RealMoney - Commentary The Forecast Is Sunny for Weatherford
By L.A. Little
The risk/reward profile here is too juicy to ignore. More
Weatherford isn't the highest-profile name in the sector, but it does have an interesting setup. It pushed lower during the first week of February when the charts were at their worst, but that occurred on suspect volume. That event led to a good-sized bounce and finally another retrace that stopped shy of the lows. If we project volume for the week, it looks to come in somewhere near 122 million shares; that would be the largest volume expansion over the past nine months. Think about that: Prices are pushing higher on what was first taken to be a bad earnings report and share volume is likely to swamp all volume on this time frame.
I'm not sure what that tells you, but to me it says that the clear target now is around $17.80 and that the stock will likely hit that price point this week -- if not today. If WFT removes that swing point with volume, which won't be hard given the lack of volume at that swing point, the next swing point will become the target. As long as volume comes in at the swing points and price is captured, WFT can walk higher.
We can see the resistance at the $17.80 swing point more clearly on the daily chart. That area is where the large gap down occurred back in early January on the last earnings report. The gap has since been filled and more backing and filling occurred. Yesterday, WFT made a new run to attack that swing point created on the fill of the gap.
To take a stock like WFT long -- a stock that has been an underperformer relative to its peers -- you have to see more reward than risk. Given the way volume expanded on earnings yesterday, those lows should hold as support. If they do not, then something more troubling is on the horizon. Thus, the risk is limited to the $16.41 area on a closing basis. The reward, as we have seen, is $17.80 initially, but will more likely be the next swing point at $21. Thus, there exists a risk of 80 cents for a reward of $3.70. I can't argue with those numbers -- that's why I added WFT to my list of longs yesterday. I just did the same with NBR today -- it, too, is showing good signals from a reward-to-risk perspective.