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Hi Lou,

Is Husky a buy?

Thanks,

Gill

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Hey Gill,

Thanks for the assignment. This will be the sixth time since 2010 that I investigate the case for Husky Energy Inc. (HSE-T). The last was on May 20, 2015 for Garry. The shares were trading for $24.58 and had been in a gentle down channel since February of last year. The analysis identified that the the stock was meeting resistance along the 200-day moving average and had been pulling back since April.

It was advised to look for other opportunities in the oil patch and to look for opportunities to trade this one for profits. Finally, it was mentioned that HSE would be reporting second-quarter results in July of 2015 and that it would be prudent to watch as that flex point approached.

As events transpired, HSE continued to slide, touching a 52-week low of $11.34.

Another run at the charts will help identify if this stock is a buy.

Desktop users click on image to enlarge

The three-year chart for oil is a good place to start the analysis. Crude prices have been in a precipitous decline since July of 2014. Until we see a reversal of this downtrend, there is scant hope that the energy sector in Canada and around the world can expect a break. When the price for West Texas Intermediate breached a key support level at $40 in December of 2015, it was like throwing a boat anchor to a man struggling in the water.

Desktop users click on image to enlarge

The three-year chart for HSE illustrates the down channel identified last May. In late October, the stock broke below the lower rail of support and started an aggressive retreat in sympathy with the movement in crude. The MACD and the RSI both generated sell signals early in the month, alerting the informed investor that they could expect more pain.

What has also developed since the last analysis is resistance along the 50-day moving average, which will have to be added to your evaluative process.

Desktop users click on image to enlarge

The six-month chart depicts the bounce off the 52-week low that transpired as the price of crude oil rebounded in the third week of January. As welcome as that has been, I am not yet convinced that we can expect the rally in crude to continue. In addition, HSE has suspended its dividend and cut its capital budgets. Neither can be considered a ringing endorsement to buy this stock.

If you do decide to bottom-fish HSE – watch for resistance at $15.00.

Next time I will examine the charts for MagneGas Corporation (MNGA Q) on task from Syd.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.