherford International (WFT) ($22.04), which is up 42% year to date.

The biggest loser is Transocean (RIG) ($38.59) with a year-to-date loss of 22%. This stock is the cheapest fundamentally with a 12-month trailing price-to-earnings ratio of 7.9 and dividend yield of 7.7%.

Note the sea of red in the five moving averages in the first “crunching the numbers” table. Only Halliburton (HAL) ($69.54) and National Oilwell (NOV) ($82.22) are above their five-week modified moving averages at $69.11 and $81.60, respectively.

Because all 10 stocks have declining 12x3x3 weekly slow stochastics, Halliburton and National Oilwell will join the other eight with negative weekly charts, given closes this week below $69.11 and $81.60, respectively.

Diamond Offshore DO ($44.65); Transocean and Tidewater (TDW) (49.47) are the only stocks below their 200-week simple moving averages at $60.46, $52.49 and $52.19, respectively.

The second “crunching the numbers” table shows that eight of the 10 oil-services stocks beat analysts' EPS estimates. Only Halliburton and Tidewater missed estimates.

Here’s a brief trading summary for each stock focusing on volatility since June 30.

Baker Hughes (BHI) ($68.90) began the second half of the year at $74.45 and set a multiyear intraday high at $75.64 on July 2. The semiannual risky level at $70.46 was a value level as the second half of the year began and failed to hold on July 31 to become a risky level.

Yahoo! Remains Best Way to Play Alibaba IPO

Diamond Offshore began the second half of the year at $48.85 and traded as high as $49.69 on July 23. None of the levels in the second table has been tested.

Halliburton began the second half of the year at $71.01 and set an all-time intraday high at $74.33 on July 23. The quarterly risky level at $69.91 began the second half as a pivot, and the low of $66.77 on Aug. 5 tested the semiannual value level at $67.61.

Nabors began the second half of the year at $29.37 and set a multiyear intraday high at $30.24 on July 3, before going a low as $25.44 on Aug. 1. None of the levels in the second table has been tested.

National Oilwell began the second half of the year at $82.35, and traded at an all-time intraday high of $86.41 on July 24. The semiannual risky level of $82.99 was a pivot as the third quarter began. The low at $80.30 on Aug. 1 was a test of the 50-day SMA on that day.

Oceaneering (OII) ($68.04) began the second half of the year at $78.13 and traded as high as $79.05 on July 1. It then reversed direction, trading as low as $66.96 on Aug. 7. The annual risky level of $73.17 began the third quarterly as a value level that became a pivot between July 11 and July 23, which failed to hold on July 24.

Transocean began the second half of the year with a failed test of its 200-day SMA of $45.06, and fell as low as $38.01 on Aug. 7. None of the levels in the second table has been tested.

Schlumberger (SLB) ($107.62) began the second half of the year at $117.95, and set an all-time intraday high at $118.76 on July 1. It then fell as low as $106.30 on Aug. 6. The semiannual risky level and quarterly pivot at $110.25 and $107.96, respectively, were value levels as the third quarter began.

Tidewater began the second half of the year at $56.15 and traded as high as $56.51 on July 1. The stock gapped below its 200-day SMA at $53.95 on July 7, and fell as low as $46.23 on Aug. 6. The high was between semiannual and annual risky levels of $54.16 and $56.93, respectively.

Weatherford began the second half of the year at $23, and went as low as $21.71 on July 11. It then traded at a multiyear intraday high at $24.88 on July 24. The stock fell as low as $21.19 on Aug. 7. The high was a test of the annual risky level of $24.10 and the low has been above the semiannual pivot of $21.06.    

Crunching the Numbers with Richard Suttmeier: Moving Averages & Stochastics

This table provides the technical status for the stocks profiled in today's report.

The table also shows its 12-month forward price to earnings ratio and dividend yield.

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: (stocks below a moving average listed in Red are below that moving average)

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three- to five-year horizon.

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon.

Crunching the Numbers with Richard Suttmeier: Earnings & Where to Buy & Where to Sell

This table shows the date the company reported quarterly results, the earnings per share and the beat or miss.

The table then presents the levels at which to buy on weakness and where to sell on strength.

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

TheStreet Ratings team rates WEATHERFORD INTL PLC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate WEATHERFORD INTL PLC (WFT) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, WFT's share price has jumped by 48.60%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • Net operating cash flow has significantly increased by 72.61% to $435.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 27.13%.
  • WEATHERFORD INTL PLC's earnings per share declined by 26.7% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, WEATHERFORD INTL PLC continued to lose money by earning -$0.44 versus -$1.02 in the prior year.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Energy Equipment & Services industry and the overall market, WEATHERFORD INTL PLC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Energy Equipment & Services industry. The net income has decreased by 22.9% when compared to the same quarter one year ago, dropping from -$118.00 million to -$145.00 million.

Richard Suttmeier is the chief market strategist at ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com

More from Opinion

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Attention 60 Minutes: Google Isn't the Only Big-Tech Monopoly

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Amazon's Assault on Grocery Stores Will Have a Profound Impact on Many

Amazon's Assault on Grocery Stores Will Have a Profound Impact on Many

It's Dumb to Think There Aren't Already Monopolies in Big Tech

It's Dumb to Think There Aren't Already Monopolies in Big Tech

Google's EU Battles Are Hardly a Reason to Panic

Google's EU Battles Are Hardly a Reason to Panic