Trading Volatile Oil Services Stocks Is Challenging Even As Crude Oil Futures Set New Multiyear Highs

|
Includes: DO, MDR, NE, RIG
by: Richard Suttmeier
Summary

Nymex crude oil futures have been above their technical ‘reversion to the mean’ since 2018 began.

Diamond Offshore Drilling has been below its ‘reversion to the mean’ since May 2013.

McDermott International has been above its ‘reversion to the mean’ since Nov. 2016, last tested in April.

Noble Corp has been below its ‘reversion to the mean’ since Jan. 2014.

Transocean has been below its ‘reversion to the mean’ since Oct. 2008.

Nymex crude oil futures have been trending higher since setting a multiyear low of $26.05 low of during the week of Feb. 12, 2016.

Here’s a scorecard for oil and the oil services stocks.

Scorecard For Oil & Oil Serices Stocks Diamond Offshore Drilling Inc (NYSE:DO) did not bottom until the week of June 23, 2017 when the stock touched $10.06. Staying above the $10 a share threshold was important as many equity mutual funds cannot buy a stock trading under $10 a share. The stock has a positive weekly chart as it rises towards its 200-week simple moving average, or its ‘reversion to the mean’ of $22.35.

McDermott International Inc (NYSE:MDR) bottomed before crude oil trading as low as $6.29 during the week of Jan. 23, 2015. The stock did not sustain gains above the $10 threshold until the week of March 11, 2016. This stock led crude oil above its 200-week simple moving average, or ‘reversion to the mean’ beginning during the week of Nov. 15, 2016 when the average was $18.28. Investors had the opportunity to buy McDermott on weakness to the ‘reversion to the mean’ at $16.90 during the week of Aug. 25, 2017 and at $16.53 during the week of April 6, 2018. The stock has a positive weekly chart.

Noble Corporation PLC (NYSE:NE) did not bottom until the week of Aug. 25, 2017 when the stock touched $3.14. A problem to stocks trading under $5 a share is that many brokerage firms will not allow you to buy these shares on margin. This makes it difficult to trade except as an ‘option on survival’ where you put up cash to buy the stock where you will accept a total loss. The stock has been below its 200-week simple moving average or its ‘reversion to the mean’ since the week of Jan. 17, 2014 when the average was $32.00. The stock has a positive weekly chart but is well shy of its ‘reversion to the mean’ of $10.22.

Transocean Ltd. (NYSE:RIG) did not bottom until the week of Aug. 18, 2017 when the stock touched $7.20. The stock has been below its 200-week simple moving average since the week of Oct. 10, 2008 when the average was $92.55. Shares of Transocean have been trading back and forth around the $10 threshold since the week of Jan. 22, 2016. This changed in 2018 as crude oil gained momentum. Shares of Transocean have been above the $10 threshold since breaking out above this level on April 10. The weekly chart is positive, which targets the ‘reversion to the mean’ now at $14.45.

Here are the weekly charts for the oil services stocks

Diamond Offshore Drilling

Weekly Chart For Diamond Offshore Courtesy of MetaStock Xenith

The weekly chart for Diamond Offshore is positive with the stock above its five-week modified moving average of $17.79, but below its 200-week simple moving average of $22.35. The 12x3x3 weekly slow stochastic reading ended last week rising to 70.57 up from 64.75 on May 4.

Given this chart, my trading strategy is to buy weakness to my quarterly value level of $15.83 and to reduce holdings on strength to my monthly risky level of $21.86.

McDermott International

Weekly Chart For McDermott Courtesy of MetaStock Xenith

The weekly chart for McDermott is positive with the stock above its five-week modified moving average of $20.33 and above its 200-week simple moving average of $16.44. The 12x3x3 weekly slow stochastic reading rose to 37.50 last week up from 27.76 on May 4.

Given this chart, my trading strategy is to buy weakness to my annual value level is $15.61 and to reduce holdings on strength to my monthly and quarterly risky levels of $23.63 and $25.92, respectively.

Noble Corporation

Weekly Chart For Noble Corp Courtesy of MetaStock Xenith

The weekly chart for Noble Corp is positive with the stock above its five-week modified moving average of $4.55, but well below its 200-week simple moving average of $10.22. The 12x3x3 weekly slow stochastic reading rose to 65.52 last week up from 56.05 on May 4.

Given this chart, my trading strategy is to buy weakness to my weekly value level of $4.31 and reduce holdings on strength to my monthly risky level of $5.42.

Transocean (RIG)

Weekly Chart For Transocean Courtesy of MetaStock Xenith

The weekly chart for Transocean is positive with the stock above its five-week modified moving average of $11.59 and below its 200-week simple moving average of $14.46. The 12x3x3 weekly slow stochastic reading rose to 76.49 last week up from 70.74 on May 4.

Given this chart, my trading strategy is to buy weakness to my semiannual value level of $12.91 and to reduce holdings on strength to my monthly risky level of $13.31.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.