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Trade Details: Bought to open 2 Dec 17th Schlumberger Ltd (NYSE:SLB) 77.5 calls for $3.85, $776.03 total cost (34.6% of account), 38 days to go. The trade executed at 11:48:16 when the stock was approximately $80.30.
Potential: Unlimited, but targeting the following levels to reevaluate the position (see chart below): support at $79.55, $78.60 and $77.90, resistance around $84.00 (the level at which SLB has failed twice to breakout of the head & shoulders bottom formed this year) and the daily MACD histogram-changing $79.00 tomorrow (assuming a $79.85 close today)
Thesis: I have been watching and trading energy sector securities this year and keeping an eye on the bullish setup in SLB. I can't offer great insights into the commodity market, but the price action of WTI has been bullish for months (see chart below). While it's recently tested support, OPEC has shown some desire to curb supply, the odds of a Fed rate hike have come down and President-elect Trump is communicating a pro-growth message.
Like Trump facing a barrage of attacks from all fronts, Schlumberger has been very resilient despite recent volatility. During their most recent earnings call, management talked about improving business fundamentals and the stock has been making higher highs and lows. A few trading days ago the stock broke out of a continuation falling wedge, a bullish formation (see chart below).
Other parts of the technical picture are favorable for SLB. The shares are trading near support and far from resistance, the MACD should cross today/tomorrow on the daily chart, the %D line on the slow stochastic indicator has turned bullish and momentum just crossed the zero line.
I will be closely following all of these variables, focusing on the daily chart. With room to run and 38 days to go until expiration, I may look for opportunities to create a bull call spread if the stock quickly rises but momentum slows.
Hopefully it wasn't a mistake to take a long position so soon after the election; price will tell that story soon enough.