NOV daily and weekly chart. National Oilwell Varco posted a big day on Friday up 3% on twice the average volume crossing above the 200sma and 50sma on the same day. The $73-$75 level has seen heavy accumulation in recent weeks. Clearly there is a lot of demand at that level. This past week there was large option activity in the name. Someone bought 11,000 August $80 calls for $2.54. Someone also bought 21,800 May $80 calls for $1.23. Both trades trounced the open interest for each particular strike/expiration. Following unusual option activity can give you a leg up on the rest of the investing population. It can indicate where the “smart money” is placing its bets and can give you more confidence in tagging along for the ride. The weekly chart clearly shows a triple top at $85. The question is whether NOV has enough steam this time to revisit it and break through. The positive money flows shown by the CMF and OBV along with the signs in the option market tell me it’s poised to post new highs in the coming weeks/months. On top of all this, National Oilwell is a good company. A leader in the oilfield services space with a cheap valuation. It trades at 11x forward earnings and has a EV/EBITDA multiple of 7.6x. Net debt is essentially zero. The first chart is the daily, the second is the weekly.
SWN weekly chart. Southwestern Energy has been consolidating in a rectangle pattern between $35 and $40 since February 2013. The play here is to watch for a break above $40 on heavy volume to go long. The target price on a breakout is $45 – the height of the rectangle ($5) added to the top of the rectangle ($40). SWN is a major natural gas player primarily in the Fayetteville Shale (86% of production). The company also has production in the Marcellus Shale and East Texas. 33% of 2014 CAPEX is going towards Marcellus development and 39% towards the Fayetteville. SWN is one of the lowest cost producers with lifting cost of $1 per Mcf and Finding & Development cost of $1.50 per Mcf. The company has a market cap of $13.5 billion and conservative debt load of $1.9 billion. The company’s EV/EBITDA is 7.6x and forward earnings multiple is 18.2x.
OAS daily chart. OAS printed a nice hammer on Friday (12/13) on average volume (2.2mm shares). I would have like to seen more volume for me to get really excited. The stock has been under pressure since mid-October along with all of the other Bakken focused producers. Pull up a chart of WLL, CLR, KOG – they all look the same. And all of the other oily producers have been under pressure as well – PXD, EOG, CXO, LPI to name a few. Oasis Petroleum is off 23% from the highs. MACD is about to have a bullish crossover. RSI is at ~40 and looks like a bottom may have been put in earlier in the week. What’s changed so much that OAS along with others have sold off for two months straight? In mid-October WTI was at $100-102, this past week spot WTI traded between $96-98, big deal right? Taper talk has dominated the conversation this Fall, and if the Fed starts to reduce bond purchases, that should help the dollar, which would crimp commodity prices – the market prices assets based on expectations. Fear and greed sentiment dominates. Crude oil prices could certainly drift lower, in my mind the market is expecting this and has priced crude oil producers as such. Could these stocks move lower if crude oil moves lower? Certainly, but we cannot predict what oil prices will do, nor the Fed and must do our technical homework. Keep close watch on price action and volume on fundamentally sound companies. Opportunities present themselves amidst uncertainty. OAS interests me because fundamentally the stock is not expensive at 12x next years earnings on a $4.2 billion market cap. $2.4 billion in debt. Earlier this month the company priced a 7mm share secondary (~7% of outstanding shares) at $45.15. The company plans to use the money to repay some debt and for “general corporate purposes”. OAS is a Bakken and Three Forks pure play with 492,000 net acres. 91% operated and 86% held by production.
WFT daily and weekly charts. Weatherford reported earnings earlier in the week beating estimates on the bottom line and slightly missing on the top line. The stock rallied from $16.46 before earnings to closing at $16.95 on over 3x average volume following the earnings call. WFT held nicely throughout the rest of the week and now sits at $17.07. My main takeaways from the call: margins across all geographic segments are improving, the remediation of accounting issues is on track to be finalized by year end, the company plans on divesting non-core businesses over the next 12 months that account for $1.2B in revenue next year, and plans on paying down $3-5B in debt by the end of 2015. Included in the divestment program is a spinoff of the international land rig business in Q4 of 2014. Bernard Duroc-Danner (CEO) stated the company no longer needs rigs as an entry into performing other service work for clients. The conference call, similar to the Q2 call, had a focused tone, was well-organized, and management delivered specific answers to analyst questions. The company also named Krishna Shivram CFO, who has over 25 years in operational and financial experience previously at Schlumberger, and promoted Dharmesh Mehta to COO to replace the retiring Peter Fontana. In summary, Weatherford is slowly but surely gaining back the trust of investors. The stock continues to be cheap trading at 0.8x sales and 13.3x forward earnings. SLB trades at 2.7x sales and 16.0x forward earnings, HAL 1.6x and 13.1x, BHI 1.1x and 13.7x. The daily chart is strong. Chalkin money flow has been positive since mid August indicating strong accumulation. On balance volume is in an uptrend. RSI not yet extended at 66. Something to note on the weekly chart is the bottoming out of on balance volume and gradual turn higher.
NBL daily chart. I wrote about NBL on 8.10.2013 when the stock was at $64. This company offers great exposure to the Wattenberg Field in Colorado where they are drilling into the Niobrara and Codell formations. NBL also has significant exposure to the Marcellus shale. After “channel surfing” for several months NBL broke out a few weeks ago and after good earnings last week the stock’s last print is $76.51. It’s extended at this point outside the upper Bollinger Band and the RSI over 75. Volume on this breakout is very impressive, indicative of strength and that higher prices should be on the way. In any event, I’d wait for a pullback between $73 and $75 before taking a swing. The stock is reasonably cheap on a forward earnings basis at 18x and a PEG ratio of 1.5. Not a bargain, but not expensive. Market cap of $27.5B.
WLL daily chart. I wrote about WLL on 8.10.2013 when the stock was at $51. The stock has since been very strong trading along the upper Bollinger Band for the last two months. A strong earnings report last week has validated that move and elevated volume on this breakout is indicative higher prices should be on the way. Like Noble, I’d still wait on a pullback to the $66-67 level before pulling the trigger. One concerning thing is the RSI, it has made lower highs while the stock has gone from $65 to $69. Keep an eye on that. The spinning top candle on Friday (10/25) is a sign of indecision on where the market wants to take this stock in the near term. Whiting is a major player in the Bakken at a cheap valuation compared to peers, trading at 5.9x EV/EBITDA vs. Continental (CLR) at 11.5x. It also has exposure to the Niobrara. On the earnings call last week the company highlighted downspacing (decreasing the space between wells) in the Bakken and improved completion techniques. Market cap of $8.2 billion, Enterprise Value of 10.0 billion.
WFT daily chart. Weatherford continues to execute the fundamentals of a well-behaved stock. It isn’t erratic, doesn’t overheat the RSI, it stair-steps up, pulls back to the 20dma, rinse and repeat. I have written about this name a lot, and this post is simply an updated look at the chart. The company reports earnings on 11/4 after the close, and the conference call will follow the next morning. I plan on listening to the call and will post thoughts afterwards. I have positive feelings going into earnings for WFT due to how most other service companies have posted good quarters and traded to the upside.
NOV weekly chart. I wrote about NOV on 9.8.2013 when the stock had broken above $74 resistance trading at $78 and I thought it was headed to $85. After earnings last week the stock is at $82.72 about to challenge long term resistance at the $85 level. NOV traded up 4.5% on Friday (10/25) on 2x average volume. It created a beautiful hammer candle with good volume on the weekly as noted in the chart below. The company slightly beat expectations on the top and bottom line, but the real takeaway was margins inched up to 23.8% from 23.6% in Q2 indicating they had finally bottomed – I think that’s why the stock reacted the way it did on Friday. I talked about the margin issue in a post on 7.30.2013. The question is whether NOV has legs to take out $85…well looking at the solid volume and hammer candle it’s off to a good start. This week will be critical. If volume can continue to build and price stays roughly flat to higher, I’d say it has built enough cause for a break of $85. Pay close attention in the coming days.