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Canadian Helicopters' fleet in Afghanistan includes 7 Bell 212s and 4 Sikorsky 61s. (CANADIAN HELICOPTERS)
Canadian Helicopters' fleet in Afghanistan includes 7 Bell 212s and 4 Sikorsky 61s. (CANADIAN HELICOPTERS)

Schizas' Mailbag

HNZ Group Inc. in a deep dive Add to ...

Hi Lou,

HNZ Group (formerly Canadian Helicopters) shares have been sinking like stones lately.

I have not spotted any negative news about the company. They pay a high dividend, they have been performing well, and their fundamentals look solid, yet the stock has been dropping by about 1-to 4-per cent each day since the start of the month.

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What’s going on here? Why are the shares dropping so fast and by so much?

Regards,

Patrick

Hey Patrick,

Thanks for the assignment.

HNZ Group Inc. has been selling off since May of 2012 when it hit a 52 week high of $36.22 so I would say that the problem has been in place for close to six months. This is a classic case of the stock running counter to the fundamentals.

The company has beaten street earnings estimates in all of the last six quarters and there has been absolutely no corporate news or events that would justify the selling. However given that the company earns a substantial portion of its revenue from the offshore energy industry you might want to watch the price of oil as an indicator as to direction for the stock.

Technical analysts work off the premise that in the price there is much knowledge. By that I mean that all of the information you need to know about a stock is represented by its price in the market, how it is trending and moving relative to its moving averages. Technical analysis provides a great tool kit that will help you cut your losses and run your profits. A review of the charts may not provide an answer as to why the shares are moving on a fundamental basis but they will confirm trend, support, and resistance.

The three-year chart indicates that the advance that started in 2009 stopped out as the shares hit an all time high of $36.22 on May 3, 2012. From a money management point of view you understand that investors who were picking up HNZ.A along the advance have had incentives to book their profits while they were still available.

Just this week I was talking with my good friend Mayer, who had bought Research in Motion at $15.00 and rode it all the way up and then down to their current price of $7.68. Money management is all about taking money off the table when available. Most investors know how to buy a stock but they become reluctant to sell. An old saw from the street is that you can’t buy a hat with profits in the market. You have to sell the stock to make the purchase.

The technical signals on this chart were screaming sell in May. The RSI and MACD both indicated that the momentum was about to shift towards selling and that is exactly what happened. Even the most recent selling that started in late September was tipped off by the same indicators.

The six-month chart provides a close-up of the resistance along the 50-day moving average and the death cross that surfaced in mid September. The RSI and MACD seem to be turning up which might set up a trade but with a downtrend in place and resistance along the moving averages I wouldn’t count on a trend reversal. Until HNZ.A straightens out and starts flying right I would not be chasing it.

Make it a profitable day and happy capitalism!

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

 

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