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Schizas' Mailbag

Baytex Energy Corp not a buy just yet Add to ...

Hi Lou,

I am a big fan and this is my first time writing to you.

I am interested in reading about your current views on Baytex Energy. I read your comments for Claus in March of 2011.

I am retired and looking for income and can stand some volatility as I have a 30 year time horizon. (Fortunately, there is longevity in my family and I do not plan on (or need to) encroaching on capital until forced to under CRA’s current rules (i.e. converting my RRSP to a RRIF or annuity when I reach 71). If I acquired Baytex it would be held in my non-registered account.

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Thanks,

Paul



Hey Paul,

Thanks for your kinds word and support. Congratulations on your good health and good fortune.

As you mentioned I last examined the case for Baytex Energy Corp. on March 21, 2011 for Claus. At the time the stock was trading at $55.70 but the uptrend line had been breached and it looked like a double top was forming. A double top is a reversal pattern that indicates that selling pressure is going to come into the picture. That is exactly what happened. The stock retreated to a low of $39.18. I hope Claus put a stop in and preserved some of his capital.

Let’s take a look at the charts and see if you would be well served buying BTE.

The three year chart depicts the down channel that developed in May and then the bounce off the rock bottom at $39.18 in early October. The move up has met resistance at $55.00 and is now looking to hold support at $50.00.

On the six month chart the RSI and MACD signalled the pop in October and are now indicating that the air is coming out of the current advance. At these prices the dividend yield is 4.7 per cent.

BTE is a solid performer with great management and a long track record but I wouldn't mount up just yet. There seems to be more selling to come and that could provide better buying opportunities. The next test is if support along the 50-day moving average holds.

Monitor the MACD and RSI for signals that the momentum has shifted and investors are willing to step up to the plate with a buy order. Another metric to follow is volume. The average volume of shares traded on the TSX is 821,500 shares a day. In each of the last 30 days of trading the volume has been below the average which to me puts a caution flag on the track.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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