Schlumberger & Halliburton, A Double Tap to Oil & Gas?

     Tweets just don't give enough characters for an intelligent one-liner, let alone a detailed review of a topic like the 2015 Q3 earnings for Schlumberger (SLB) and Halliburton (HAL).  These are admittedly two well-run companies (no pun intended) in the Oil & Gas sector, but are suffering from the decline in commodity prices of the products they service.  Thursday, after market close, SLB posted financial numbers indicating that they beat by one cent per share on earnings, but missed on revenue.  This is definitely a testament to the quality of the management at SLB because they suffered greatly on revenue, but still managed to keep costs down to a level where they beat the estimates, if only by one cent per share, but ALSO managed to maintain a share buyback program as maximum allowable amounts, lowered long term debt, and negotiated an acquisition of another company to compliment their own corporate offerings long into the future (Cameron International - CAM).

    With all this going for SLB, what could possibly go wrong?  Well, for starters, in that same set of numbers, and confirmed by the phone conference Friday morning, SLB is lowering guidance well into the future.  They will have to, by law, stop their share buy-back until after the CAM shareholder vote; currently the next annual meeting is May 6 of 2016, so saying that the merger will be completed in Q1 of 2016 when the next scheduled vote is in Q2 of 2016 seems odd.  Clearly, there will need to be a hasty shareholder meeting put together if SLB's timeline is to be kept.

    Where SLB is concerned, their report and their history shows a progressive decline in revenue.  That sits at the heart of their problems right now.  HAL is due to report Monday morning, releasing numbers at 7:30 AM EDST and their conference call is at 8:30 AM EDST.  Analysts have already cut expectations for Oil & Gas companies based on the depressed prices for the commodity.  SLB managed to beat on earnings via a skilled use of cost control, but their revenues were a miss.  If HAL reports a similar miss on revenue and a similar dark outlook for O&G services then the entire sector will likely take a hit in the near term.  If HAL manages to beat on revenue then it will say a lot about SLB's report.  If SLB is reporting deteriorating revenue and HAL is improving or at least not deteriorating then we will likely know where SLB's revenue has gone...   From AMD to INTC.  

That's right, I'm saying it.  If HAL beats on revenues after the report and guidance we got from SLB on Friday then it likely means that SLB is losing market share.  Let me be clear in stating that I do not expect this, but we won't know HAL's numbers until they are published.  If HAL shows similar numbers both top and bottom line but has a more optimistic outlook, then it's probably just optimism.  Whether that optimism is well placed, only the passage of time and proven results, or the lack thereof, will be able to tell us.

From a chart perspective, I see HAL looking a bit bearish:

The Fibonacci retract in the downward direction seems to be consistent with a reversal from the long term bullish trend HAL has enjoyed for the last few years.  Further, there is the look of a possible Head and Shoulders pattern in that monthly chart.  The knowledge of a glut of oil and increasing reports of well shut downs and cutbacks, only further supports the notion of this being a bearish pattern worthy of careful consideration.  If you're long this stock, or any other on the O&G services sector, then I recommend either taking some profits or hedging with some Put options to cover your position.

When I look at the 10 year monthly chart for SLB:

I definitely see the Head and Shoulders pattern, but I also see that the retrace on the run-up from early 2009 has hit the 63% marker, and is currently a little over it.  If it breaks below this, then the H&S will be confirmed and SLB will likely see mid to low $50's before it's over.

If we look at the near term chart for CAM, the company being acquired by SLB we might get a feel for what is being anticipated by the share holders there.

    This seemingly bullish consolidation looks pretty good except for the hanging man candle from Friday.  High volume, but no movement and the price is at a peak.  This means that someone, or several, are selling at a pace that is overcoming the growth in price for this stock.  As a company, they seem well managed, feel free to review any of the analysts' reports on CAM, but to me, they look like a healthy company with a stock about to get a temporary knock-down.  The gap-up from the news of the buy-out will likely need to be covered in a retrace before this stock moves much higher.  I'd say wait for a better price to get in, or cover with Puts if you own it and don't want to give it up.

This is going to be a busy week for earnings reports, and HAL is either going to provide a little lift to the O&G sector (but at the demise of SLB's share price), or the entire sector is about to start off this coming week with a double tap to the Head & Shoulders.