Transocean stock analysis: Will the correction deepen?

Charts suggest the offshore oil and gas drilling contractor could decline in the near term

A Transocean oil rig moored at port in Inverness, Scotland                                 
Offshore oil and gas drilling contractor Transocean has seen its Q3 2021 revenues drop – Photo: Shutterstock

Crude oil prices have made a strong recovery from their April 2020 lows. This rise is likely to benefit crude oil producers and companies supporting the business. One of the major beneficiaries could be Transocean, the leading provider of offshore contract drilling services for oil and gas wells.

However, Transocean reported third quarter results on 1 November 2021 that were below consensus estimates, according to Zacks Equity Research. The company’s revenues dropped 4.6% to $626m (£460m) from $656m in the second quarter of 2021. The reduction in revenue was attributed to the planned maintenance of one rig and reduced activity on two other rigs.

The offshore oil and gas drilling contractor reported an adjusted net loss of $122m, up 11.9% compared with $109m in the previous quarter. Cash flows from operating activity fell from $153m in the second quarter to $141m for Q3. According to Transocean’s Quarterly Fleet Status Report, the total contract backlog is about $7.1bn. 

The company’s president and CEO Jeremy Thigpen said: “We grow increasingly encouraged as we observe continuously improving market fundamentals and the resulting strength exhibited in oil prices. With tightening utilisation for high-specification ultra-deepwater and harsh environment assets, and longer tender durations across multiple markets, day rates are steadily increasing, which bodes well for the offshore drilling industry and Transocean.”

According to Market Watch, the consensus analyst share price target for Transocean is $2.78. Will Transocean’s stock go up, defying analyst estimates, or could it succumb to profit-booking? What do the charts suggest? Read our RIG stock analysis to find out. 

Transocean share price technical analysis: weekly chart

A candlestick chart analysing the Transocean stock price on a weekly basis
Transocean share price analysis, weekly chart – Credit:

Transocean’s share price rallied sharply from the lows of $0.64 in October of last year to $4.83 in June of this year, a 646% rally during the period. Thereafter, the stock witnessed profit-booking and dropped to the 50-week simple moving average (SMA).

The bulls successfully defended this support but the rebound lacked strength. This indicates that buying dries up at higher levels. The repeated retest of a support level tends to weaken it.

If the bears sink the price below the 50-week SMA, the selling may intensify and the pair may drop to $2.65 and later to the psychological support at $2.

The flattish 20-week exponential moving average (EMA) and the relative strength index (RSI) near the midpoint indicate a balance between supply and demand. The bulls will have to push and sustain the price above $3.95 to signal strength. 

If that happens, the stock may rally to $4.83 where the bears are again expected to mount a stiff resistance.

Transocean share price technical analysis: Daily chart

A candlestick chart analysing the Transocean stock price on a daily basis
Transocean (RIG) technical analysis

Transocean’s share price has been facing stiff resistance near $4, indicating that traders are booking profits at higher levels. The price has turned down and broken below the moving averages, opening the gates for a possible decline to $2.65.

This is an important support to watch out for because a break below it could complete a head and shoulders pattern. This could prompt traders to close their positions resulting in a decline to $2 and later to $1.50.

Alternatively, if the price rebounds off $1.65, the stock could again attempt a rally to $4 and possibly consolidate between these two levels for a few days.

A break and close above $4 will indicate the selling pressure has reduced. The stock may then attempt a rally to $4.83.

Transocean stock: Buy or sell at these levels?

Transocean’s share price is currently witnessing profit-booking that may pull the price to $2.90 and later to $2.50. A break below the neckline will complete a bearish setup, which could intensify selling. The stock may gain strength on a break and close above $4.

The views and opinions expressed in this article are those of the author alone and do not constitute trading advice. Trading and investing involve substantial risks, and you should always do your own research or contact your financial advisor before arriving at a decision. Never invest more than you can afford to lose.

Trade Transocean stock: Transocean shares price

Transocean Ltd.
Daily change
Low: 2.875
High: 2.964

Further reading

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