Did Seadrill Ltd (SDRL) Just Hit Bottom?

Seadrill Ltd (SDRL) is adding to its steep year-to-date losses after today's OPEC meeting, but just hit a multi-year low in a key region

by Elizabeth Harrow

Published on Dec 4, 2015 at 11:14 AM
Updated on Jun 24, 2020 at 10:16 AM

The broader equities market is surging on the heels of a stronger-than-forecast U.S. nonfarm payrolls report -- but oil stocks like Seadrill Ltd (NYSE:SDRL) are getting punished as crude futures sell off. Energy names are responding to today's meeting of the Organization of the Petroleum Exporting Countries (OPEC), with the cartel making no moves to curb the current global supply glut. As a result, January crude futures have erased early gains, down 2.2% at $40.19 per barrel.

Meanwhile, shares of Bermuda-based drilling contractor SDRL have slumped 3.2% to $5.66, widening their year-to-date loss to about 52.6%. The stock remains pinned below resistance at its 10-week and 20-week moving averages, which have highlighted SDRL's descent since mid-June. The security hasn't managed a single weekly close above this trendline duo in the intervening months.

Unsurprisingly, traders have responded to SDRL's notably dismal price action by loading up on bearish bets. Currently, 13.3% of the stock's float is sold short -- an accumulation that represents 6.9 times the equity's average daily trading volume. Meanwhile, the gamma-weighted Schaeffer's put/call open interest ratio (SOIR) for SDRL checks in at a top-heavy 2.27, as puts more than double calls among near-the-money option strikes set to expire within three months.

Analysts are also bearish, with 71% of brokerage firms covering SDRL maintaining a "hold" or "sell" rating. However, the average 12-month price target stands at a healthy $10.36 -- a level not seen since July.

While SDRL has certainly earned this widespread bearish attention with its uninspiring performance on the charts, it's worth noting that the stock today hit a new 10-year low of $5.39. The $5.30-$5.40 area marked the site of major bottoms for SDRL back in October 2005 and November 2008 -- and if the stock once again manages to find bottom in this area, Seadrill Ltd (NYSE:SDRL) definitely stands to benefit as some of the weaker bearish hands begin to hit the exits.

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