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Rig workers at Cenovus's Foster Creek operation in Alberta (Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)
Rig workers at Cenovus's Foster Creek operation in Alberta (Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)

Stock Trends

Mullen riding wave of strength in oil patch Add to ...

The stock: Mullen Group Ltd.

The trend

Even investors wary of a commodity asset bubble must still have an eye on the very positive share price trends that are supporting sectors representative of economic vitality - especially the transportation group. Given current high fuel costs that would naturally trouble shippers, the impressive relative strength of the Dow Jones Transport index - which is hitting all-time highs - is an encouraging market signal that the equity bull market is not set to expire soon.

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Like international carriers, Canadian shippers are dealing with high fuel costs and some of these stocks, including trucker Trimac Transportation , are struggling. Logistics software supplier Descartes System Group is a current Bearish Crossover, perhaps another sign of strain on the transport group. But other transports are hardly showing an industry in retreat. TransForce Inc. continues to execute on its intent to grow its share of the North American transport and logistics industry with its acquisition of the Canadian courier operations of DHL Express.

The trade

Mullen Group is a prominent transport and logistics firm that services the oil and gas industry in Western Canada. Not surprisingly, its shares mirrored the oil drillers' bullish move in the first quarter of the year. Strong demand for oil field services beefed up the company's bottom line and helped it ramp up its projected 2011 capital expenditures. Early in the year the company also announced a healthy hike in its annual dividend.

All this good news for a transport company riding the tails of energy sector strength, however, does not preclude investors from looking at current technical opportunities to pick up this bullish stock. A Stock Trends Bullish Crossover last November would have signalled a more typical trend trade, but after rallying to a high of $22.11 in February, the stock's retreat back to its trend line and evidence of consolidation around the 13-week moving average since make this another signal to buy.





The upside

An elevation in average traded value when shares dropped to the $20 level showed that big buyers had confidence in buying the dip, and the lift in trading last week perhaps indicates that the market might be ready to push the stock's valuation again above the first-quarter high. Anticipated is a 12-per-cent move to the $24 level, but a healthy oil patch environment could open up new technical objectives for this bullish trending stock, equating to a 35-per-cent rally from the current share price.

The downside

This trade assumes continued oil and gas sector strength, as well as further evidence that the Canadian economy is at ease with higher crude oil prices. Bullish shareholders will not be expecting a drop below $20, but such a move may shake out market timing investors.



Skot Kortje has been analyzing stock market trends for 15 years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to Stocktrends.ca

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