Tembec Inc. pulling back after a sweet advance

Jan 17th, 2011 – 1 Comment

At this point it would appear that TMB is going to take a breather and the question you have to ask is how much of your hard earned profit are you willing to give up as the stock tests support.


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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,

At the end of the year there is always talk about the best performers on the TSX for the year. I am asking about Tembec. It looks like they are on the TSX and they are up almost 4 times in the past year. I can’t find them anywhere in the top 10 lists. As far as I can see they should be up there in the top. Am I missing something? I can’t be missing too much though, I started buying TMB around $1.40.

Thanks,

Kev

 

Hi Kev,

The pulp, paper, and wood products industry has been suffering from over capacity and lack of pricing power for such a long time it should come as no surprise that many analyst and investment managers are somewhat gun shy if they even still continue to follow the sector. However, you my friend noticed what many did not and because of that were well rewarded. Congratulations!

The upswing in demand for wood products can be attributed to  China where they have increased their use of lumber as a building material. Now if only the U.S. can claw its way out of  its housing slump prices would move higher and support further advances in the sector. Another contributor to the upside in the industry has been the high cost of cotton pushing demand for dissolving pulp used in the manufacture of rayon as a substitute.

Th charts will help determine if Tembec will continue to reward you for your investment.

The three year chart depicts the aggressive move off the August 2009 lows when TMB was trading for substantially below $1.00. The bounce off of the 200 day moving average in September of 2010 when it traded at $1.60 took it all the way to $5.00 where it has met resistance.

TMB has had a great move but at this point the hockey stick pattern has me a bit concerned given that the stock has pulled noticeably away from its moving averages. Usually these sorts of trajectories are just not sustainable.

The six month chart illustrates the resistance at $5.00 and the pullback over the last four trading days.The MACD and RSI are both signalling a change in momentum from buyers to sellers. The next major level of support is at $3.75.

At this point it would appear that TMB is going to take a breather and the question you have to ask is how much of your hard earned profit are you willing to give up as the stock tests support.

Happy Capitalism!

Categories: Forestry
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