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.
Target: $3.81, $4.21, $4.60, and $5.07.
Time horizon: two to eight weeks.
SDRL:xnys daily chart:
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Source: Saxo Bank
SDRL:xnys daily log development chart:
Source: Saxo Bank
— Edited by Michael McKenna
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