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terling Resources: It's not generating cash

What is your opinion on Sterling Resources?


Hi Lori,

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Sterling Resources Ltd. is developing oil and gas resources in a variety of locations including the North Sea, Holland, France, and the Black Sea. Unfortunately the stock has broken down and given investors a rough ride.

The charts will provide some sense of direction, opportunity,and risk for SLG.

The three year chart says it all. The trend is your friend until it ends. The stock created a lot of wealth on the lift off the double bottom in late 2008 at $0.48. By the spring of 2011 the shares topped out at $4.75 where the uptrend was reversed in short order.

The lesson we can garner from this waterfall sell off is that there were plenty of opportunities to get off the ride and preserve capital. The first gap down in late April of 2011 surfaced as the company declared force majeure on its developments in Romania.

From there it breached support along the 200 day moving average in early May and subsequently could not hold onto support at $3.00, $2.50, $2.00, and $1.50. Not pretty but certainly many stops along the way to put a facehugger on the five star luxury of the penthouse of profit.

The six month chart provides another series of signals that the uptrend was coming to an end. On April 14 Joseph Schacter, an analyst who covers the company, said he was selling. That got the ball rolling. Then the MACD and the RSI turned lower on April 18 before any news about developments in Romania hit the wires. Things never got any better.

On July 26th the company announced that it had concluded a $45 million bought deal financing priced at $1.40 a share. It has to hurt when management has to go to market for funds at distressed prices.

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I get the sense that you are looking to bottom fish SLG. If that is the case you want to watch trading volume. Over the last thirty days the shares have only traded above the average daily volume, over the last three months, five times. A stock needs buyers to step up if we want it to head higher.

As I look at the situation SLG is not going to be producing any hydrocarbons for some period of time. They are drilling, testing, and evaluating which is cute as my old friend Peter Jahn used to say, but it's not generating cash.

Keep your powder dry and wait for a signal that this stock has exhausted all the selling.

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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