The Bottoming Process

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There is a lot of money to be made in a stock that has been beaten down.  Generally, after a stock has been destroyed for some fundamental reason it will have some type of longer term bounce where traders can gather information from its price action over the course of several weeks.  In the case of RIG it bottomed back on June 9th around 42. There was very heavy volume on both June 8th and 9th leading to what appeared at the time to be a longer term bottom.

During the next seven trading days RIG bounced to the mid 50s.  It then traded down to 45.75 prior to bouncing up to the mid 50s again.  In the world of technical analysis this is called a “higher low”.  This higher low was violated two weeks ago on July 23rd when RIG closed at 45.23.  Things were not looking so good.  But the following Monday after trading below Friday’s low it reversed course and closed above 46 on good volume.  This caught my attention.

It made higher highs for two more days but failed at 47.96 on Wednesday.  I set an alert for 47.90 in anticipation of a possible move through 48.  When the alert was triggered this morning sellers rejected RIG at the 48 level the first time it traded there.  But each time RIG struggled close to 48 the pullbacks became shallower and shallower.  Buyer were gaining confidence.

Once above 48 RIG became a Trade2Hold.  The next major resistance was around 52 but based on RIG’s level of volatility I wasn’t really expecting a move much higher than 50 for today.  I took sales at 49.20 and 49.60 and got flat at 50.80.   I  will look to buy my shares back on a pullback tomorrow to around 49.70.

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