Diamond Offshore Drilling (DO) began a basing pattern in July 2015. Prices are likely to pull back again in the short term, making the base even bigger as it frustrates the longs.
Source: BigCharts.com
In this daily chart of DO, above, we can see how prices largely have moved sideways since July of last year. For the most part dips to the $20 area were bought, but there are also three deeper moves to the $16 area in October, January and February. There is a golden-cross buy signal in April of the 50- and 200-day moving averages. Prices are still above the rising 50-day average near $24, but we could see and prices correct lower and maybe retest the $20 level again.
So far this month, the On-Balance-Volume (OBV) line has inched, lower telling us that volume is heavier on days when DO has closed lower. Overall, the OBV line has been mostly neutral since last October and is not indicating the kind of accumulation we would expect to see in a bottom. In addition, there is a bearish divergence in April and June -- prices make higher highs, but the 12-day momentum study makes a lower higher. This divergence tells us that the rate of price advance slowed on the second high; this is a negative.
This three-year weekly chart of DO, above, shows a long and persistent decline for the stock. Prices only recently rallied above the 40-week moving average line. The OBV line on this time frame does show some improvement the past two months. The Moving Average Convergence Divergence (MACD) oscillator is above the zero line, which is a positive, but it looks like the two lines have begun to narrow toward a new liquidate-longs sell signal.
DO has suffered a significant multiyear decline, and typically a big decline such as this one needs a long repair process. I would look for DO to work its way back down to the $20 area in the weeks ahead as the base pattern continues.
