Schlumberger Beats Earnings Estimates, but Stock Fails to Energize

Schlumberger N.V. (SLB) is the world's largest oilfield services company and operates in 85 countries. The oil giant beat earnings expectations before the opening bell on Friday, July 19. The stock opened higher but then slipped lower, establishing a trading range around its 50-day simple moving average at $38.11.

The company is a proxy for the market for crude oil around the world. Analysts expect a balanced market for oil for the second half of the year given trade war fears and geopolitical tensions around the globe. In the United States, Schlumberger indicates that the shale boom is stalling as explorers cut spending and decrease drilling activity.

Schlumberger shares closed the first half of 2019 at $39.74 on June 28, which became a key input to my proprietary analytics. The only level left over from the first half is its annual risky level at $51.25. There are semiannual and monthly value levels at $35.72 and $30.88, respectively, with a quarterly risky level at $42.83. The daily chart shows the stock below a "death cross," with a weekly chart poised for a downgrade to neutral.

Fundamentally, Schlumberger has an elevated P/E ratio of 24.92 but has a generous dividend yield of 5.18%, according to Macrotrends.

The daily chart for Schlumberger

Schlumberger has been below a "death cross" since Aug. 3, 2018, when the 50-day simple moving average fell below the 200-day simple moving average, indicating that lower prices lie ahead. This negative led the stock to its 52-week low of $34,46 on May 31.

The 50-day and 200-day simple moving averages are now at $38.11 and $43.90, respectively. The horizontal lines are the second half 2019 value level at $35.72, the third quarter risky level at $42.83, and the annual risky level at $51.25. The value level for July is below the chart at $30.88.

The weekly chart for Schlumberger

The weekly chart for Schlumberger will be downgraded to neutral if the stock closes Friday, July 19, below its five-week modified moving average of $39.10. The stock is well below its 200-week simple moving average, or "reversion to the mean," at $66.41. The 12 x 3 x 3 weekly slow stochastic reading is projected to rise to 33.93 this week, up from 29.18 on July 12. At the beginning of the year, this reading was 4.87 as an indication of a stock that was "too cheap to ignore."

Trading strategy: Buy Schlumberger shares on weakness to the semiannual and monthly value levels at $35.72 and $30.88, respectively, and reduce holdings on strength to the quarterly and annual risky levels at $42.83 and $51.25, respectively.

How to use my value levels and risky levels: Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual, and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play. The weekly level changes each week. The monthly level was changed at the end of each month, most recently on June 28. The quarterly level was also changed at the end of June.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.

How to use 12 x 3 x 3 weekly slow stochastic readings: My choice of using 12 x 3 x 3 weekly slow stochastic readings was based upon backtesting many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows, and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading, and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00, with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently, I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble," as a bubble always pops. I also refer to a reading below 10.00 as "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.