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Workers tap deep into North Dakota's Bakken formation, on a Precision Drilling rig. (Nathan VanderKlippe/Nathan VanderKlippe for The Globe and Mail)
Workers tap deep into North Dakota's Bakken formation, on a Precision Drilling rig. (Nathan VanderKlippe/Nathan VanderKlippe for The Globe and Mail)

Schizas' Mailbag

No end in sight to Precision Drilling Corp.’s downtrend Add to ...

Dear Lou,

Please comment on PD.TO when you have a chance.

Regards,

Binh

Hey Binh,

This will be the third time that I review the case for Precision Drilling Corporation (PD-T). The most recent occasion was on April 20, 2012 on an assignment from Doug. What was evident at the time was that the stock which was trading at $9.07 and in a downtrend.

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From the snapshot taken on that day it was suggested that the worst case scenario would be a retest of support at $8.00. Unfortunately the stock melted through support at $8.00 and retested the lows at $6.00. Its never fun finding new lows with your money.

Another examination of the factors in play on the charts will help identify the opportunities and risks associated with PD.

The three-year chart can serve as a warning to never anticipate a bottom. When you are dealing with a stock that is fighting an established downtrend you have to make sure that support levels hold.

When PD failed to hold on to $9.00 and then melted through $8.00, the stage was set for more selling. The last thing you want in a downtrend is to fight the tape. The trend is your friend until it ends!

The six-month chart provides a number of features worth mentioning. The MACD and RSI signalled a sell in March as the shares met resistance along the 200-day moving average

The trading pattern in late May and early June indicated that there was trouble brewing as the shares hit resistance at $8.50. There was also sustained resistance along the downtrend that the stock couldn’t overcome.

In addition, the MACD and RSI both signalled that more selling was to follow and shortly thereafter PD breached support at $7.50 and made its way to a 52 week low of $5.97 in late June. Also worth noting is the double top that surfaced over the same time period.

The shares caught a bounce off the rock bottom at $5.97 as energy prices surged when leaders of the European Union provided more support for Spanish banks at the end of June.

The MACD and RSI are indicating that there could be more to the advance but keep in mind the downtrend is still in place and you should expect resistance to come in along the 50-day moving average.

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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