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.
This specific trading system has picked correctly Dolby Labs and Arch Capital Group stocks lately. The most recent unsuccessful picks were Exelis and Coherent stocks.
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.