The Stock: Ivanhoe
Recent price: $2.20
Trend: Canadian equity investors looking at their most recent statements are surely pleased with the healthy advance of mining stocks in the third quarter - the sector rose 47 per cent.
Now if only those sluggish energy stocks would, well, energize. Activity is finally picking up in this important sector as many oil producer and oil services stocks are rallying with the price of crude oil moving above $80 (U.S.) last week. Crude prices last flirted with this level in August before retreating, so technically minded traders will be watching how the commodity performs early in the final quarter of the year. Although the economic signals are far from positive, a scaling of the $85 marker could unleash new faith in petroleum stocks.
Granted, the performance of the S&P/TSX Energy index over the past three months remains near the bottom among Canadian sectors and the long-term trend line of the index has been flat for a year, but last week's 5-per-cent pop is its best weekly gain and the only time it has topped weekly TSX sector performance since April. That's a long time on the sideline for a sector that is worth 26 per cent of the S&P/TSX composite index.
The absence of the energy sector in recent market rallies has been notable. In the past year, only two of the weekly Stock Trends profiles have been on energy stocks, and one of those profiles - ShawCor , in May - advised a "sell." However, ShawCor leapt 13 per cent last week to hit a 52-week high.
In general, oil producer and driller stocks enjoyed a great week. Cdn. Natural added 8 per cent to its share price. Enerplus Resources Fund , a fund invested in producing properties in North America, drove through some long-term resistance and hit a new 52-week high. Suncor Energy also became the first of Canadian integrated oil stocks to be categorized as Stock Trends Bullish.
All may be indicators of changing sentiment for the sector, and worth noting for TSX equity returns ahead. A stronger energy sector means the economy is on firmer footing. Investors hungry for happy returns from this dominant group of Canadian stocks should start fishing in the oil patch again.
The Trade: Ivanhoe Energy finished September strongly, rallying on high volume and closing on Friday at $2.20, a share-price resistance level that offers investors an important cue for a momentum trade. The stock is now categorized as Stock Trends Weak Bearish, a signal that the share price has moved above intermediate-term trend line resistance.
The stock is also listed on the Nasdaq (IVAN) where its transactions last week totalled more than during the previous six weeks combined. Previous periods in which Ivanhoe's stock has been Weak Bearish but trading volume has been high have often signalled growing price momentum for this small-capitalization play. Investors who think the energy resurgence is a prelude to a strong quarter ahead can join the optimistic set by buying this enticing stock.
The Upside: The trend analysis presented here has little to do with fundamental valuations. It is about how the market responds to changing fundamental evaluations and how a stock's price and volume changes present tradable patterns. This chart suggests a potential 30-plus-percentage-point gain if the stock clears current resistance.
The Downside: If last week's crude oil move above $80 proves fleeting, prepare to exit this trade at the 13-week moving average trend line, equivalent to last week's opening price of $1.87.
Skot Kortje