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Schizas’ Mailbag

Lack of volume, liquidity dogs Shoreline Energy Add to ...

Hi Lou,

Last July, you put Shoreline Energy on a ‘watch list’.

Your quote was: “SEQ should at best be put on your watch list, not on your buy list.”

Have recent events, including its bumpy but upward trend in the market, pushed it into the ‘buy list’?

Bob

Hey Bob,

Thanks for asking for another look under the hood at Shoreline Energy Corp.

On July 16, 2012, I advised that it looked like the stock -- which was trading at $3.50 -- would have to retest support at $3.28 and perhaps form a double bottom reversal pattern. The profile that emerged from the case study conducted on your behalf indicated that SEQ was a micro-cap company trading on thin average daily volume of 7,783 shares over a three month period. In fact, there were days that it didn’t trade at all. There was also resistance along the 50-day moving average and the stock had fallen from a high close to $9.50. At the time the yield on the dividend was 13.7 per cent.

The observations cited nine months ago proved correct as the stock went on to touch a 52-week low of $3.00 on Aug. 28, 2012, for a 14.28 per cent retreat. It has caught a bounce off the lows and that is a call for another examination of the charts.

The one-year chart indicates that we have seen a bottom and the stock has enjoyed a new advance. However it must be noted that the stock is a thin trader with the average daily volume over the last three months of only 5,650 shares. Over the last 30 trading days volume has exceeded the average on eleven days. The MACD and RSI signalled a move higher on March 18, 2013, as the shares bounced off of $3.65 to its close on March 28 of $4.41 generating a 20.80 per cent gain in eleven days.

The volume was better than average on six of the last eleven days but the highest volume was 21,800 shares -- better than average but not a ton of liquidity. Also worth mentioning is the resistance that has come in at $4.50.

The six-month chart provides an example of a shooting star candlestick pattern that suggests that the uptrend may be at risk of a reversal. The last day of trading indicates that the shares closed higher but that there was a lot of selling that came in as the stock hit resistance at $4.50. I remain cautious with this stock based on the market-cap, liquidity, and volume. Also pay attention to the dividend. At 10.884 per cent, if it gets cut the share price will tumble.

Make it a profitable day and happy capitalism!

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

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