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?
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!
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