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Commodities is the name of the game right now - two of the world's most important commodities powerhouses are at each other's throats.
But wild swings up can always be followed by big drops down - both West Texas Intermediate and Brent crude dropped under $100 a barrel on Monday.
You know the old saying about a rising tide lifting all boats... well, it works the other way, too, and a lot of major names in the petroleum industry have dropped as well.
The current dip is driven by a bunch of different factors - higher production from OPEC, ongoing diplomatic talks between Russia and Ukraine, and a potential downturn in demand from China, the biggest oil importer in the world, where they're locking down the manufacturing powerhouse of Shenzhen.
These kinds of shifts are common for any commodity stock, which is why a lot of people trade them rather than looking at them as long-term holds. For me, these kinds of swings are fertile ground for finding opportunities in small-cap stocks, which tend to produce larger proportional returns in response to volatility.
Right now, a major offshore oil drilling contractor is trading around $4 thanks to the falling price of crude, and my charts tell me it's hit a critical buy-in point for quick profits...
This Company Drills More Oil Than Anyone
Transocean Ltd. (NYSE: RIG) was formed out of a merger of several oil and natural gas companies in the United States and the acquisition of a Norwegian firm, to create a company capable of doing massive drilling operations with a global reach.
Its clients include all of the largest oil producers globally - Royal Dutch Shell and Chevron accounted for over 40% of its revenue in 2019. Recent acquisitions have expanded its capabilities in harsh environment drilling, and it is the largest offshore drilling contractor in the world by revenue.
Right now, it's beautifully positioned to profit as countries scramble to look for oil outside of Russia.
Now, my Penny Nation subscribers had a chance to play the last big round of volatility in RIG shares just last month, before the war started, when we exited a RIG trade with around 200% in gains.
The recent slip in oil prices knocked it down a peg, to put it politely. This stock had been riding above $5 last week, but it got swept up in selling Monday and Tuesday. At the time of writing, it's hovering right around the $4 mark.
We're coming up on an excellent window in which to buy, and I'll show you why on this chart:
Here, you can see the convergence of three things:
- An RSI at 48, indicating that the stock is pushing into oversold territory.
- 50-day moving average at $3.63 and trending up.
- 200-day moving average at $3.63 and mostly level.
If the 50-day average pushes above the 200-day threshold, we're in a classic pattern we call a "golden cross," which indicates the potential for a major jump in share price. They don't always bear out, but in this case, I think it's a good bet.
Transocean is, simply put, a cornerstone of the oil industry at this point. If talks between Russia and Ukraine break down for any reason (which is not just possible, but likely), other oil firms are going to be depending on Transocean to help increase supply - remember, it operates well outside of Russia and the conflict zone. On top of that, we'll see another spike in the price of oil that'll push a buying surge on energy stocks.
Either of those things could send RIG through the proverbial roof, and because it's a small-cap, it doesn't have to move far to bring in big returns.
My readers know that these kinds of plays are my specialty.
I started finding these opportunities after trying out a new technique for making plays on sub-$10 and even sub-$5 stocks, and I have to tell you - the returns have been amazing: 435% in seven months... 280% in 11 days... 311% in 29 weeks... even 788% in a year.
My new service teaches people how to take advantage of these "penny rockets" for the chance to make boatloads of money on these heavily discounted stocks.
You can get all the details here...
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.