Chase Canadian Oil Sands' yield with caution

Hi Lou,

What are your thoughts on COS? The dividend is attractive at almost 7 per cent yield. Do you see this as a good time to move into COS?

Thanks.

Ian

Hey Ian,

This will be the third time that I have examined the case for Canadian Oil Sands Ltd. . The first time I ran the charts was on a request from Irene on June 16, 2010. The shares were trading for $28.72 and it was advised to watch support at $26.00 because if that level was breached they would test support at $22.50. Retrospectively that is what transpired.

The second time I analyzed COS was on March 16, 2012 when the shares were trading at $21.63. At the time Mark wanted to know if he should add to his position. It was observed that the stock was trending to a retest of $19.00 and strategy was to buy on a pullback.

Another review of the situation will help you decide if now is a good entry point. Clearly a 7 per cent dividend yield is hard to ignore.

The three-year chart for crude oil needs to be consulted when it comes to the shares of COS. As crude oil goes, so goes the stock. Oil prices are in a freefall and until they turn the pressure on, COS will continue.

The three-year chart for COS indicates that the shares have been in a sell off since April of 2011 and that every attempt to move higher has met with resistance along the 200- and 50-day moving averages.

Currently the shares are holding support at $20.00 but as mentioned in the March 16, 2012 post it looks like the best case scenario will be a retest of support at $19.00. If $19.00 doesn't hold then there is a thin ledge of support that comes in at $16.00 and below that nothing until $10.00.

The six-month chart illustrates the resistance at $23.00 that the stock met in the beginning of May and the downtrend that dominates the agenda.

The RSI and MACD are both indicating that a reversal of the downtrend has yet to emerge.

At this point we still need to show caution in the face of the downtrend. There is no sense to chase a 7 per cent yield and sacrifice capital in the bargain. If you must chase the yield the best strategy would be to chip away at the stock and accumulate starting at $19.00 and see if it holds.

Make it a profitable day and happy capitalism!

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