While the price could potentially fall as low as $5.56, which is its lowest level since the stock has publicly traded on the NYSE, I do believe that the current levels present one of the best risk/rewards of the entire stock market. While I am primarily a technical analyst the fundamentals over the next few years for this industry are looking bright after a multi-year bear market. As they say, price moves before fundamentals.
Stock is a potential multi-bagger and unless you believe it is going to zero the current levels are amazing. This stock has been on my radar for 2+ years and is now forming a high probability bottoming pattern while industry peers are off their lows. Speculation is a game of probabilities and they don't get much higher than FRO currently offers.
'Be Fearful When Others Are Greedy and Greedy When Others Are Fearful'
Fundamentalists, the technicals are now on your side.
Both the exhaustion gap and ending diagonal most often precede strong price reversals. 5/30/2017, next Tuesday (the first trading day after Memorial Day weekend), FRO reports earnings in the pre-market. Ideally a strong up move follows and confirms the end of the downtrend. Will be looking to add the second leg if confirmed Tuesday.
If this reversal is to hold true the gap today should ideally never be filled and the price should stay around this level if not move higher into the end of the week. This would give a weekly reversal signal which will be when I would add the second leg. There are some worrying signs that this may not be a true reversal, such as sentiment on websites (lot of bulls coming out of the woodworks) and the put/call ratio being at .084 today. While the put/call ratio is on fairly low volume (622/52) it is still a cause to be hesitant.
Two little asides with the first being my own psychological reasoning on why I think there is a distinct possibility a reversal is at hand not just in FRO, but in the entire tanker industry. After 3 days of heavy volume at or near all-time lows a significant amount of volume has changed hands. While thats not to say that price cannot see lower lows, a lot of weak hands have theoretically been flushed with strong hands taking their place at extremely attractive levels. Right now VLCC rates are at around $10k a day which is absolutely horrendous. From a fundamentalist's perspective, the rates should lead to lower stock prices and thus these past few days would mark what could be perceived as an opportune time to dump before the industry sees even lower stock prices. This goes contrary to what my learning and experience has shown. Price often reverses a significant amount of time before fundamentals see the cards change as positive sentiment for the future begins to take a stronger hold over the negative sentiment of current conditions.
Thinking ahead, should today be the first day of a new uptrend it begs a question that causes constant arguments among technical analysts. Does price cause the news or does the news cause the price? I'm in the camp that the answer lies somewhere in the middle. More often than not price causes the news but in certain instances the news causes the price. What happens to price should the GNRT merger not be on the table? Now I do not ascribe to the notion that the merger is solely what caused the reversal, as can be seen by my above analysis, but it could definitely accelerate a trend reversal by increasing demand.
With the doji, the weekly pattern has now formed a bullish harami cross pattern. While not much can be made of this pattern on its own, a change in trend could very well be at hand.
FRO could theoretically continue to consolidate at these levels for multiple weeks. A base is being built as the transfer of stock from weak hands to strong hands continue and theres no telling when demand will finally outtake supply. Would prefer to see this break $6.00 next week and turn the weekly candles into a bullish engulfing, but I am not holding my breath on that. Still only in the first leg of my long-term FRO position.
a whole list of bullish events culminated to close the week. if the gap today holds, the daily chart now sports an island bottom reversal. we had a close above the downtrend line. weekly tower bottom candlestick pattern, in addition to the weekly harami cross noted on June 2nd. the monthly candlesticks are on pace to complete a morning star which would be so incredibly bullish its getting my adrenaline going just thinking about it. with that said, experience says to wait until this occurs instead of going gung-ho in anticipation. todays potential breakout move up was on ok volume. not enough to discredit the move, but not a bonafide follow the leader type breakout either.
look for resistance to be met at around $6.30 (100dma), roughly $6.50 (clean round number and around the box breakout counting from $5.35 to $5.90), and then finally at $6.80 which is the 200dma. To my eyes it looks like the supply is dried up and there is now a vacuum. Come Monday if there is another move up I will add and finish my option position, while waiting to enter my full stock position on a break above the 200dma. In my opinion the 200dma is the box kahuna. a legitimate break above that, and this stock is in a bull trend. while mr.market seems to have its own agenda, if this were to happen by the end of the month the most conservative of investors would have an absolutely phenomenal, incredibly reduced risk, position entry. Monthly morning star and above its 200dma... time will tell