An international provider of contract drilling services, Transocean, and an investment management firm, Cohen & Steers, are the two stocks that the Three Line Price Break trading system is advising to sell short. Transocean share price dropped 5.13% on Friday, setting the RIG stock as the biggest loser of the day in the Oil Well Services & Equipment industry. Cohen & Steers (NYSE:CNS) stock also suffered significant losses (2.52%). The technical analysis on both stock graphs reveals why the trading system has picked them as stock to short-sell.
Three green bars that are followed by a red one printing a new 3-day low is the signal for short-selling according to the trading strategy. The signal is stronger when is completed at a key resistance level. RIG stock has met resistance 4 times in the last 12 months at $60, thus the importance of the short-selling signal is further enhanced. Yet, RIG shares must trade below Friday’s low in order to adopt the trading strategy; otherwise we should ignore the stock pick.
Assuming traders would sell short at about $55.50, it is necessary to discuss about a stop loss order. The two options include a stop loss higher than Friday’s high ($57.50) and a looser stop loss at the most recent high ($59.50). Given that the profit target according to the Three Line Price Break system should be at twice the length of the entry bar (that is at $51.5), deciding on the stop loss would have an impact on the reward-to-risk ratio of this trade. If a tight stop loss is chosen, R-R will be 2-1 whereas in case of the loose stop loss, the R-R drops to 1-1.
Cohen & Steers (NYSE:CNS)
In CNS daily stock graph Friday’s red bar is printed after 4 successive green bar, theoretically strengthening the short-sell signal. However the last time CNS stock price met resistance at this level was in… 2008! Let’s take a look at the weekly stock graph.
A hidden resistance level is drawn at about $34. The 61.80% Fibonacci retracement level is considered as a key turning point, improving the significance of the signal.
The stop loss of this likely trade should be set at $34 obviously and the profit target at $31. Note the previous important resistance level there which is expected to provide support now. Yet, if CNS has indeed entered a long-term downtrend since July 2012, Cohen & Steers shares may drop down to $24 or even $20 before a noteworthy pullback takes place.
Disclaimer: I have no positions in any stocks mentioned but plan to initiate short entries at CNS and RIG within the next 72 hours.