Transocean (RIG) shares are up over 4% at this point in the trading session, but more importantly, they have broken out of a short-term basing formation.
A rounded bottom pattern has been forming on the daily chart over the last two months, delineated by a series of lower lows followed by a transition to higher lows under horizontal resistance in the $14.90 area. Daily moving average convergence/divergence is overlaid on the weekly histogram, and the indicator is above its centerline on both time frames, suggesting a shift in the short-term trend and positive price momentum. The accumulation/distribution line is crossing above its 21-period signal average, and the direction of money flow is turning positive.
The oil and oil services sectors are clearly in a serious downtrend and related stocks can be subject to volatile price swings. This break from a well-defined base and the potential for some covering of the 33% short interest in the stock could, however, power a very tradeable bounce.
The pattern projects a price target in the $18 area, which would take it back above the 200-day moving average for the first time in 15 months.
Rob Moreno is a regular contributor to Real Money Pro. Click here to learn about this dynamic market information service for active traders.