Trinidad Drilling

07/29/09 09:06:17 AM

by Koos van der Merwe

With the oil and gas prices rising resulting in an increase in exploration, Trinidad Drilling looks interesting.

Security: TDG
Position: Accumulate

Trinidad Drilling provides high-quality oil and gas drilling equipment with experienced personnel capable of drilling a broad range of exploration and production targets. They are focused toward the deeper drilling market providing the newest and most technically advanced rigs in the industry. In Canada, 53 drilling rigs are operational, and 56 in the United States. The company also operates four barge drilling rigs in the shallow waters of the Gulf of Mexico and seven drilling rigs in the Chicontepec region of Mexico.

FIGURE 1: TRINIDAD DRILLING, MONTHLY. The stock price has dropped from $19.48 in February 2006 to $2.16 by March 2009, in spite of oil prices rising.

Graphic provided by: AdvancedGET.

Figure 1 is a monthly chart, showing how the stock price has fallen from $19.48 in February 2006 to $2.16 by March 2009, this in spite of an oil price rising to unbelievable heights over this period. We must remember, however, that the company provides equipment for exploration by other companies, or is it possible that the seven drilling rigs in the shallow waters of the Gulf of Mexico have not been that successful? Then again, we should look to the fundamentals, which may explain the reason for this collapse, but then, we are looking at the technicals and attempting to ascertain the future movement of the stock by this means.

Whatever the reason for the collapse in the company's share price over this period, the stock price since March does look interesting. The relative strength index (RSI) has given a buy signal and is suggesting strength. The negative is the wave theory. An Elliott wave theory C-wave usually falls in five waves. Because of the RSI buy signal, the chart suggests a three-wave a-b-c correction.

FIGURE 2: TRINIDAD DRILLING, DAILY. This stock is worth watching at these numbers.

Graphic provided by: AdvancedGET.

Figure 2, a daily chart, shows that wave c of wave C has indeed fallen in five waves, confirming the C-wave finality. The daily chart also suggests that the stock price has now moved into a wave 1 and a wave 2 of a new bull trend. The chart also suggests that wave-2 could have bottomed at the 38.2% Fibonacci level. The negative, of course, is the RSI, which has not given a definite buy signal.

Trinidad Drilling is a stock worth watching . Traders who are prepared to take more risk could buy at present levels.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.