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A&W Income Fund not quite ready to serve up a gain

Back in April you did a piece on A&W Income Fund. You suggested staying clear of it. It has dropped significantly since then. What do you think of it now?



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Hi Simon,

Thanks for the assignment.

This will be my third time analyzing the charts for A&W Revenue Royalties Income Fund since November of 2010. I thought it was headed for a pull back in November which it did. In April of 2011 the charts failed to provide enough evidence to encourage buying at $21.05 which retrospectively was the right call.

The charts will once again form the basis of buy, sell, hold decisions.

The three year chart tells the story of a long advance reversing into a sell off as we came into 2011. The tell tale signs that the trend was reversing to the downside include a breach of the 50 day moving average and the uptrend line in February of 2011. In addition resistance formed in April along the 50 day moving average on several attempt to move higher.

The six month chart provides further evidence of the downtrend that has gripped the units in 2011. Notable features are the breach of the 200 day moving average in late May and the death cross that formed in mid June.

The MACD did generate a buy signal in late June which saw the units move off of support at $18.00 to $19.75 but the advance was not sustained as we came into August. Now I have to assume the selling in August was motivated by the general negative pressure in the macroeconomic environment as opposed to corporate events.

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At this point what we need to confirm is support and direction. The units have support at $18.00 and are trying to climb back above $19.00 where there is another ledge of support. There is also resistance that has formed at $19.75. Best case scenario would be for the units to build a base and trade in a range between $18.00 and $1975.

The momentum indicators are not suggesting a move to the upside so it would be best to be patient and wait for signals that the fund is going to move higher. Currently the trend is still down so don't get jug headed over the 7.4 per cent yield on distributions.

Make it a profitable day and happy capitalism!

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About the Author
Lou Schizas

Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality - and a true believer in the happiness-inspiring powers of capitalism. More

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