For traders only: This power company is not a buy and hold investment

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Hi Lou,

I'm really enjoying your comments and was hoping you could have yet another look at TransAlta. I have 400 shares presently valued at $5612, and I'm wondering if I should hold or sell. Any thoughts?

Best Regards,

Dave

Hey Dave,

This will be the fourth time that I assess the case for TransAlta Corp.

The last time was on Oct. 17, 2012, on a request from GT. The shares were trading for $15.02 and GT wanted an update. The research conducted just over a year ago indicated that the downtrend that began in October of 2011 still held the stock in its grip. It was observed that the MACD was close to crossing below the signal line and that if the stock caught a bounce it would meet resistance at $15.75. Caution was advised when considering investments in this company.

As things developed the shares did pull back to $13.50 by November of 2012 where it caught a bounce to $15.75 and then met resistance and retreated to $13.00. Another investigation of the charts will add further context for your consideration.

The three-year chart indicates that the stock is still under the influence of the downtrend that began in October of 2011. What is also evident on this chart is that the MACD and the RSI have generated a number of profitable buy and sell signals since the last analysis conducted on Oct. 17, 2012. The sell signal in late January of 2013 stands out as does the buy signal in late June of 2013 at $12.50.

What this chart has outlined is that the shares are in a down channel but providing a lot of trading opportunities for investors who are so inclined. With a dividend yield of 8.29 per cent what you have to ask yourself, is how long is it sustainable?

The six-month chart illustrates the base that developed at $13.25 through the August to October period. The MACD and the RSI indicated a buy in mid October as the stock caught a lift off of $13.25. Since hitting resistance at $14.60 the shares are holding onto a thin wedge of support at $14.00. The momentum indicators are currently warning of more selling to come.

There are a number of lessons to be had from the research conducted from your request. The stock is still grappling with a downtrend, there is a death cross that has to be considered, the momentum indicators are suggesting that we can expect more selling pressure, and finally TA is not a buy and hold investment. You can stick around to collect your 8.29 per cent dividend but be prepared for erosion of capital.

Make it a profitable day and happy capitalism!

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