Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Traders,
Transocean Ltd. (Ticker: RIG), the largest of the offshore drillers, is in good hands with 54% of its stock held by institutional investors.
However, it’s had a rough couple of earnings quarters (Q4 ‘ 22 and Q1 ‘23), causing the stock to slip 25%.
Now, that correction is a good thing for RIG because this is a stock you want to buy when it is beaten up.
The question is has it been beaten up enough for it to be a buy today?
Today, I’ll tackle that question with some back-tested results.
The chart below presents a pretty good RIG roadmap to analyze for high probability trades:
Notice the patch RIG followed back in 2018 when we were also in an environment where the Fed was tightening monetary policy.
At the end of 2018, the Fed pushed a bit too far on raising rates. RIG got crushed because global demand for energy suffered.
That’s very similar to today, and after coming off two consecutive bad earnings I’m not sure if now is the time to buy.
Buy on a Fire Sale
With RSI sitting right in the middle at 50 and RIG’s price sitting in the middle of its uptrend channel, I don’t see a lot to lean on right now.
However, if we see its price drop to the bottom of the channel – maybe $4 – and RSI drops below 40, it could be worth a trade …
Notice every time RIG has dropped below a 30 RSI how it performed …
Out of 6 attempts, if you bought RIG after the RSI bottomed below 30 and then rose above 40, you were a big winner …
Your average return was 100% if you bought a simple call spread each time.
The last time was September ‘22 and if you bought just a 2.5/3 call spread you would have paid $.20 and sold at .32.
Now that is a worthwhile trade.
So let this ship sail for a while longer, and when it feels like it is sinking fast … jump in and buy it.
It’s all about probabilities. My plan is to set an alert at $5 and take another look. That’s a location that can easily manage a good low risk/high reward trade.
Live and Trade With Passion My Friends,
Bill Griffo