Seadrill Ltd (NYSE:SDRL) had yet another bad day in the market as it was hammered by the bears by nearly 6% with the volume rising to 15 million against the average volume of 12 million. It was not a pleasant experience for the company to hear from the International Energy Agency (IEA) that US may soon find it very difficult to find any more empty vessels to deposit crude oil. The supply overwhelms the demand by a great extent and there is no visible sign of the US oil inventory growth slowing down.
Not only the low oil price, Seadrill Ltd (NYSE:SDRL) suffers from the huge net debt of $10 billion too, coupled with the unconsolidated debt in Seadrill Partners. These numbers effectively cancel the positive surprise of the fourth quarter EPS at $0.78 against the market expectation of $0.69. If the price of oil doesn’t rally soon, at least in the current calendar year, the debts can literally break the company apart. On the other hand, the company has a year or two of buffer and any upmove in oil price would be utilized by a lot of investors to get into this stock.
The technical picture is obviously very poor to say the least. 2014 saw the stock dropping to $10 from $40 levels and the bottom doesn’t look very close yet. The rally in the period of 2009-2013 had taken the form of a Rising Wedge pattern and that gave the pattern breakdown target at $6 levels, the origin point of the rally. That target of $6 also coincides with the 2009 low around $5-$6, making that a quite formidable area to watch in the coming months.
Any corrective rally may well face selling pressure from any levels, but particularly the band of $14-$15 can be considered a strong resistance band. No bottom fishing is recommended yet.