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Twin Butte Energy shares caught in a nasty downtrend

Hi Lou,

Love reading your responses and the precision you place on your work which comes across each and every time. Just a quick one on Twin Butte Energy: where do you see it going over the next 12 months and do you see the dividend yield at risk?

Cheers, Angelo

Hey Angelo,

Thanks for the assignment and your kind words.

This will be the fifth time that I investigate the details associated with Twin Butte Energy Ltd. (TBE) since August of 2012. The last analysis was conducted on Apr. 30, 2014, when the shares were trading for $2.37. Joe wanted to know my thoughts of the risk reward evaluation of the stock and the sanctity of the dividend.

I don't have a measurement system for the evaluation of a board's decision to pay a dividend so I will leave that analysis for others. I will say that in my evaluative process when I see a company offering a dividend that yields 11.67 per cent I intuitively recognize, that given the current interest rate environment, the payout seems excessively generous.

What did arise from the research was that stock had bulled back from resistance along the 52 week and was about to retest support along the uptrend line and the 50-day moving average. It was also observed that the MACD and the RSI were signalling that selling pressure was mounting. It was advised to hold the stock to see if TBE could catch a bounce off support and to watch for the release of first-quarter results in May.

Unfortunately, the stock didn't catch a bounce – it caught a boat anchor in the form of its first-quarter report released in May. The report had some hair on it, including changes in the executive suite and reduced guidance, to mention two factors that had investors hitting the silk. When you get new members of a management team you can get the new brooms sweeping clean and putting a lot of stuff onto the curb.

Another run at the charts will help inform my thoughts on TBE.

The three-year chart indicates that by early May 2014 the shares had failed to hold support along the uptrend line and the 50-day moving average. In addition, the MACD and the RSI continued to inform investors that selling pressure was mounting. The release of first-quarter numbers gave rise to aggressive selling, taking the shares down from the $2.20 range to $1.75 in one day of trading.

The six-month chart illustrates resistance along the downtrend line and the 50-day moving average. In addition the stock is struggling to hold support at $1.60. The MACD and the RSI are not indicating that buyers are stepping up the plate.

Until TBE provides better signals that it's ready to reverse the downtrend I would advise patience.

Make it a profitable day and happy capitalism!

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