Investors hungry for returns should start fishing in the oil patch again. Ivanhoe Energy's stock could rally 30% if it clears resistance.
The Stock: Ivanhoe Energy Inc. (IE-T) Recent price: $2.20
The Trend
Canadian equity investors looking at their most recent statements are
surely pleased with the healthy advance of mining stocks in the third
quarter - the sector rose 47 per cent.
Now if only those sluggish energy stocks would, well, energize. Activity
is finally picking up in this important sector as many oil producer and
oil services stocks are rallying with the price of crude oil moving
above $80 (U.S.) last week. Crude prices last flirted with this level in
August before retreating, so technically minded traders will be watching
how the commodity performs early in the final quarter of the year.
Although the economic signals are far from positive, a scaling of the
$85 marker could unleash new faith in petroleum stocks.
Granted, the performance of the S&P/TSX Energy index over the past three
months remains near the bottom among Canadian sectors and the long-term
trend line of the index has been flat for a year, but last week's
5-per-cent pop is its best weekly gain and the only time it has topped
weekly TSX sector performance since April. That's a long time on the
sideline for a sector that is worth 26 per cent of the S&P/TSX composite
index.
The absence of the energy sector in recent market rallies has been
notable. In the past year, only two of the weekly Stock Trends profiles
have been on energy stocks, and one of those profiles - ShawCor, in May
- advised a "sell." However, ShawCor leapt 13 per cent last week to hit
a 52-week high.
In general, oil producer and driller stocks enjoyed a great week.
Canadian Natural Resources added 8 per cent to its share price. Enerplus
Resources Fund, a fund invested in producing properties in North
America, drove through some long-term resistance and hit a new 52-week
high. Suncor Energyalso became the first of Canadian integrated oil
stocks to be categorized as Stock Trends Bullish.
All may be indicators of changing sentiment for the sector, and worth
noting for TSX equity returns ahead. A stronger energy sector means the
economy is on firmer footing. Investors hungry for happy returns from
this dominant group of Canadian stocks should start fishing in the oil
patch again.
The Trade
Ivanhoe Energy finished September strongly, rallying on high volume and
closing on Friday at $2.20, a share-price resistance level that offers
investors an important cue for a momentum trade. The stock is now
categorized as Stock Trends Weak Bearish, a signal that the share price
has moved above intermediate-term trend line resistance.
The stock is also listed on the Nasdaq (IVAN) where its transactions
last week totalled more than the previous six weeks combined. Previous
periods in which Ivanhoe's stock has been Weak Bearish but trading
volume has been high have often signalled growing price momentum for
this small-capitalization play. Investors who think the energy
resurgence is a prelude to a strong quarter ahead can join the
optimistic set by buying this enticing stock.
The Upside
The trend analysis presented here has little to do with fundamental
valuations. It is about how the market responds to changing fundamental
evaluations and how a stock's price and volume changes present tradable
patterns. This chart suggests a potential 30-plus-percentage-point gain
if the stock clears current resistance.
The Downside
If last week's crude oil move above $80 proves fleeting, prepare to exit this trade at the 13-week moving average trend line, equivalent to last week's opening price of $1.87.
Stock Trends analysis quantifies nicely the movement of individual stocks. I’ve found that if the technicals are out of synch with fundamental analysis, it is a wake-up call to make a decision. The Stock Trends Bull/Bear Ratio is useful in identifying major market bottoms and tops. It has always presented a good buying or selling opportunity.
