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Schizas' Mailbag

Avoid Enerplus until the selling pressure abates Add to ...

Hi Lou,

On September 7 you reviewed Enerplus and said it looked like it had the ability to move through $16 all the way up to $22 per share. Since then, the stock has fallen to the $12.50/share range.

There have been some analysts who have cut target prices on the stock. What do you see in the technical indicators?

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Thanks,

Brittany

Hey Brittany,

Thanks for the assignment.

This will be the sixth time that I have examined the case for Enerplus Corp. The last case study was conducted as you mentioned on Sept. 7, 2012, when the shares were trading for $15.61. Kevin wanted to know if the shares offered a good entry point after all the travails that investors had endured since the selling began in March of 2011.

When I ran the charts in September I made note of a couple of patterns that suggested that the move off the rock bottom of $11.67 had more gas in the tank. Which is what transpired as the stock added another 7.45 per cent as it closed at $16.78 on September 17, 2012. But that was as good as it got. Resistance came in and persisted into early November when the company reported a third-quarter loss, cut its capital spending by 20 per cent and advised that they expected growth to slow. After then it was all down hill.

I think the lesson in the September case study is that a buy doesn’t mean buy, hold, and never look at the charts again. ERF produced a healthy 7.5 per cent gain in ten days but signs of weakness surfaced that made the expectation of a run to $22.00 unsustainable. The good thing was that with regular surveillance there was plenty of time to make a mid course correction and avoid the storm.

Another look at the charts will provide new guidance on how best to proceed.

The three-year chart clearly indicates that after the move up in September the case for more gains was getting thin. The stock failed on a number of occasions to overcome resistance near $17.00. In addition by mid-September the MACD and RSI both generated sell signals suggesting that the party was over. Finally the shares broke below the 50-day moving average in late October.

The six-month chart isn’t generating any buy signals and it appears that we are on our way to retest the 52-week low. ERF is to be avoided until the selling pressure abates.

Make it a profitable day and happy capitalism!

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

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