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Air Canada shares have flown too high, too fast

Air Canada opened its new operations centre to the media during a tour on Aug. 20, 2013. All operations (communications with air craft, staffing etc) will be based out of the Brampton, Ont. facility.

Fred Lum/The Globe and Mail

Hey Lou,

Thoughts on Air Canada?

Manny

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Hey Manny,

Thanks for the assignment.

I last examined the case for Air Canada on March 25, 2013, on a request from Lana who had bought the shares at $0.78. The shares were trading for $2.93 and the question that Lana posed was if she should hold or take profits. The research conducted on her behalf indicated that there were no screaming signals to sell but it was advised that capturing profits when they are available is a good habit to develop. Retrospectively that was the right call. The shares did continued to advance to $3.25 by mid-April but then suffered a reversal to $2.00 by June, 2013. Trees don't grow to the sky! Another inspection of the charts will inform my thoughts on AC.B.

The three-year chart illustrates the usefulness of the MACD and the RSI as signal generators. The momentum indicators called for a sell in April, 2013, a buy in early June, a sell in late June, and a buy in August. Currently the shares are overbought having more than doubled since the release of second-quarter results on Aug. 7, 2013, where earnings expectations were soundly exceeded.

The six-month chart isn't providing any indications that sellers are about to take control of the market. This could be a case of buy high and sell higher. There isn't a ton of resistance until $7.70. Having said that, the stock has run and run hard. The advance hasn't allowed the stock to build much in the way of support. There is a thin ledge of support at $4.50 and another thin ledge at $3.75.

The shares of AC.B have been moving up on better than expected earnings in the second quarter, and announcements concerning expansion into Europe. All that good news is already baked into the price. The next piece of new information will be the release of third-quarter earnings in November. If you want to own this stock watch for a pullback from this overbought situation. I would say that AC.B has run too far and too fast and will attract some profit taking.

Make it a profitable day and happy capitalism!

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

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About the Author
Lou Schizas

Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality - and a true believer in the happiness-inspiring powers of capitalism. More

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