Hello Lou,
What is your opinion on Encana ?
Boris
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Hey Boris,
Thanks for the assignment. This will be the fourth time since 2012 that I have been tasked with analyzing the charts for Encana Corporation (ECA TSX). The last was on March 27, 2015 when the shares were trading for $14.07. Lalit was tempted to buy and average in if the stock were to decline. It was advised that in my experience that the better strategy is to average in when a stock is going up.
The research identified that the shares had experienced a waterfall decline in October of 2014 and had broken support at $20.00 by November of the same year. There were no clear indications that ECA was poised to move higher in the near term. It was mentioned that if they were bound and determined to buy in at that time that they should take a small position and keep the rest of their powder dry to determine if support at $12.00 held.
By late April ECA was on a oneway ticket to its 52-week low of $7.44 by late August.
Another inspection of the charts will inform my opinion of the stock.
The three-year chart has all the patterns that should alert investors to the risks associated with bottom fishing. There is an established downtrend line, a death cross that formed in early November of 2014, the inability to hold support at various levels, and a series of lower highs and lower lows. The aggressive decline that started in April of 2015 offered no signs that the stock was about to reverse the downtrend.
The six-month chart highlights the sell signals generated by the MACD and the RSI in late April that has eroded shareholder value. The stock has been oversold since the beginning of July which is a good long time and should be viewed as a sign of weakness. The move up yesterday was prompted by news that the company had sold off some assets to pay down debt.
ECA has to be approached with caution. There are no signals pointing to a trend reversal in the near term.
Next time I will investigate the case for Dividend Growth Split Corp. (DGS TSX) for Jana.
Make it a profitable day and happy capitalism!
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