DAVID BOILY
Hey Lou,
Love hearing you on AM640 and always like hearing your opinions. I have a stock question for you.
You wrote previously about Connacher Oil and Gas (CLL) around when it was at $1.40 and I had been following the stock for a while.
I ended up buying Connacher not too long ago around when it was at $1.20 thinking it was a decent price at the time only to watch it plummet in price down to 52 week lows this past week in the $0.50s.
I don't have a lot of money in this stock, it was more a speculative buy than anything but I am not sure what to do with it now. Should I just dump it and cut my losses, should I maybe just hold on to it for now for a while or would maybe doubling down on the stock now since its way cheaper be a good move?
Your opinion would be greatly appreciated.
- Andrew
----------------------------------------------------
Hi Andrew,
Thank you for the assignment and your kind words. I last examined the case for Connacher Oil & Gas Ltd. on June 4, 2010 for Steve. The stock was trading at $1.35 and it was noted that there was resistance at $1.50. In addition it was advised that a company like CLL would require patience.
The company has some interesting prospects in the oil sands of northern Alberta but when we examine the charts it appears that they may be at risk of not meeting their goals. The company has forecast producing 50,000 barrels per day of bitumen by 2015. Their outlook for 2011 is for production reaching between 13,000 to 14,500 barrels per day of bitumen. Currently the company is searching for a joint venture partner to assist in expanding production by 24,000 barrels of bitumen per day.
A review of the charts will provide additional information to assist in answering your questions.
The three year chart paints the picture of a stock in a free fall. The shares hit a 52 week high of $1.66 on February 28, 2011 but it has been a case of lower highs and lower lows ever since. There have been plenty of opportunities to hit the silk and get off of this ride to preserve capital. The second peak of the double top that formed in April of 2011 indicated that momentum had shifted to the sell side.
The six month chart illustrates the death cross that surfaced in mid June. When the 50 day moving average crosses below the 200 day moving average it is a call to review why you should stay invested. At that time the shares were trading above $1.10. Yes a loss from your $1.20 entry point but way above the current trading range.
The RSI is signalling an oversold situation but no shift in momentum to buying. In addition the MACD is in similar posture. CLL is a very good candidate for a tax loss sale as we come to the end of the year.
The company has great potential but it has fallen out of favor with investors. With energy prices pulling back it may take longer to make the economics of their projects viable. Take the loss and look for another opportunity. With regards to averaging down on a losing investment, I don't recommend it. Chase your winners with new money. Not your losers.
Make it a profitable day and happy capitalism!
Have your own question for Lou? Send it in to lschizas@globeandmail.com.
Visit his website
Lou Schizas