Medium term
Trade view / 01 August 2016 at 7:04 GMT

Seadrill set to move in a big way

Instrument: SDRL:xnys
Price target:
Market price:

The chart of Oil services company Seadrill (SDRL:xnys) is an interesting one. From the peak set back in 2013, we have five clear waves to the downside. In February of this year, the stock managed to put in a low from where a massive rally took place. 

The rally was so fierce the stock shot higher by more then 400 % in less than two weeks! 

Now the above is history and might not happen again, but from the peak following the rally SDRL has come down quite a bit and is working on a compressed pattern, a pattern that should resolve in either direction in the not-too-distant future.

The wave structure and the five waves into the low earlier this year suggest we should see a three wave rally to the upside, so far the massive spike in late February early March only account for the first wave of such a correction to the upside.

Looking at the chart we can see a wedge pattern taking shape, a pattern that if resolved to the upside can possibly manage another fierce move with an upward trajectory. We can also see how the Bollinger Bands® have contracted which implies a volatility expansion is set to take place.

Resistance is found at $3.20-25 and a break of this level implies the move we are looking for might be on its way. From then on we have multiple levels of resistance all the way upp to the $7.50 area which marked the peak of the assumed Elliott wave a of the current correction.

Management and risk description

In SDRL we have the chance to experience a large rally; the plan is to buy a break above $3.25 for a move higher. Ideally price should manage to reach the $7.50 area once again but that is obviously some way off, which is why one might want to consider taking profits at an earlier stage.

Interesting levels for taking profits at an earlier stage are for example, $3.81, $4.21, $4.60, and $5.07. The stop could initially be placed at $2.90 following a break higher.

This stock is very volatile and positions in this stock should be small in size. Seadrill report Q2 earnings on August 25.

This stock is also listed in Norway with the ticker SDRL:xosl.


Entry: buy a break above $3.25.

Stop: $2.90.

Target: $3.81, $4.21, $4.60, and $5.07.

Time horizon: two to eight weeks.

SDRL:xnys daily chart:
SDRL:xnys daily chart

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Source: Saxo Bank 

SDRL:xnys daily log development chart:
SDRL:xnys daily log development chart
Source: Saxo Bank 

— Edited by Michael McKenna

For more on equities click here.

Non-independent investment research disclaimer applies. Read more
DudetteUK DudetteUK
Interesting idea with Oil ready to bounce back, thanks for sharing
Johan Berntorp Johan Berntorp
Hope it works! Great potential.
fxtime fxtime
Interesting this equity for UK traders...we have the BoE on Thursday with a real possibility of Carney devaluing sterling with a base rate cut (25bps) or a minor QE especially after todays data release. Any Seadrill eps would be a good commod play as it gives exposure to the most liquid of major markets and dollar exposure too which can enhance earnings if the BoE do something (this may well be a long shot based on their past history of jawboning).
Itzik Itzik
Today it's 2.77. Do you still believe in this strategy?
fxtime fxtime
Itzik this is a price breakout strategy.....we need it to break the upper range first and only then will we trade the move.
Itzik Itzik
But what about the refinancing plan the company is about to issue? It doesn't' mentioned in the article.
Johan Berntorp Johan Berntorp
Yes this is a breakout strategy so $3.25 needs to be taken out. I believe in the strategy, but a large move could come to the downside as well so it is important not to jump the gun.
Johan Berntorp Johan Berntorp
The stock didn't break higher, it broke lower. Now, if it can come back and take back $2.94 and then $3.15 we are still good to go for a long trade as I see things. But until then the situation is a bit worrisome.


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