Don't Ignore This Chart!

Schlumberger (SLB) Writes Off $12.7 Billion


Schlumberger (SLB) has been down and out for a long time. The management team wrote down $12.7B in goodwill and other charges this month. For technicians, the actual science of that write-off is not as important as what investors think of the write-off. If that moves investors out of the stock, that would be a problem. Interestingly enough, Schlumberger is up 8% on the week, so that makes me more interested. The yield is almost 6%, so that's nice!

Oil is at one-month highs, so the short-term base seems to be building. That is also bullish. After the price of oil did not hold up when the Saudi oilfields were attacked by drones, it looked dire. Oil inventories were able to handle the sudden shock, but now comes the long-term effects of flat production growth in the USA, as well as 5 million barrels/day of capacity still offline. Wrap that with Iran, Turkey, Iraq, Venezuela, Syria and the trapped Canadian oil and this might generate a nice fourth quarter surge and some meaningful upside to oil.

As ocean-bound freight is finally, begrudgingly moving to diesel from bunker fuel, that tightens up demand for an already-demanding part of the barrel of oil. Thus, the management teams are making desperate decisions as oil prices stabilize near the $50 level, the supply factors are diminish and demand accelerates for more refined product.

We saw a similar setup when oil fell to $25 in late 2015/early 2016 as commodity companies were thrashing staff levels.

The bottom of Schlumberger sits 60% off the five year high. For me, a break in the PPO trend line on both SLB and USO would suggest that this could be a major point of inflection! Don't Ignore This Chart!

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Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
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