McDermott Outperforms Crude Oil; Noble, Tidewater Set New 2016 Lows

Crude oil traded as high as $52.22 a barrel on Oct. 19, then declined by 12.3% since then, putting Texas Tea in correction territory. McDermott (MDR)  is the only one of the five oil services stocks to outperform oil. Meanwhile, Diamond Offshore (DO) , Noble (NE) , Transocean (RIG) and Tidewater (TDW) are mired in bear market territory, down between 31.1% and 86.4% from 2016 highs set between March 4 and June 8.

Diamond Offshore reported earnings on Oct. 31 and beat analysts' estimates, but the stock slipped below its 50-day simple moving average. McDermott reported earnings on Oct. 25 and beat analysts' estimates and the stock moved higher, setting its 2016 high of $5.57 on Oct. 27. Transocean reported earnings on Wednesday and beat estimates with limited share price reaction. Noble reports on Nov. 3 and Tidewater reports on Nov. 17.

Oil is the lifeblood of the U.S. economy. Back in the 1970s, the Arab-Israeli War of 1973 to 1974 and then the oil embargo and long gas lines resulted in the doubling, then quadrupling, of oil prices. That imposed skyrocketing costs on consumers. Lower oil prices today are reversing the oil-induced inflation of the 1970s and early 1980s. Regulators, including the Federal Reserve, should encourage lower oil prices and ensure that the U.S. becomes energy independent.

Here's the weekly chart for Nymex crude oil.

Courtesy of MetaStock Xenith

The weekly chart is negative, with oil below its key weekly moving average of $47.60. The signal calling for an oil glut longer term was the weekly close below the 200-week simple moving average when it was $96.17, during the week of Aug. 22, 2014. The weekly momentum reading is projected to decline to 73.60 this week, down from 79.22 on Oct. 28. Note that the uptrend connecting the weekly lows since the 2016 low of $26.05 during the week of Feb. 12 has been broken to the downside. The horizontal line is my annual pivot of $44.07, which has been a magnet for all of 2016.

Here's the scorecard for crude oil and the five oil services stocks.

 

The weekly chart shows a red line through the price bars, marking the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average, the "reversion to the mean." The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicate overbought and readings below 20.00 indicate oversold. A negative weekly chart shows the stock below its key weekly moving average, with weekly momentum declining below 80.00 in a trend toward 20.00.

Here's the weekly chart for Diamond Offshore.

 

Courtesy of MetaStock Xenith

Diamond Offshore closed Wednesday at $16.48, down 21.9% year to date. It is in bear market territory, 38.3% below its June 8 high of $26.72. The stock is 16.2% above its Jan. 20 low of $14.18.

The weekly chart is neutral, with the stock below its key weekly moving average of $17.32 and well below its 200-week simple moving average of $40.19. The weekly momentum reading is projected to rise to 26.67 this week, up from 24.05 on Oct. 28.

Investors looking to buy weakness should do so at $12.17, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider doing so on strength to $21.75, which is a key level on technical charts until the end of November.

Here's the weekly chart for McDermott.

Courtesy of MetaStock Xenith

McDermott closed Wednesday at $5.19, up 54.9% year to date. It is 6.8% below its Oct. 27 high of $5.57. The stock is in bull market territory, 135.9% above its Jan. 20 low of $2.20. McDermott was an "option on survival" -- a stock trading between $1 and $3 a share -- and it has survived.

The weekly chart is positive, with the stock above its key weekly moving average of $5.15, which targets the 200-week simple moving average of $6.19. The weekly momentum reading is projected to rise to 73.31 this week, up from 70.82 on Oct. 28.

Investors looking to buy McDermott should consider doing so on weakness to $4.95, which is a key level on technical charts until the end of next week. Investors looking to reduce holdings should consider selling strength to $6.48, which is a key level on technical charts until the end of November.

Here's the weekly chart for Noble.

 

Courtesy of MetaStock Xenith

Noble closed Wednesday at $4.65, down 55.9% year to date. It is in bear market territory, 66.5% below its March 7 high of $13.90. The stock is just 0.9% above its Nov. 2 low of $4.61.

The weekly chart is negative, with the stock below its key weekly moving average of $5.69 and well below its 200-week simple moving average of $20.74. The weekly momentum reading is projected to slip to 21.42 this week, down from 24.41 on Oct. 28.

Investors looking to buy Noble should consider doing so on weakness to $3.79, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider doing so if the stock rises to $5.49, which is a key level on technical charts until the end of 2016.

Here's the weekly chart for Transocean.

Courtesy of MetaStock Xenith

Transocean closed Wednesday at $9.29, down 25% year to date. It is in bear market territory, 31.1% below its March 4 high of $13.48. The stock is also in bull market territory, 21.1% above its Feb. 24 low of $7.67.

The weekly chart is neutral, with the stock below its key weekly moving average of $9.96 and well below its 200-week simple moving average of $28.94. The weekly momentum reading is projected to rise to 43.09 this week, up from 39.90 on Oct. 28.

Investors looking to buy Transocean should consider doing so on weakness to $5.74, which is a key level on technical charts until the end of 2016. Investors looking to reduce holdings should consider doing so at $11.90, which is a key level on technical charts until the November.

Here's the weekly chart for Tidewater.

Courtesy of MetaStock Xenith

Tidewater closed Wednesday at $1.57, making the stock an "option on survival." The stock is down 76.2% year to date. It is in bear market territory, 86.4% below its March 7 high of $11.58.

The weekly chart is negative but oversold, with the stock below its key weekly moving average of $2.59 and is well below its 200-week simple moving average of $32.57. The weekly momentum reading is projected to drop to 18.91 this week, down from 22.37 on Oct. 28, falling below the oversold threshold of 20.00.

Investors looking to buy Tidewater should be aware that they are buying this stock as an "option on survival" -- it is trading between $1 and $3 a share. Investors looking to reduce holdings should consider doing so if the stock rises to $5.31, which is a key level on technical charts until the end of 2016.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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