Oil Services Stocks Higher After Halliburton Earnings

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Oil Services Stocks Higher After Halliburton Earnings

Halliburton Company (HAL) gained around 2% in the pre-market session on Monday after topping second-quarter profit predictions by a few pennies and achieving cautious sales expectations. The stock is nearing a nine-year low after the most savage downturn since 2008, fueled by a sector-wide fall that may shortly reach its sixth year despite rising US energy output.

Crude oil deviated from this group in 2017, with West Texas Intermediate (WTI) and Brent futures contracts gaining momentum during the first half of 2018, while the VanEck Vectors Oil Service ETF (OIH) broke 2008 support and dropped to its 18-year low. Sector components have struggled to earn money in recent years, as they have accumulated debt in an environment of increasing interest rates. Bulls are hoping that the current dovish Fed policies would finally signify a long-term bottom.

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The VanEck Vectors Oil Service ETF began a strong climb in 2002, eventually reaching an all-time high of $76.25 in 2008. During the economic downturn, it sank like a rock, reaching a five-year low of $20 in December 2008. In 2010, a powerful rally halted at the.618 Fibonacci retracement level, while a secondary impulse terminated in 2011 at the.786 retracement level. The fund hit that peak in 2014 before plummeting to its 2008 low in 2016.

The 2016 support level was broken in 2018, resulting in a drop into the lower teens and the fund’s first swing low since it began trading in 2001. For the previous seven months, it has been challenging that level while accumulation measurements have risen, suggesting minor bottom fishing. In this price structure, a rebound above the July 1 high of $15.27 might be significant, completing the second leg of a possible double bottom reversal.

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Halliburton’s stock reached new highs in 2008, 2011, and 2014 before stagnating in the mid-$70s ahead of a decline that reintroduced resistance in the mid-$50s a few months later. The first selling wave found support in the mid $20s in 2011 and 2012, resulting in two tests at resistance in 2016, followed by a 2018 slide that broke 2016 support in May 2019. The stock is now trading at its lowest level since June 2010.

The most recent downdraft broke support around the.786 Fibonacci retracement level of the six-year uptrend, increasing the likelihood that the stock will complete a round trip into the low teens in 2008. However, it has been probing the 2010 bottom for the last three months and is now extremely oversold, perhaps providing bulls with a last chance to remount broken support around $27.50 and trigger off a significant buying signal.

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Schlumberger Limited (SLB) remained in place on Friday after exceeding second-quarter profits and sales projections. The highest-capitalized component of the oil services industry peaked at $114.84 in 2007, after a multi-year upswing, then reversed in 2014 after reaching that high by just four points. The ensuing collapse occurred in two large sell-off waves, reaching the 2009 bottom of $35.05 in December 2018.

The 2019 rebound reached a five-month high in April, paving the door for further weakness that undercut the previous low in May. Since then, the stock has gained ground, although accumulation gauges have risen little. However, there isn’t much to do in this range-bound pattern unless an upswing reaches the April high of $48.88, signaling a buying opportunity, or a downturn breaches the May low of $34.46, exposing a trip into the upper $20s.

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The Bottom Line

The positive earnings report from Halliburton has generated a tiny rise in the oil services industry, but tremendous purchasing power will be required to halt the savage five-year slump.

Disclosure: At the time of publishing, the author had no investments in the aforementioned securities.

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