Companies that provide equipment and services to the oil and gas industry don’t track the price of oil precisely, but they are typically positively correlated. The sharp rise in crude oil off the $44/$43 support area on Nov. 15 gives traders another opportunity to look for buying opportunities within the oil and gas sector. Here are three stocks that warrant paying attention to.
Schlumberger Ltd. (SLB) rallied off its January low of $59.60 but has been moving sideways below resistance in the $84 region since summer.
In October, the stock pulled back to test a rising trendline, near $77, in play since May. On Nov. 15 the price rallied aggressively off the trendline, closing at $81.16. The rally off trendline support, coupled with the move higher in crude oil, indicates the stock is moving to test the $84 resistance area. A rally above the Oct. 19 high of $84.30 indicates a major wave higher is underway, with a target at $95 to $96. That target is projected based on the price range since May, added to the breakout price. On the flip side, a drop below the Sept. 27 intraday low of $74.33 would be a warning sign of weakness, indicating a drop toward support near $72.
FMC Technologies, Inc. (FTI) rallied early in the year, pulled back in May through July, but has been rallying again since August. Overhead there is minor resistance at $36 from late 2015. That should give way as the uptrend unfolds, but could temporarily stall the advance. Despite the current strength of the stock, instead of buying it at a 2016 high, wait for a pullback toward trendline support near $30.50. This provides a lower entry price than the Nov. 15 close of $35.40. Also, a stop loss can be placed below the trendline, around $28, to keep risk contained. Based on the recent rallies, once a pullback occurs the price is projected to move into the $39 area. From a longer-term perspective, there are currently no major warnings of weakness, unless the price falls back below the September swing low of $27.12.
Superior Energy Services, Inc. (SPN) has been moving in a sideways range since July, following a strong rally earlier in the year. Range support near $14 provides a buying opportunity based on the recent price action. Stop loss orders can be placed below the November swing low of $13.67. The short-term upside target is $19, just below range resistance. Over the longer-term, the price is expected to move above range resistance as the uptrend continues. That move higher could take the price into the $24 to $25 region, based on the height of the range added to the breakout price. A slight drop below $13.67 isn’t a cause for concern, although a drop below $13 would indicate the potential for a further slide. A minor pullback is required to enter the trade in the $15 to $14 region. This entry area provides a better risk/reward than entering at a higher price.
The Bottom Line
These service and equipment companies for the oil and gas industry are setting up well for higher prices over the longer-term. These stocks provide favorable risk/reward ratios if buying near support. Superior Energy and Schlumberger are still relatively close to support, while traders will be waiting for a pullback in FMC. While these stocks don’t move exactly in sync with the price of oil, ultimately their uptrends rely on increasing oil prices. A break lower in the price oil price could see these stocks break below support levels as well.
Disclosure: The author doesn’t have positions in the stocks mentioned.
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