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This stock is a renegade, and not in a good way

JASON FRANSON/The Globe and Mail

Hello Lou,

Do you believe the worst is over for RPL? Did the market simply overreact to their debt situation? Do you perceive value at this price?

Many thanks,

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Hey John,

Thanks for the assignment.

This will be the second time that I look under the hood of Renegade Petroleum Ltd. The first time was on March 26, 2012, for Bill when the shares were trading for $3.85. Bill had taken a ride on the cardiac roller coaster that was RPL and had just gotten back to break even on his investment. He wanted to know if he should drop it while the getting was good.

The research I conducted on his behalf indicated that the uptrend line had been broken, the stock was trading below the 50-day moving average, and the momentum indicators signalled continued selling pressure. Bill was advised to take his money off the table and look for a better entry point.

Unfortunately, that was the right call. RPL has been in the grips of a severe sell off that has punished investors who stayed in the saddle.

Another examination of the charts will help answer your questions.

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The three-year chart tells the tale of a grinding selloff that started in March of 2012 when the stock hit resistance at $4.50. For the last thirteen months the stock has struggled with a solid downtrend and consistent resistance along the 50-day moving average. The break below $2.00 in late March of 2013 is another indication that investors have lost faith in RPL.

The RSI on the six-month chart indicates that the shares have been oversold for close to a month, suggesting that selling pressure has yet to ease off. The MACD is also confirming that sellers control the market. You asked if the market has overreacted to the debt situation at the firm. I think the charts are telling us that you can't rationalize investor behaviour. As my old pal Peter Jahn always said " What don't you get …its going down!"

As far as value at these prices go, I would suggest that a dividend yield of 16.08 per cent is a signal that there is perhaps greater risk than you are currently taking into account. The best time to to buy a stock is when it's going up and this one has been going down for over a year.

Make it a profitable day and happy capitalism!

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