Transocean Ltd. (RIG) shares moved more than 5% higher on Thursday amid reports that the Trump Administration was planning to "sharply" expand offshore drilling. According to an Associated Press report, more U.S. coastal waters would be open to exploration, including the Pacific Ocean for the first time in decades. The total new exploration area is expected to amount to more than one million acres, which bodes well for many rig firms.
While Transocean, Noble Corporation plc (NE), Parker Drilling Company Inc. (PKD), Rowan Companies plc (RDC) and other industry players rallied following the news, it is worth noting that the plan faces a lot of opposition that could complicate its implementation. Environmentalists, Democrats in coastal states and even Florida Gov. Rick Scott – a Republican – have voiced their opposition. Drilling in these areas could also require extensive new studies before the projects can go ahead. (See also: A Primer on Offshore Drilling.)
From a technical standpoint, Transocean stock broke out from its prior reaction highs at around $11.80 to R2 resistance at $11.95 before closing the day slightly off of its highs. The relative strength index (RSI) moved into overbought territory at 74.04, but the moving average convergence divergence (MACD) crossed above the zero-line following its bullish crossover during the latter part of December 2017.
Traders should watch for a breakout from R2 resistance toward 52-week highs of $16.16 if the rally can be sustained. However, the lofty RSI reading suggests that traders may be more likely to see some consolidation between R1 and R2 resistance before a further move higher. A breakdown from R1 support levels at $11.32 could lead to a move back down to the pivot point and 50-day moving average at around $10.42. (For more, see: An Overview of Deepwater Drillers.)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.