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Ben Shaw hangs from an oil derrick outside of Williston, N.D. (Gregory Bull/GREGORY BULL/THE ASSOCIATED PRESS)
Ben Shaw hangs from an oil derrick outside of Williston, N.D. (Gregory Bull/GREGORY BULL/THE ASSOCIATED PRESS)

Schizas’ Mailbag

Painted Pony hobbled by low volume Add to ...

Hi Lou,

Do you think Painted Pony is a buy at present?

Thanks,

Scotty

Hey Scotty,

Thanks for the assignment.

Painted Pony Petroleum Ltd. is a gas weighted junior production company which has been touted as a takeover target. Management is well regarded and has been able to increase production from its land base. The shares have been selling off since October of 2012 when it hit resistance near $12.00. A review of the charts will help determine if now is a good time to get on the ride.

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The three-year chart is choppy at best with nice advances and hard retreats. The decline that started in October of 2012 has now breached the 50-day moving average and is about to test support along the 200-day moving average. I would have been happy to see support at $10.00 hold but that was not to be. A stock that is selling off and failing to hold support doesn’t suggest a great entry point.

The six-month chart isn’t doing much to support a buy decision either. The MACD and RSI are indicating that there is more selling pressure that will have to bleed off before a new advance can gain traction. Volume is also not supporting a buy. Only eleven out of the last thirty days of trading beat the three month average daily volume of 250,713 shares. A stock can’t move higher without consistent better than average volume. The next test for PPY is if it will catch a bounce off the 200-day moving average in the $9.55 range. As we come into late March watch for the release of fourth-quarter 2012 results.

With regards to a potential takeover you will have to put this one on full surveillance with multiple daily checks of all the indicators to see if momentum is building. I have never been a big fan of buying on speculation of a takeover. If you want to own the stock then do your homework and if a buyer shows up with a big bag of dough take the cash.

Make it a profitable day and happy capitalism!

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

 
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