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Schlumberger (NYSE: SLB) appeared on my bearish scan last night along with several other oil and energy names. The daily scans are set up to alert me to stocks whose daily indicators meet certain criteria. Having Schlumberger appear on the bearish list can be explained by the overbought levels of the slow stochastic readings and the 10-day RSI.
Once I started looking at the chart, I could see the trend channel that has developed over the last five months. The start of the trend coincides with the gap lower at the end of November. With the stock hitting the upper rail of the channel, you should be cautious about going long at this point in time.
Turning our attention to the weekly chart, we get more ammunition for a bearish argument. The stock is hitting potential resistance at its 52-week moving average, weekly stochastic readings are in overbought territory and have just made a bearish crossover, and we see that the stock broke below the lower rail of a trend channel back in November.
As someone who tends to focus on short- to intermediate-term trading opportunities, it is rare that I look at a monthly chart, but I did look at the monthly chart for Schlumberger and it told a little different story than the daily and weekly charts. We see a third different trend channel, and the stock bounced off of the lower rail at the beginning of the year.
Instead of seeing oscillators that are in overbought territory, we see slow stochastic readings that have just come out of oversold territory and experienced a bullish crossover.
So how do potential Schlumberger investors play the stock at this point in time? I would say you look at the chart that most closely depicts your investment time horizon. If you are a short-term trader who doesn’t want to be in a stock for more than a few days or weeks, you could make a short-term bearish play on the stock. Or you could wait until it gets to the lower rail of the trend channel on the daily chart.
Personally, I don’t like shorting stocks in upward sloped channels, even if it is hitting the upper rail of the channel. The channel is still upwardly sloped.
If you are more of an intermediate-term investor, you could make a bearish play with the 52-week moving average acting as a stop-loss point. The stock could drop around 13% to 14% before it would hit the lower rail of the channel on the monthly chart.
If you are a long-term investor who is looking for a stock to hold for a few years and you aren’t trying to make a perfectly timed entry, Schlumberger looks like a good bullish play. The last time the stock saw its slow stochastic readings make a bullish crossover and come out of oversold territory was in the spring of 2009. The stock rose over 150% over the next couple of years before the oscillators reached overbought levels.
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