Core fundamentals & technicals point lower

March 17, 2016 01:00 PM

Energy stocks have taken a beating, and continue to provide sufficient short trading opportunities. One such company is Core Laboratories N.V. (CLB), which was recommended initially in November 2015. CLB provides oil reservoir, production, enhancement and managerial services within the oil and gas industry domestically and abroad. CLB was founded in 1936, and is headquartered in the Netherlands, though it maintains a sizable share of the U.S. market. The company, once a golden child during the hot energy sector boom, differentiated itself among other competitors through its focus on evaluating and developing comprehensive solutions to optimize oil extraction and recovery. Its prior economic growth was justified by obvious factors including the geopolitical demand for oil and the race to optimize oil recovery. 

Core Laboratories’ fourth quarter 2015 results were rather disappointing and provide sufficient signals of continued contraction. Its reported 178 million dollar revenue had a sequential 7% decrease, while its fourth quarter earnings of 65¢ per share (excluding severance and miscellaneous charges of 29¢ per share) is a significant consideration to factor. Core’s 2015 total year revenue was down a staggering 27%. Its rig count, used to monitor the number of rig drillings for oil in the United States, also plummeted 16%, and led to a 60% decrease from its year-over-year basis. 

Here the market’s disdain for uncertainty has clouded investor confidence, continuing to push the price lower. As hedge funds continue to add shorts, a clear manifestation of a death cross on Jan. 11, 2016 signals further technical weakness for CLB. A significant rebound is not in the immediate offing. 

Any expectation of a meaningful recovery in the broader energy sector is far from certain. While many analysts have concluded that the price drop within oil is simply reflective of the dollar’s value vs. the demand for oil itself and has run its course, the potential lifting of Iran’s oil sanctions furthers the expectation of higher supplies of oil. This, taken together with the slowing global economy, is sufficient evidence that a recovery is not likely to be seen in the coming quarters. 

Focusing on the chart’s patterns, CLB has broken its 50-day moving average, now down -8.55% for the past 12 months, signaling a clear downward pattern leading to a base building around $125 to $120, then $120 to $110 and failing again at $113 to $104. While there was an attempt of a reversal in December at $105 to $120, the downtrend has resumed under the death cross (see “Crossing over), falling below $90 before rebounding to $100.

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