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What are your thoughts on Penn West? I understand they are active on large land holdings and have success in fracture drilling.


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Hey Gary,

Thanks for the assignment. This will be the fourth time that I have conducted an examination of the shares of Penn West Petroleum (PWT-T). The latest was posted on Nov. 30, 2011 on a request from Pam.

At the time the stock was trading for $17.71 and it was advised that it looked like there was more in the tank and that PWT was a hold and not a sell. The shares ran to $22.00 by March 2012 for a 24.22 per cent gain. Unfortunately the advance was exhausted at that point and the stock has been in a retreat ever since.

A review of charts will better inform us as to the prospects for the shares of PWT.

The three-year chart is very similar to many in the Canadian energy sector. The retreat in natural gas prices, which I have cited frequently over the last ten months, has been the author of much misery for investors. There are a number of features worth noting on this chart.

The double top that surfaced in February and March 2011 when the stock was trading at $28.00 was a call to action to preserve capital. The death cross that formed in July 2011 when the shares were worth $22.00 signaled to the informed investor that more pain was in the cards.

In January and February 2012 the RSI and the MACD indicated that the advance that started in October 2011 was coming to an end and that it was time to hit the silk.

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The six-month chart illustrates the failure to break above resistance at $22.00 and the shift in momentum towards sustained selling. Currently the stock is deeply oversold and has been for the better part of the last two months.

Worth mentioning has been the inability to get over resistance at $17.00 in May and now at $14.00 in June. Finally with the death cross that formed in May and an established downtrend line in place, it's hard to suggest getting on this ride despite the 7.9 per cent dividend yield.

I think the best course of action when it comes to the Canadian energy sector is patience. At some point demand will exceed supply and help move prices higher. Until that time it's a matter of keeping your powder dry and confirming the bottom.

Make it a profitable day and happy capitalism!

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