I've been pushing the energy sector names for about two weeks now. Not every name has worked, but more than not have and I'm back with another one today.
You have the strong-looking charts like Forum Energy Technologies (FET) and SemGroup (SEMG) and then you have names like Diamond Offshore (DO). Diamond Offshore hasn't offered much other than some dead-cat bounces over the last year, but I'm all right with that if it means an opportunity to make some money while offering up a clear risk-reward level.
The daily on DO is much better than any longer-term chart for the stock and that isn't saying much, since this is a name which has moved from upper left to lower right in terms of price, the exact opposite of what bulls want to see. But there is hope.
In terms of price, we have a pretty obvious resistance level here at $31 while working an inverse head-and-shoulders pattern. The head is a little bigger than I'd like. Jim Cramer and I compared one to Munch from the Goonies the other day on "Mad Money." Well, this one would be Sloth. Still, if we get a trigger here, we have a price target of $35.50. Furthermore, there is a gap up to the $33.50 waiting to be filled. Any loss of the shoulders in terms of price puts this one back into the dark caverns owned by the bears. I would tend to stick with $29 as a hard stop here.
I do like seeing the RSI, using the slightly longer 13-period term here on the daily holding above 50 and we just saw a bullish flip of the parabolic stop and reverse today after a bearish flip yesterday. This is akin to a false breakdown/reversal and clearly worth noting. Even with the big move today, DO should catch serious momentum over $31.
But a quick glance at the weekly chart makes it tougher to believe in a longer-term reversal for DO. The stock has been stuck in a very bearish channel and resistance sits around $33-$33.50, which lines up with the gap fill on the daily chart. That area becomes huge for the bulls. There will be a tendency to want to sell into the gap fill along with the weekly resistance, so I view it was a must area to take some off or hedge. But a move over $34 could finally shake off the bears hold on this name. The RSI is just peeking over the 50 level, which should embolden some bulls. Also, note the drop in the Mass Index from over the $27 area back beneath $26.50. This is a signal for an end of a trend. It doesn't mean we will reverse, but this signal increases the likelihood the strong bearish move is over and we should at least trade in a channel between $26 and $33 for a bit, although I would lean more towards $27.50 for the downside of that consolidation channel.
There is no all-clear sound yet on names like DO, but there does appear to be some short-term opportunity as a rotation seems to have taken hold here in the market.