Whether the market goes up, or the market goes down, I like to trade stocks thatforecast 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. If you can find stocks that clearly show you their mostimportant price points, then you will most likely be setting yourself up for success.Bottom line: Knowing where to get in is half the battle. One stock of many that Ithink fits that description would be that of RIG (Transocean, Ltd).
Transocean Ltd. (Transocean) is an international provider of offshore contractdrilling services for oil and gas wells. Transocean operates in two segments:contract drilling services and other operations. Contract drilling services, thecompany’s primary business, includes contracting Transocean’s mobile offshoredrilling fleet, related equipment and work crews primarily on a day rate basis todrill oil and gas wells. Its other operations segment includes drilling managementservices, and oil and gas properties. It participates in oil and gas exploration andproduction activities.
To review potential trading opportunities on Transocean’s stock, please take a lookat the 1-year chart of RIG (Transocean, Ltd) below with my added notations:
Notice all of the important price levels I have highlighted on RIG. The stock seemsto always find support or resistance on or at the increments of $5. For the first (4)months of the year RIG held a very important support level at $75. Once RIG brokethat support, down it went. Then RIG broke its $70 level, down it went. Next up wasthe $65 level, break, lower it went. Once the stock broke $60, $55 didn’t stand achance, but $50 held it’s ground for a while. Every time RIG broke a level of $5, thestock went lower. Did you also notice that every time RIG rallied it found resistanceat those previous support levels of $5? Next up, the 52-week low support at $45.
The great thing about RIG is that it shows you how to trade it no matter whatdirection the market moves. If you like the short side of the market, you can shortRIG on rallies back up to any $5 level. If you want a long play, you could buy RIG onany 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 pointsalways appear to act as either support or resistance and usually both. You can tradethis stock no matter what it does. If it rallies back up to $50, you could enter a shortplay. If it breaks back above $50, you could enter a long play. You could buy RIG nowas it sits on $45, or short the stock if it breaks that $45 support. Etc., etc., etc!
Before making any trading decision, decide which side of the trade you believe givesyou 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 aboutit, 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 orsupport level? Making these decisions ahead of time will help you decide which sideof the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember touse protective stops and you’ll be around for the next trade. Capital preservation isalways key!
Christian Tharp, CMT