With regards to Transocean Ltd. , why has this stock been heavily sold by the Marketplace?
Thanks for the assignment. There are a number of reasons that ultra deepwater driller Transocean Ltd. (RIG NYSE) has been giving up ground. Part of the problem is sectoral. Oil companies have been pushing back offshore drilling projects into 2015 and 2016. That has put the squeeze on the entire sector including competitors Seadrill Ltd. (SDRL NYSE), Ensco plc (ESV NYSE), Noble Drilling Corp. (NE NYSE) and Diamond Offshore Drilling Inc. (DO NYSE).
In addition 81% of the company’s fleet of rigs come off contract in 2016. You also have to take into account that RIG is in the middle of a building program with 12 new high specification units absorbing capital at a time that demand has weakened. Finally the company has been fighting in court to limit its liability related to the BP Amoco plc (BP NYSE) Gulf Of Mexico oil spill of 2010.
A review of the charts will help identify what we might expect from this stock
The three-year chart depicts a stock in a general downtrend which has also provided a number of opportunities to trade through the decline. The situation at hand would not in my opinion be for the faint of heart. The stock does offer a dividend that yields 8.48% which seems to camouflage a value trap. At the time of this post the shares are trading near a 52-week low while still struggling to confirm a bottom.
The MACD and the RSI have provided profitable buy and sell signals along the retreat. The buy signals in October of 2013 and March of 2014 as well as the sell signal in June of 2014 offered opportunities to trade for profit.
The six-month chart provides a close-up of the sell signals generated by the MACD and the RSI in June of 2014. By late July the stock had broken below the 50 and the 200-day moving averages indicating that there was more selling pressure in the offing. What is also visible is the resistance that came in at $39.00 through August which led to sellers taking control of the market by September.
There has been a confluence of events that have put RIG into a downtrend. That’s not to say that there haven’t been opportunities to generate profits but its not a scenario that favours the meek.
Make it a profitable day and happy capitalism!