National Oilwell Varco, Inc. designs, manufactures, and sells equipment and components used in oil and gas drilling, completion, and production; and provides oilfield services to the upstream oil and gas industry worldwide. The company’s Rig Systems segment offers land rigs; offshore drilling equipment packages; and drilling rig components. Its Rig Aftermarket segment offers spare parts; and repair and rental services, as well as technical support, field and first well support, field engineering, and customer training services. The company’s Wellbore Technologies segment designs, manufactures, rents, and sells various equipment and technologies used to perform drilling operations. Its Completion and Production Solutions segment offers equipment and technologies for hydraulic fracture stimulation.
Take a look at the 1-year chart of National (NYSE: NOV) below with added notations:
After the stock’s yearly decline, NOV has now started trading sideways over the most recent three months. While in that sideways move, the stock has formed a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern.
NOV’s rectangle pattern has formed a resistance at $42.50 (red), and a $35 support (green). At some point the stock will have to break one of the two levels.
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The Tale of the Tape: NOV is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $35 or on a breakout above $42.50. The ideal short opportunity would be on a break below $42.50.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach