Bearish on RIG

Transocean Ltd. (RIG) operates oil wells drilling offshore. The company became globally famous -- in the bad way -- because they were operating the Deepwater Horizon platform owned by BP when it exploded in 2010, dumping nearly 5 million barrels of crude into the Gulf of Mexico.

Big oops.

So on the one hand, to be bearish on Transocean isn't a huge stretch. On the other hand, there are no secrets left about Deepwater Horizon. Everything that possibly could be known was priced into the market long ago.

The Swiss-based company continues to operate, with a return on equity of 3.1% and a debt-to-equity ratio of 0.44.

And the stock is still relatively expensive, costing $1.76 for every $1 in sales.

So based on the financials, RIG is no growth stock, but it wouldn't be an entirely shabby bull play.

The chart, however, tells a different story.

The stock has been tracing a downtrend on the weekly since January 2010, about three months before the Gulf spill. And within that has been tracing a daily chart downtrend since late July, and an hourly chart downtrend since late October by one reading, or since Dec. 6 by another.

So for whatever reason -- be it forecasts or a bad rep -- the market is down on RIG.

The stock is now trading at around $41.82. The most recent lowest low is $41.28, giving 1.3% of downward movement before the price reaches support.

Volume in recent days has shown high peaks on down days -- 20 million plus on Nov. 29, for example, and 18 million plus on Dec. 9. Average volume is about 13 million shares.

So price and volume both suggest there is significant downside momentum, and a break below $41.28 would confirm that.

The last time the stock was trading at this low a level was January 2005, and there is significant support below $35.

A move above $46 would suggest break the hourly-chart downtrend.

Institutional ownership is at 59%, a bit on the low side for a company this size, but still high enough to mean there are lots of share waiting to overwhelm demand in a portfolio "adjustment" should there be bad news about RIG.

The company badly missed its earnings estimates of 74¢ last month, coming in with a loss of 2¢.

And with the 76% premium of price over sales and the lengthy history of declines, there is an incentive to move money to where it is more productive.

Next earnings are Feb. 23, 2012, and the dividend is 79¢ per share, with the next ex-dividend date most likely coming sometime in February.

Disclosure: I hold a bear position on RIG.