Atwood Oceanics Inc. (ATW) is an offshore driller, and offshore drillers have been especially hard hit by low oil prices. ATW has dropped to the $6.50 to $7.00 per share range twice between September and November 2016.
Technical traders actually like that pattern. It is called a Double Bottom. It indicates that the stock has twice found support at the same level and rebounded from there. This may mean sellers are exhausted. Buyers have stepped in and taken over twice at the support level. (See also: What Does a Double Bottom Tell a Trader about Overall Trend?)
It is important to confirm such technical indicators by looking at company fundamentals and industry conditions.
Atwood Oceanics’ most recent earnings report showed a major decline in revenues. Ocean drilling is expensive, and with oil prices so low, few companies find offshore sites cost-effective enough to hire ATW to drill. ATW was forced to retire a large number of its ships and leave much of the remainder sitting in wait for drilling orders to come in. (See also: Atwood's Double Top Warns of Looming Losses.)
The economic environment for the energy sector isn’t helping. Oil prices have been on a roller coaster as rumors of OPEC reaching an agreement to freeze production have come and gone. The ups and downs of oil prices have been more down than up.
OPEC’s major meeting this week may shine a brighter light on the prospects of raising oil prices, but the International Energy Agency says that even an OPEC cap on production might not be enough to get rid of the current oil oversupply until late 2017. (See also: OPEC Inaction Could Bankrupt Russia and Venezuela.)
In other words, both fundamentals and market conditions make any attempted breakout look untrustworthy.
Just to add to the confusion, an analyst said this week that ATW is undervalued, suggesting that investors who buy it now could make significant money.
So who to you listen to? The answer is, listen to the stock itself. Let it break out, and if the volume on that breakout is higher than usual while good news emerges about oil prices, investors may want to wade in and buy some shares. On the other hand, if the stock tumbles – either right after the breakout or just before it – wise investors who waited will find their patience rewarded by not losing money.
Fortune telling is seldom a good guide for whether to buy a stock. The stock will show its true colors. By waiting, you may miss a few percentage points if it does break out, but consider those percentage points your insurance against losing a significant portion of your investment by jumping in before the signals are clear.