Western Financial Group coming into its period of strength

Dec 8th, 2010 – 1 Comment

What you must remember when investing in a small cap stock is to take your profits when available and to set realistic expectation.


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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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Hey Lou,

Merry Xmas. I’m looking at the MACD turning up on the signal line on WES-TSX ( a good small co that was bashed by the last downturn) To make a long story short, they have been working away to improve the outlook…they are profitable and Western Financials books are in order with the bottom line perking up.

Can you comment on WES for me? Am I looking at the company the wrong way?

Thanks Lou….all the best in ’11.

Wayne

Hi Wayne,

All the best to you and your’s for the Christmas Season and a healthy and prosperous 2011!

I last posted on Western Financial Group Inc. (WES TSX) on December 23, 2009 for Neil. At the time the stock was in an uptrend and meeting light resistance at $2.60. It made its way all the way to $3.50 a share by March of 2010 but that was as good as it got. Having said that a 35% return in a ninety day run is still okay in my book. The charts will help illustrate a number of good lessons and perhaps provide a sense of direction for 2011.

The three year chart depicts the run to $3.50 from the March 2009 lows but the uptrend was broken in late March of 2010. The sell off took WES to a low of $2.20 in September of 2010 where it caught  a bounce to resistance at $2.60.

One lesson from this chart is to capture profits when available. Once WES broke the uptrend line in March of 2010 its was a call to action. There is also a double top visible at $3.50 which is a reversal pattern indicating that the good times were over. Finally the breach of the 50 day and 200 day moving averages also signalled that the sellers were in control. Capturing profits and preserving capital are central to asset management or as the song says know when to fold em!

The six month chart illustrates the the support at $2.20 where WES caught a bounce and the resistance at $2.60. Over the last three months the stock has been trading in a tight range with support at $2.40 and resistance at $2.60. Volume has been a bit thin. In only twelve days out of the last thirty has daily volume exceeded the average volume  over the last three months.

If you like the WES story you could find an opportunity in the January through April period when financial stocks enjoy a period of seasonal strength. You are right the MACD does appear to be turning higher which would signal the beginning of a shift in momentum to the buy side.

What you must remember when investing in a small cap stock is to take your profits when available and to set realistic expectation. Trees don’t grow to the sky and stocks don’t go up forever.

Happy Capitalism!

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