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A coal-bed methane drilling rig in Wyoming. Water containing compounds such as sodium bicarbonate is often extracted from the ground as companies produce oil and gas. (Jordan Edgcomb/AP)
A coal-bed methane drilling rig in Wyoming. Water containing compounds such as sodium bicarbonate is often extracted from the ground as companies produce oil and gas. (Jordan Edgcomb/AP)

Schizas' Mailbag

WestFire Energy Ltd. showing little promise Add to ...

Hi Lou,

Love your write-ups. Could you comment on WestFire Energy?

Thanks,

Kevin

Hey Kevin,

Thanks for your kind words and the assignment. WestFire Energy (WFE TSX) has been considering strategic alternatives since December of 2011 when the board of directors surmised that the price of the stock did not truly reflect the value of the company.

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The end result could be the sale of all or parts of the company, a merger or acquisition, or as often happens, nothing at all. In a June 11, 2012 article written by Carrie Tait and published in the Globe and Mail, a FirstEnergy Capital note to investors, was cited suggesting that WFE and others could be of interest to aggregators.

When I examined the first quarter 2012 report it indicated that production and profits were growing and that the company was moving aggressively on its drilling program. A review of the charts will provide additional information needed to manage the opportunity and risk associated with this stock.

The three-year chart tells the sad tale of a company developing its resourced plays in a macro environment that includes declining energy prices and pipeline bottlenecks.

The MACD signalled the top near $10.00 in February of 2011 and the subsequent selling that has followed. A death cross surfaced in July of 2011 and the shares have not been able to hold onto any support for a year and a half. As we came into 2012 a descending triangle formed which is a continuation pattern in a downtrend which set up the breach of support at $5.00.

The six-month chart illustrates the stock’s inability to maintain support at $5.00 and the continuation of the downtrend. At this point WFE has to hold support at $4.00 or it is at risk of retesting the 52 week low of $3.51 it touched in October of 2011.

I would suggest that now is not the time to be chasing this stock. Ignoring all the negative signals on the charts would likely lead to finding new lows with your money. Remember the best time to buy a stock is when it is going up.

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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