Should You Invest In Transocean?

Should You Invest In Transocean?

Investment Thesis

Transocean (RIG) is the uncontested leader in the deep water sector (floaters) with an impressive backlog estimated at $10 billion. The company fleet is now reduced to 50 rigs with 26 rigs operating (including the two under-construction drillships contracted to Shell for 10 years).

The company management has done an excellent job to rejuvenate its rig fleet and cut its long-term debt to about $6 billion at the end of 2017. This consolidation phase will allow Transocean to use the weakness of this market to eventually acquire distressed assets and keep its solid leading position in the floater category.

Recommend a cautious accumulation for the long-term.

  • Transocean released its July 25, 2017 fleet status.
  • The company fleet is now down to 50 rigs, with 19 rigs classified as “cold stacked” including 11 rigs “cold stacked” since 2015, that can be considered as “practically-waiting-to-be-scrapped”.
  • I still own a significant long-term position, and I am confident RIG will survive this terrible down cycle. I consider RIG as one of the safest offshore drillers.

Technical Analysis

Overall, the bias in prices is: Downwards.

Short term: Prices are moving.

Intermediate term: Prices are trending.

The projected upper bound is: 9.23.

The projected lower bound is: 7.76.

The projected closing price is: 8.49.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 20 white candles and 29 black candles for a net of 9 black candles.

An engulfing bearish line occurred (where a black candle’s real body completely contains the previous white candle’s real body). The engulfing bearish pattern is bearish during an uptrend (which appears to be the case with TRANSOCEAN LTD). It then signifies that the momentum may be shifting from the bulls to the bears.

If the engulfing bearish pattern occurs during a downtrend, it may be a last engulfing bottom which indicates a bullish reversal. The test to see if this is the case is if the next candle closes above the bottom the current (black) candle’s real body.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 43.1373. This is not an overbought or oversold reading. The last signal was a sell 3 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 49.88. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 22 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 69. This is not a topping or bottoming area. The last signal was a sell 0 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 20 period(s) ago.

Rex Takasugi – TD Profile

TRANSOCEAN LTD closed down -0.230 at 8.540. Volume was 38% above average (neutral) and Bollinger Bands were 41% narrower than normal.

Open   High   Low     Close   Volume
8.870  8.920  8.440  8.540  4,334,314

Technical Outlook
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bearish

Moving Averages: 10-period   50-period   200-period
Close:                       8.53             8.82            11.67
Volatility:                51                 53                54
Volume:                   7,327,519   3,798,179   3,082,887

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

TRANSOCEAN LTD is currently 26.8% below its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume into RIG.N (mildly bullish). Our trend forecasting oscillators are currently bullish on RIG.N and have had this outlook for the last 8 periods.

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Ivy Heffernan

Ivy Heffernan, student of Economics at Buckingham University. Junior Analyst at HeffX and experienced marketing director.

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