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(Jupiterimages/(C) 2006 Comstock Images)
(Jupiterimages/(C) 2006 Comstock Images)

Schizas' Mailbag

Penn West: Put this one on your Watchlist Add to ...

Hi Lou,

Would you buy Penn West now or would you expect a pullback, especially as a result of the wildfire near their wells.

Thanks,

Tom



Hi Tom,

Penn West Exploration Ltd. is a major independent energy company that produces 166,000 barrels of oil equivalent a day. They have a land base of close to six million acres and an inventory of 10,000 wells.

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Long term, PWT has deep strength.

Short term, they have about 30,000 barrels of oil equivalent per day temporarily shut in because of fires in Alberta and heavy rain and flooding in Manitoba and Saskatchewan.

Let's consult the charts to identify if now would be a good time to buy.



The three-year chart depicts the selling that came in as the stock hit resistance at $28.00 in March of 2011. PWT had been in an uptrend from September of 2010 when it bounced off of $20.00. Currently the shares appear to be trying to find support in the $22.00 range.

Energy stocks are coming into a period of seasonal strength that starts in late July and runs through early October, so you have asked the right question at the right time.





The six-month chart provides a closer look at how PWT has been trading. There is a defined downtrend that has been established. The MACD generated a buy signal in May of 2011 when the stock bounced off $22.50 and ran to $25.00. But the advance met resistance along the 50-day moving average, sending the shares back to their current level. Worth noting is that the MACD also generated a sell signal at $25.00 in early June.

At this point none of the signal generators are indicating that PWT is about to reverse the downtrend. However, given the influence of seasonality on energy stocks, it would be wise to put this one on your Watchlist for the next couple of weeks for signs of a reversal of the downtrend.

PWT is expected to report second-quarter earnings on Aug. 5, 2011 so make sure to put that on your calendar. You have identified a company with strong fundamentals that has hit some temporary weather-related problems. But make sure to confirm the bottom before putting capital at risk.

Make it a profitable day and happy capitalism!

You can now track a stock's return over various time periods using Globe Investor's Watchlist. Go to your Watchlist and choose the new Per Cent Performance view. Read more: Watchlist: Better ways to measure portfolio performance

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

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