Predator becomes prey

Nov 4th, 2009 – Comment

I would say that you would have to be a true believer to follow this management team to their next field of operation. They have failed to deliver having spent hundreds of millions on the gas play in Hungary and now it will take more capital to get the new project on the rails.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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falcon

Lou:

Could I please have your opinion on Falcon Oil and Gas based on their current news release that further drilling has ceased in Hungary. Do you see the share price go to zero or do they still have life with the project in Australia.

Thanks in advance for your input.

Mike

Hi Mike,

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I covered Falcon Oil & Gas (FO TSXV) on August 14, 2009 and at that time it was clear that the stock was not having an easy time getting through resistance at $0.50. I also suggested that it would be prudent to put a stop under the stock to avoid a drastic sell off.

Over the last five days I have gotten other emails about FO which would suggest that some investors are looking to go bottom fishing on this stock as it has hit some rough going in Hungary

The three year chart tells the tale of a company that has been struggling for some time trying to make its unconventional gas play in Hungary successful. The recent reaction to the capping of the Foldeak-1 well and the conclusion of the development agreement with ExxonMobil, was a dramatic sell off.

The three month chart gives a clear view of the collapse of the price on the news that Exxon Mobil had gone the distance but decided to conclude their involvement. A stop loss order at $0.40 along the 200 day moving average would have preserved capital.

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The question about the potential of the Australian properties that the company is touting is really a vote of confidence on management. I would say that you would have to be a true believer to follow this management team to their next field of operation. They have failed to deliver having spent hundreds of millions on the gas play in Hungary and now it will take more capital to get the new project on the rails.

If you bought FO at higher levels you should be sizing it up for a 2009 tax loss sale but there is still time before you need to make that decision. If you are excited about the energy potential of their Australian properties then you can buy back in after the new year.

If you are bottom fishing at these levels you have an opportunity to catch a bound off these lows. The MACD is turning higher but it looks like resistance comes in at $0.25.

Happy Capitalism!

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