Go to the Globe and Mail homepage

Jump to main navigationJump to main content

An employee filling up his natural gas truck at Encana's new compressed natural gas (CNG) fueling station in Louisianas Red River Parish, which was opened on November 30, 2010. (Encana)
An employee filling up his natural gas truck at Encana's new compressed natural gas (CNG) fueling station in Louisianas Red River Parish, which was opened on November 30, 2010. (Encana)

Schizas' Mailbag

Encana bounces off lows - and further gains may be ahead Add to ...

Just wondering if it is time to pack in Encana?

Regards,

Lou

Hey Lou,

Encana Corp. is the second largest producer of natural gas in North America and as such it has taken a hit from the declining price of the commodity. When you marry a warm winter with expanding supply it is usually good for consumers and bad for producers.

More related to this story

A review of the charts will help pull this picture into focus.

The six-month chart for natural gas indicates that it was in a steep decline and has finally caught a bounce. The RSI and the MACD both signaled a move out of a deeply oversold situation. The question is if there is more to this recovery. There is resistance that comes in at $2.60, putting a caution flag on the track for further gains.

The three-year chart for ECA has some interesting features worth noting. The double top that formed in the April/May period of 2011 indicated that the times they were a changing.

A death cross formed in late July of 2011 and shortly thereafter the stock breached support at $28.00. After that it was all over but the crying. The shares have followed the price of natural gas higher in recent weeks as it retested the January 2012 lows just above $17.00. Clearly staying on this ride top to bottom for a 50 per cent haircut had to give rise to a bad case of vertigo.

The six-month chart for ECA depicts the double bottom that formed in April of 2012 which signaled the aggressive move off the retest of the January lows near $17.00.

Even though the advance has been quite aggressive over a very short period of time, there could be more to come. If the stock can move through $22.00 it can run to $24.00 without much resistance.

Regarding packing in your position in ECA, now would not be the best time. It pays a 3.8 per cent dividend, you are invested in a gas giant with long term prospects and skilled management. But keep in mind that capital preservation is central to asset management. The best time to pack in an investment is at the top, not the bottom.



Make it a profitable day and happy capitalism!

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

Visit his website

 

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories