Daylight Energy ready to light up its season of strength

Jan 5th, 2011 – 1 Comment

The dividend is attractive and there are factors that indicate that a move up is on the horizon.


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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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Hi Lou,

I’m looking for a resource equity that provides a dividend yield and at the same time has a potential for growth over the next 12 to 24 months. I’m thinking on Daylight Energy [DAY-T]; can you give me your insight from a Technical Analysis perspective;

Thanks,
George

Hi George,

Daylight Energy Ltd.(DAY TSX) offers an attractive dividend of 5.9% and will be spending $300 million on developing its resource plays. I noted that they intend on spending $175 million on developing its light oil opportunities which is a good call given the challenges facing natural gas. The charts will inform as to opportunities and risks associated with this stock.

The three year chart indicates that there is some overhead resistance at $10.50 that DAY has not been able to break  above since May of 2010. There are two periods of strength for energy stocks according to seasonality expert Brooke Thackray. The next one runs from late February to early May and then the other from late July to early October. Given your interest in this company you should keep these periods in mind.

The six month chart depicts a stock that got overbought as it reached resistance at $10.50 and now is giving up ground. The MACD is currently turning down suggesting that the selling isn’t over just yet. Support has moved up from $9.20 to $9.40 and now $9.80 not overwhelmingly so but still support.

Given that DAY is exposed to natural gas for a significant percentage of its production you would be wise to monitor the price of the commodity for signs of strength or weakness.

The three year chart for natural gas illustrates the challenges that have been in play for some time. The current cold snap that hit the US East Coast and Midwest helped move prices higher but from a very low base. There is resistance at $5.00 and after that at $6.00. Cold is gold for natural gas so the best case scenario calls for a frosty first quarter.

DAY seems to meet some of your requirements. The dividend is attractive and there are factors that indicate that a move up is on the horizon.First we are not too far off from the period of strength for energy stocks and second you can expect some news from the $175M budget for light oil drilling during freeze up. If Mother Nature keeps the major population centers in the U.S. in a deep  freeze  through March its a bonus on the natural gas side.

It looks like you have driven a good prospect out of bush but remember to get in late and leave early.

Happy Capitalism!

 

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