Todays Big Stock: Transocean Ltd (NYSE:RIG)

Whether the market goes up, or the market goes down, I like to trade stocks that forecast their movement either way. In other words, stocks that seem to tell me how to trade them. This could be in the form of a pattern, visibly important levels, or maybe a little bit of both. My simple belief is that knowing where to get in is half the battle. If you can find stocks that clearly show you their most important price points, then you will most likely be setting yourself up for success. One stock of many that I think fits that description would be that of RIG (Transocean, Ltd).

Transocean Ltd. (Transocean) is an international provider of offshore contract drilling services for oil and gas wells. Transocean operates in two segments: contract drilling services and other operations. Contract drilling services, the company’s primary business, includes contracting Transocean’s mobile offshore drilling fleet, related equipment and work crews primarily on a day rate basis to drill oil and gas wells. Its other operations segment includes drilling management services, and oil and gas properties. It participates in oil and gas exploration and production activities.

Please take a look at the 1-year chart of RIG (Transocean, Ltd) below with my added notations:

First, notice all of the important price levels I have highlighted on RIG. The stock seems to always find support or resistance on or at the increments of $5. For the 1st four months of the year you will notice the clear $75 support level that RIG created. Once RIG broke that support, down it went. Then RIG broke its $70 level, down it went. Next up was the $65 level, break, lower it went. Once the stock broke $60, $55 didn’t stand a chance.  Every time RIG broke a level of $5, the stock went lower. Did you also notice that every time RIG rallied it found resistance at those previous support levels of $5? Next up, the major support of $50 at the 52 week low.

The great thing about RIG is that it shows you how to trade it no matter what direction the market moves. If you like the short side of the market, you can short RIG on rallies back up to any $5 level. If you want a long play, you could buy RIG on any pullback to a $5 level or breakout through one of those levels.

The Tale of the Tape: RIG finds the levels of $5 important. These price points always appear to act as either support or resistance or usually both. You can trade this stock no matter what it does. If it rallies back up to $60, you could enter a short play. If it breaks back above $60, you could enter a long play. You could buy RIG if it comes down to $50, or short the stock if it breaks that $50 support. Etc., etc., etc!

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!

Good luck!
Christian Tharp, CMT