Approach Fortress Paper with caution

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Hi Lou,

It looks like the high-flying Fortress Paper might be poised for the dreaded death cross on a 1 year chart basis (50-day and 200-day moving averages) as the stock has recently broken down below the $40 support.

What do your indicators say?

Thanks,

Ross.

Hi Ross,

Fortress Paper Ltd. was the beneficiary of a huge advance over the last year. But as you have observed there has been a trend reversal. I have posted an analysis on the company twice. The first time in 2010, and the last time in January, 2011.

In the January report, it looked like FTP was poised to continue to advance, with an advisory to watch for the flex point associated with the release of Q4 results. The original release was scheduled for February 14, 2011 but got pushed back into March. When we examine the charts, they will illustrate an interesting lesson.

The three-year chart depicts a huge advance that started at $5.00 in March of 2009 and peaked at $62.50 in February of 2011. As my buddy Steve Kalil's aunt used to say: "Nothing wrong with that!" But what is wrong is that the uptrend line has been breached, and now the question is where does the stock find support?

The six-month chart offers a prime example of both the RSI and MACD signalling a shift in momentum as the shares peaked at $62.50 on February 21, 2011. Some of the selling must have been motivated by the fact that the Q4 results were pushed back.

Usually when a company has beaten the forecast for a quarter, they can't wait to brag on it and either hit the expected release date or announce early. In the case of a delay in releasing quarterly results, it is often viewed as a less than robust piece of news. Some investors see it as needing the additional time to work with the results to put as much lipstick on the pig as possible.

When the Q4 numbers were reported on March 14, the company missed the forecast and that accelerated the selling that started weeks earlier. We can also see that the stock has now crossed below both the 50- and 200-day moving average and there is a death cross forming. Volume has also thinned out. Over the last three months average daily volume has been 74,641 shares. Twenty two of the last thirty trading days have seen less than average volume. A stock cannot go up without volume.

Currently none of the indicators are suggesting a reversal of the downtrend that started in late February. The shares do look to be trying to catch support at $35.00 but the lack of volume puts a caution flag on the track for me. Approach this one with caution, given that over the course of the advance FTP didn't build support below these levels until $30 and then at $25.

Happy Capitalism!

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