Energy, and in particular oil-related stocks, had and continue to have a good run since the latter half of August. Among the single-name stocks that I continue to like in this melt-up is Transocean LTD (NYSE:RIG). Although this stock is still barely getting off its lows in the bigger picture, in the nearer-term time frames, there is plenty of giddiness in the stock that active investors and traders should continue to like.
As I so often point out in this here column, stocks are a highly correlated asset class where depending on market environment 60%-80% of stocks will move up and down together, directionally speaking. In other words — and one of the most important lessons that I have learned in my thus-far 20 year career as an investor and trader — is that if you can get the direction in a stock sector or group correct then the odds of successful single stock trades dramatically improves.
To wit, over the past couple of months and even more so in the past few weeks in this column I pointed to the increasing relative and absolute strength in the price of oil and as a result in oil and other commodity related stocks.
The energy sector of stocks in the S&P 500 as represented by the Energy Select Sector SPDR ETF (NYSEARCA:XLE) since mid-August has rallied approximately 14% and continues to look promising for further upside.
RIG Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the longer-dated multiyear chart of RIG stock we see that although from a momentum perspective the stock bottomed in early 2015, it has since been in a large consolidation phase.
While it is much too early to tell in this time frame, this consolidation phase increasingly looks like it could have been at least an intermediate term bottoming phase that ultimately leads the stock to push back higher again into the $15-$20 area.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, I plotted RIG stock on top and added the XLE ETF at the bottom. The similarities in patterns is easy to see, which just reconfirms my aforementioned point regarding the high correlation among stocks within any given sector or group — and indeed, even as an asset class.
Note here that after an initial rally off the August lows a pause ensued, which in the XLE ETF over the past few trading days has now led to another leg higher. RIG stock for its part is once again not surprisingly showing a similar giddiness and from here on looks ready to start pushing higher past horizontal resistance around the $11 mark and toward the mid teens.
Active investors and traders could use upside targets in $1 increments while any major bearish reversal, particularly if on the sector level, should be a stop loss warning for the near term traders.
Check out Anthony Mirhaydari’s Daily Market Outlook for Nov. 7.
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