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Pumpjacks at work pumping crude oil near Stettler, Alta., June 20, 2007. (Larry MacDougal/The Canadian Press)
Pumpjacks at work pumping crude oil near Stettler, Alta., June 20, 2007. (Larry MacDougal/The Canadian Press)

Schizas’ Mailbag

This energy stock is caught in a nasty downtrend Add to ...

Hi Lou,

Love your column and the easy to follow analysis.

How about Strategic Oil and Gas? Not that long ago many analysts recommended a buy. Then it tanked and is not showing many signs of life. What’s your take?

Thanks very much,

Adrian

Hey Adrian,

Thanks for the assignment and your kind words.

Strategic Oil & Gas Ltd. has been in a serious selloff since February of 2013 when it traded near $1.40. By March of 2013 the shares began a concerted retreat down to just below $0.50 in May, 2014. That’s a lot of ground to give up but also certainly enough time to make a decision to sell the stock and preserve capital.

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Scrutinizing the charts will help identify if SOG can lift itself out of the downtrend.

The three-year chart depicts an established downtrend with resistance along the 50-day moving average all along the retreat. The death cross that formed in late June of 2013, when the shares were trading near $1.10, offered another signal that sellers were in control of the market and that we could expect more downward pressure to follow. Finally, the series of lower highs and lower lows over the last year served as another warning to investors that the downtrend was not about to reverse itself. Worth noting is that there have been some sharp but short lived rallies over the course of the decline but nothing that led to a trend reversal.

The six-month chart provides a close-up of the sell signals generated by the MACD and the RSI in early January of 2014 when the stock hit resistance along the 50-day moving average near $0.80. The momentum indicators then signalled a buy in late January when the shares were trading near $0.45 and coming out of an oversold situation. SOG ran to just below $0.65 where once again it hit resistance along the 50-day moving average. Since late February the stock has been meeting resistance near $0.50.

Nothing in the analysis suggests that now would be a good time to buy. I did notice that a number of analyst have recently cut their target prices for the stock which is another reason to keep your powder dry.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

 
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