Shares of oil services stocks Diamond Offshore, McDermott, Noble Corp. (NE) and Transocean (RIG) have outperformed Nymex Crude Oil since setting their lows since the presidential election. At the same time, these stocks have drastically underperformed oil since setting their postelection highs. The significant volatility for the oil services stocks makes the technical charts extremely important to track.
In my analysis, you will observe technical warnings for both oil and these stocks. Let’s start with Nymex Crude Oil.
Crude oil closed Monday at $56.77, up 5.7% year-to-date and in bull market territory, 34.5% above its postelection low of $42.20 set on Nov. 14, 2016. Oil has been above a “golden cross” since Oct. 23 when it closed at $51.90. A golden cross occurs when the 50-day simple moving average rises above the 200-day simple moving average, indicating that higher prices lie ahead. The postelection high of $57.92 was set on Nov. 8. This day was a “key reversal” as the close on Nov. 8 was $56.81, below the low of Nov. 7, which was $56.83. This negates the golden cross, locking in a gain of 9.5%.
Nymex Crude Oil
The weekly chart for crude oil is positive but overbought with oil above its five-week modified moving average of $53.55. Note how strength has been shy of its 200-week simple moving average, which is considered the “reversion to the mean”. Oil has been below its 200-week simple moving average since the week of Aug. 22, 2014 when the average was $96.17. Today this average is $58.63. The 12x3x3 weekly slow stochastic reading is projected to rise to 89.52 this week, up from 88.05 on Nov. 10, which is well above the overbought threshold of 80.00.
Given this chart and analysis, my trading strategy is to buy weakness to my quarterly and monthly value levels of $49.17 and $46.82, respectively, and to reduce holdings on strength to the 200-week simple moving average of $58.63.
Here’s a scorecard for oil, the four oil services stocks, followed by their weekly charts
Diamond Offshore (DO) is in bear market territory, 25.9% below its postelection high of $22.65 set on Dec. 12. The stock is in bull market territory, 66.3% above its July 10 low of $10.09.
The weekly chart for Diamond Offshore crude oil is positive but overbought with the stock above its five-week modified moving average of $15.52. The stock is well below its 200-week simple moving average on $26.33, which is considered the “reversion to the mean.” The 12x3x3 weekly slow stochastic reading is projected to end the week at 88.18, well above the overbought threshold of 80.00.
Given this chart and analysis, my trading strategy is to reduce holdings on strength to my quarterly risky level of $18.04, which was nearly tested at the Nov. 10 high of $17.95.
McDermott (MDR) is down 9.7% since setting its postelection high of $8.33, set on Jan. 25. The stock is in bull market territory 51.6% above its Nov. 9, 2016 low of $4.96.
Courtesy of MetaStock XenithThe weekly chart for McDermott is positive with the stock above its five-week modified moving average of $7.05. McDermott has been above its 200-week simple moving average of $5.55 since the week of Nov. 25, 2016, which is considered the reversion to the mean, then at $6.09. The 12x3x3 weekly slow stochastic reading is projected to end the week at 73.68, up from 66.81 on Nov. 10.
Given this chart and analysis, my trading strategy is to buy weakness to my monthly and semiannual value levels of $5.99 and $4.14, respectively, and to reduce holdings on strength to my quarterly risky level of $7.55, which failed to hold following a high of $7.85 on Nov. 10.
Noble Corp. (NE) is in bear market territory, 47.9% below its postelection high of $8.37 set on Dec. 12. The stock is in bull market territory, 38.9% above its Aug. 23 low of $3.14.
The weekly chart for Noble is positive with the stock above its five-week modified moving average of $4.16. The stock is well below its 200-week simple moving average on $13.10, which is considered the reversion to the mean. The 12x3x3 weekly slow stochastic reading is projected to end the week at 63.92, up from 58.45 on Nov. 10.
Given this chart and analysis, my trading strategy is to buy weakness to my quarterly value level of $2.51, and to reduce holdings on strength to my weekly risky level of $4.47, which failed to hold on Monday.
Transocean (RIG) is in bear market territory, 32.5% below its postelection high of $16.66 set on Dec. 12. The stock is in bull market territory, 56.3% above its Aug. 18 low of $7.20.
The weekly chart for Transocean is positive but overbought with the stock above its five-week modified moving average of $10.54. The stock is well below its 200-week simple moving average of $18.42, which is considered the reversion to the mean. The 12x3x3 weekly slow stochastic reading is projected to end the week at 84.66, well above the overbought threshold of 80.00.
Given this chart and analysis, my trading strategy is to buy weakness to my quarterly value level of $9.53, and to reduce holdings on strength to my weekly risky level of $12.00.
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