Halliburton (HAL), the storied oil and gas equipment and services company, has seen a flurry of upgrades and downgrades during the past month or so. In September, the company pleaded guilty to federal charges of destroying evidence related to the 2010 BP (BP) oil spill. A fine of $200,000 and three years' probation was imposed by the court, settling the matter.
Following an initially mute reaction to this news, HAL has since made a meaningful move to the upside, breaking out of a bullish formation. The stock looks to have continued upside potential over the coming days and weeks.
From a technical perspective, HAL often offers good swing trading opportunities, which is to say that it typically respects its various moving averages, trendlines and chart patterns.
The company is scheduled to release its next earnings report on Oct. 21. Despite the fact that the stock isn't prone to major chart-breaking moves following earnings, personally I do not like to hold swing trading positions through announcements. Therefore, for the current bullish setup in HAL, this means that I am looking for follow-through buying this week after last week's breakout, but I will want to be out of the stock by Friday, Oct. 18.
On Wednesday, Raymond James upgraded HAL from "market perform" to "outperform," with a $63 price target. More specifically, the analyst noted, "Our continued optimism on 2014 North American E&P capex is a theme we've been consistently touting. As such, we're upgrading the premier North American services company, Halliburton, to Outperform with a target price of $63. Our optimism is fueled by 1) upward bias to consensus EPS via North American operations, 2) upcoming Analyst day, and 3) option value in international turnaround."
On the weekly chart, we can see HAL has a very clear attraction to the multiyear resistance line between $57 and $58, which is roughly 12% away from current prices.
After a nasty drop in the second half of 2011 and first part of 2012, the stock developed an important higher low in June 2012 versus its late 2008 lows, after which it quickly got back on its feet. After a breakout past an important diagonal resistance line in January of this year, there was nothing in the stock's way as it climbed higher.
Moving on to the daily chart below, note last week's breakout from a consolidation pattern that dates back to early September and is supported by the 50-day simple moving average. While this consolidation pattern could be drawn as either a bull flag formation or the lateral consolidation pattern that I marked on the chart, the fact is that last week's move pushed HAL to a higher high on marginally increasing volume.
Of course, the stock moved higher in conjunction with the broader market's vicious bullish turnaround on Thursday and Friday, but based purely on price action, the move was bullish regardless of the underlying reason.
Given the short time frame of this trade, I am looking for continuation buying after last week's breakout. If the stock continues to hold up after earnings, you may want to consider reentering the trade with a price target in the high $50s to low $60s, using a trailing stop.
Recommended Trade Setup:
-- Buy HAL at the market price
-- Set stop-loss at $49
-- Set initial price target at $53 for a potential 3% gain in four days
- Basic Materials Industry