Schlumberger May Stop Slumbering

 | Aug 14, 2017 | 9:12 AM EDT
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Early bottoming signals are showing up on Schlumberger Ltd.  (SLB)  as prices test their early 2016 lows. It is not unusual for buying support to appear or develop around a previous low as traders and the markets have a memory. Let's check the charts and indicators to see if we want to probe the long side here or be a bit more patient before looking to accumulate a long position.

In this daily bar chart of SLB updated through Friday, below, we can see that prices are below the declining 50-day simple moving average line as well as the slower-to-react 200-day moving average line. Mathematically the trend is down, but that is not how we spot turning points. The volume of trading has been heavier since late April than earlier in the year. Heavier volume at what could be the end of a decline tells you two things. First that sellers have been active is dumping shares and it also tells you that someone else has been a little less active in absorbing or buying shares. If buyers were not stepping up to buy on weakness the price of SLB would be even lower.

The On-Balance-Volume (OBV) line has been declining the past 12 months, telling us that sellers of SLB have been more aggressive. However, prices recently made a new low and the OBV line did not confirm it with its own new low. The next indicator is key. In the lower panel is the 12-day price momentum study, which has made higher lows since early May versus lower lows in price. This is a bullish divergence, which tells us that the pace of the decline has slowed since early May. This is a positive sign and can foreshadow that an upside reversal may be coming. It is a leading indicator, though not a precise one with cut-and-dry buy-and-sell rules.

In this next chart of SLB we used Japanese candlesticks, a three-century-old technique that highlights the relationship of the opening and the closing price. Rice futures traders started using this method of charting back in the 1740s; no, that is not a typo. The red candles are days when the close is lower than the opening and the white or empty candles are when the close is higher than the opening. These patterns are quick-turning and are best at spotting reversals. The pattern or bar for this past Friday is called an "inverted hammer" and can mark a low. There patterns cannot be viewed isolation -- a trend is first needed so we have something to reverse and then the proper-looking pattern followed by a confirmation pattern. In this case, we would like to see a bullish candle today (Monday) to show that prices are trying to turn up and reverse the recent downtrend.

In this weekly bar chart of SLB, below, we see mostly bearish indicators. Prices are below the declining 40-week moving average line. Prices are testing the lows made in January 2016 in the $65-$60 area. This area stopped the last decline and traders and investors might react the same way again. The weekly OBV line is pointed down, so this indicator is not (yet) showing signs of accumulation. On the positive side is the Moving Average Convergence Divergence (MACD) oscillator, which shows the two moving averages that make up this indicator narrowing to a potential bullish crossover. A crossover below the zero line is considered a cover-shorts buy signal.

Bottom line: The bullish divergence between price and momentum has gone on for over three months. A potentially bullish candlestick pattern adds to the mix. A bullish candle pattern today, Monday, would "confirm" the inverted hammer and could be a bottom reversal. Aggressive traders could probe the long side of SLB on a higher close today provided they use a reasonable stop-loss.

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