Atwood Oceanics Inc. (ATW) broke above its resistance level at about $13.60 on Friday. That was followed by a high-volume sell-off on Monday. Now it is bouncing back up, though not dramatically. This battle is playing out because of the long dip ATW has been in. The resistance level was the last high, and people who bought at that level may have been regretting it ever since. 

All of those buyers who have been waiting in the wings look like they are ready to take their money and run. As ATW rose to its previous high, investors saw a chance to get their money back. The question now is whether new buyers will step in. (See also: Support and Resistance Reversals.)

Atwood Oceanics is an offshore driller. The company earns a living by drilling in the ocean for oil companies that hire it. This is an expensive proposition, and many firms have been reluctant to take on the expense when oil has been experiencing depressed prices. The prospects of getting a return on an investment in ocean rigs have not been good.  (See also: A Primer On Offshore Drilling.)

Now with oil moving past $50 per barrel, offshore drilling may become attractive again. Atwood stands to benefit from renewed interest in offshore rigs. That explains the steep rise in ATW’s per-share price. (See also: Crude Oil Soars After OPEC and Non-OPEC Countries Agree to Production Cuts.)

It may be a little overbought right now. Enthusiasm has a way of turning into skepticism. Rather than chase Atwood up the hill, it may be wise to wait for it to fall back a bit. If the down action occurs on light volume, a slight decline could be a buying opportunity.

Investors need to watch the volume indicator. If selling occurs on high volume again, the stock could cost an unwary investor a lot of money. It is prudent to place stop-loss orders and to check the stock daily. This is a pivotal moment for ATW’s stock, and volatility could increase.

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