The oil patch names are quickly becoming the oil patchwork names.
Last night's whammy came from Diamond Offshore (DO), which disclosed troubles with current contracts. By troubles, I mean, of course, cancellations, which is the last thing the offshore drillers need in the wake of falling oil prices. While it isn't an absolute shock, it is a major concern as revenue and guidance come into question now. Stock price is predictive based on expectations and clearly the expectations for DO are coming down rapidly today. Other than an intraday scalp, I'm looking for something very specific here in order to take a shot at the long side. This is slightly different on DO than when I was looking at Transocean (RIG) before, although a quick look at RIG is warranted.
RIG looks to be in a bit of no-man's land right now. Under $16 leaves little support for the bulls until we visit the $15 area. All the technical indicators on this chart are bearish -- very bearish -- right now, but not oversold yet. While few folks like to short in the hole, it is also difficult to justify a purchase here. I want to see a watershed-selling type of event. Something where it looks like RIG is simply headed for zero or no buyers are set to emerge anytime soon on the surface, but underneath we can see them starting to appear.
In this case, what I want to see is numerous, but necessary, in these setups. First, I want to see a rising RSI and I prefer it we are under the 60 area. Ideally, it would be rising out from oversold (30) or crossing over the midline (50). Also, I want to see a bullish crossover in the stochastics setup while oversold. Lastly, I want to see a big gap between the recent lows and the lower bollinger band using a 2.5 standard deviation. I know volatility is running high and there is a good chance we've had a big push in price already. These have combined well for the last two bounces.
Diamond Offshore's daily chart isn't much different. Again, if we look for the low stochastic crossovers, ideally oversold, but under 40 is acceptable, along with the RSI crossing 50 or rising towards the 30 cross and we see a price that is now trading with a lot of air between it and the lower bollinger band, I want to look to buy for a swing trade on the long side. The sell point would be half once we close over the midpoint of this bollinger band, with the rest being sold if we hit the upper bollinger band of the 20 period, 2 standard deviation line, not the 2.5 standard deviation line. I would also sell into an RSI reading of 70 or greater.
I really believe these names, in the short term, can only be traded long, based on the charts, as they will speak more to the mindset of the traders.