Faraday Research: Where Next For Shell?

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A 44% fall in quarterly earnings on a current cost basis versus the year prior should make anyone take note. Yesterday, Royal Dutch Shell reported just that and understandably it made headlines.

Yes, if we exclude exceptional items then earnings were up 14% versus the same period last year, however, this is still well below analyst consensus forecasts.

Of course, investing is far from as simple as looking at the streets preferred metric so let’s delve a little deeper.

Earnings Review

Key takeaways from the update are improving quarterly cash flow, falling net debt and the integration of BG going well to date.

Moreover, Shell is so far on track to meet its goal of $30bn in divestments by 2017; given oils bullish backdrop we believe this target looks attainable. On the flip side, we saw gearing increase to 28% and although net debt fell this quarter it remains high following Shell’s BG acquisition.

So, where does this leave us? Let’s take a look at Shell’s 9month daily candle chart to answer this question.

Oil rallying steadily throughout last year was, unsurprisingly, the key driver behind Shell’s stellar 2016. However, so far this year prices have been in retreat and notably the shares have broken below their 20 day exponential moving average.

Uptrend Intact?

Despite yesterday’s price action seeing the shares reject their intraday highs and close near to their lows, prices did find support at a previous resistance as well as confirm a new swing-low. That said, we are not seeing enough signs of bullish short term momentum to call the start of a new leg higher.

Were prices to roll over and break below this support level then the next stop would be Shell’s ascending trend line. Any break of this would indicate a clear change in market structure and firmly put an end to buying opportunities in the short term.

For now, we remain poised to participate should Shell’s uptrend remerge.

Faraday Research offers real time FX and Equity trade signals from qualified analysts. Click here to try us free.

 

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