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Shoreline Energy Corp. has taken investors out to sea

Hey Lou,

Just read your take on Legacy oil and gas.

Is Shoreline Energy in the same sinking boat?

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Hey Bob,

Thanks for the assignment. The trend for both Shoreline Energy Corp. and Legacy Oil + Gas Inc. is down but there are differences worth noting. SEQ has a market cap of $19.8-million while LEG has a market cap of $746.7-million. SEQ offers a dividend that yields 13.7 per cent while LEG does not pay a dividend. The average daily volume for LEG is 1.16 million shares a day over the last three months while SEQ only trades 7,783 shares a day.

By these measures SEQ is a higher risk investment given that it is a micro cap compared to a small cap and the shares are very thinly traded. A review of the charts will provide greater context to the analysis.

The three-year chart pretty much says it all when it comes to SEQ. An aggressive downtrend, low volume with days it doesn't trade at all, and resistance all along the 50-day moving average. The fact that the company has been able to increase production has done nothing for investors except left them scratching their heads.

The six-month chart provides a close-up of the resistance along the 50-day moving average. In addition, the MACD and RSI have generated a number of buy and sell signals that informed investors could have taken advantage of. Notice the buy signal in mid-February as the RSI moved out of an oversold situation and the MACD tuned up.

The sell signal that surfaced in late March when the shares were trading at $6.50 as the MACD and RSI turned lower would have helped investors avoid riding this puppy to its current value of $3.50.

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The best case scenario might be a double bottom forming at the $3.28 low it hit on June 28, 2012. A double bottom is a reversal pattern that suggests a capitulation by sellers, giving buyers a chance to capture the agenda. However, it is not a guarantee that we will see an end of the downtrend.

All things considered, SEQ should at best be put on your watch list, not on your buy list.

Make it a profitable day and happy capitalism!

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