Oil continues its climb. Back in February, the $20 mark was discussed and shortly after, the potential for a deeply-depressed price, potentially for a lifetime of some experts, was even predicted. Now, we sit staring at the possibility of WTI hitting $50 again before the summer driving season gets underway. While the year-to-date number isn't far from unchanged, this quarter has seen oil set on fire. I view drillers like Transocean (RIG), Diamond Offshore (DO), Seadrill (SDRL) and Rowan (RDC) reacting to oil in a similar way the gold miners act to the price of gold. There is an inherent leverage both in price and emotion in terms of the relationship.
I won't argue RIG isn't without its fundamental issues, but if a trader is looking for a driller down in the depths and still looking to play catch-up compared with the overall group, this would be the name I would consider based on the weekly chart. RIG isn't very far off its February bottom, but there are some signs of a continued move higher here. Price is attempting to push beyond a down slope of resistance. The upside here is there is no need to buy yet without confirmation. RIG could easily be slapped back into the $9s or even $8s here with the current resistance. The company is set to report this week, so we should see a resolution of this resistance. If the stock breaks over $11.50, then it is a buy. Failure to break out and I would wait until we revisit the support level of 2016.
Overall, the technical picture heavily favors the bulls here. The StochRSI along with the Chaikan Oscillator are both bullish, so momentum and volume are in favor of buying. While the Full Stochastics sits under 50, we do see a bullish crossover here, which has been a big positive for price action in the past. With confirmation this week, a push back to $14 during the summer and $16 before the end of the year appears to be a very real possibility. Once above support, I would use the $10 level as my stop.
If RIG feels too risky, then check out DO after it reports its earnings this week. The stock is already breaking above short-term price resistance and needs only to clear $26 to break free of longer term resistance. That would set a path for an upside expectation of $32-$34. Again, we see a bullish crossover in the Full Stochastics, but this cross comes from above 50, signs we had a consolidation move in price but not a violation of support or loss of bullish trend. Everything else from trend to momentum to volume here is very strong. We are a little overheated in the StochRSI, so watch for any regression under 0.80. That would be a yellow flag. In terms of price, any entry here should use $21.50 as a stop or even short entry. If DO pushes over $26, then that stop should be maintained at the 13 week simple moving average for smaller positions and the 5-week SMA on larger positions. An alternative approach is just to marry the stock with $24 puts on any breakout.
Overall, the group is strong, but these are the two weekly charts I favor most. Both are set to report earnings this week, so I'm hesitant to jump in prior to the reports. But those numbers could be the catalyst needed to fuel a bullish run through the summer for these two.