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An Undervalued Energy Stock Investors Can’t Ignore

I have said many times before, here and elsewhere, that technical analysis has its limitations. The idea that we can look at what happened in the past and confidently predict the future based on it appeals to some basic desire for order in the human psyche, but in many cases, it doesn’t stand up to logical analysis. The circumstances at different times are inevitably different themselves, and just because “A” happened at some point in the past doesn’t mean that “B” will follow. However, simple analysis based on previous highs and lows does have value.

When a stock bounces off a level, it is likely to do so again, even in different market conditions. It results in a perception that the level has its own significance, significance that will still be there in the future regardless of anything else. There is often some truth to that. A stock that is falling will often stop because many people perceive value at the same level and place orders to buy, and those buyers will probably re-emerge at that same level in the future. In addition, even if the low was prompted more by a change in fundamental conditions, when it is approached again it will attract buyers simply because it held before. They don’t always prevail, but when they do and the level holds again, the perception of its significance increases.

That “double bottom” formation can be seen now in an energy stock that has disappointed a lot over the last year…Schlumberger…



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