Do you think TransAlta Corp. has been beaten up enough to make it a buy?
Thanks for the assignment.
I last analyzed the case for TransAlta Corp. on Jan. 6, 2012. The stock was trading for $21.26 and Jim wanted to know what I thought might be in the cards for this power producer. The charts told the story of shares that had breached support along an established uptrend line, and had been meeting resistance along the newly established downtrend line. In addition a death cross had formed and the MACD and RSI had both turned down. It was advised that it would be best to buy on a pull back.
A review of the charts will help determine if the selling has abated providing a good entry point.
The three-year chart illustrates the downtrend that has been in place since October of 2011. Every attempt to move higher is met with more selling pressure. The bounce off support in late January of 2012 met resistance against the 200-day moving average as we moved through late February. From there it has been a case of aggressive selling.
The RSI on the six-month chart indicates that the shares are oversold and could be setting up a trade. In addition, the MACD has generated a number of solid buy and sell signals since the fall. Examine the buy signal at $20.00 in late January followed by the sell signal in late February when the stock traded over $21.00 as evidence of the back test. Currently the MACD seems to be confirming the trade suggested by the RSI.
The break below $20.00, which had provided long term support, is a bit disconcerting in that what had provided support will now provide resistance to an advance. There is some support at these levels but if it doesn't hold we could see a retest of $15.00.
As noted there seems to be a trade setting up which could prove profitable but as far as a trend reversal that might be asking too much of a chart with these characteristics. Lower highs and lower lows do not an uptrend make and neither does the resistance along the moving averages. Take the trade, leave the reversal.
Make it a profitable day and happy capitalism!
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