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In a Tuesday, July 10, 2012, file photo, traders work at the start of early trading at the New York stock Exchange. U.S. stocks slid for a sixth day Thursday, July 12, 2012, as concern spread that weaker global economic growth and the European debt crisis will hurt U.S. corporate earnings. (Bebeto Matthews/AP Photo)

In a Tuesday, July 10, 2012, file photo, traders work at the start of early trading at the New York stock Exchange. U.S. stocks slid for a sixth day Thursday, July 12, 2012, as concern spread that weaker global economic growth and the European debt crisis will hurt U.S. corporate earnings.

(Bebeto Matthews/AP Photo)

SCHIZAS' MAILBAG

No reason to chase Petrominerales Add to ...

Hi Lou,

I appreciate your opinion on TCK.B and other commodities. You were right on TCK.B, and if you check the shares they almost touched support at $30. Could you please provide comments on Petrominerales Ltd.?

Thank you

Hector

Hey Hector,

Good to hear that you found some value in my analysis of Teck Resources Ltd.  The retest of support at $30 was, in hindsight, a good call.

More Related to this Story

To the case of Petrominerales Ltd. (PMG-T) we should recall that it was spun out of Petrobank Energy and Resources Ltd. in late 2010. I last ran the charts for PMG on January 3, 2011, when the shares were trading for $33.16. Dave wanted to know what had happened to the value of his PBG shares. Clearly it was the spin-out of the PMG shares that took PBG lower.

It was noted that PMG would have to be monitored closely to see if it could add value to investors who received the shares in the spin-out or were considering a purchase. In addition overhead resistance at $35.00 was cited.

Another review of the charts will help inform my comments on the shares of PMG.

The three-year chart depicts a stock in the grip of an aggressive sell-off that started in late February 2011, when the shares topped out at $40. Since then it has been nothing but a painful decline for investors who failed to preserve capital.

What is worth mentioning is the death cross that formed in June, 2011, when the shares were trading at $27.50. Finally, make it a point to notice the repeated failure of the shares to hold support and the numerous times every attempt to move higher has been met with resistance. This is as solid a downtrend as you are likely to ever encounter.

The six-month chart provides a close up of the resistance along the 200-day and the 50-day moving averages. The MACD provided solid sell signals in late February, 2012, when the shares traded for $23 and in late April when they traded at $17.

The lesson to be taken from this case study is to get off a bad ride as early as possible and preserve capital. Your first early loss is generally your best loss.

At this point there is no reason to chase this one. There is an established downtrend and no signals that a reversal of the selling is imminent. I’d give this one an avoid until things improve.

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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