Baytex Energy Corp has broken its trend line

Mar 21st, 2011 – Comment

What you need to do at this point is set a stop loss level that will preserve your capital while you chase the 4.3% dividend yield

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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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Dear Lou,

 I am an investor, not a trader but early last year I did some short term trading and earned some spending money that way. When I gained confidence in the stock I included the PBG-T (Petrobank) stock in my portfolio, it was a calamity. I hung onto it, figuring that it would recover with the next rise in oil price. The price of oil went up but my PBG went down, into a steep dive. Against my principle to sell low, I finally dumped it at considerable loss. Bad timing, because next day it gained over 5% but that’s history and I have to move on.

For many months I have been following the BTE-T stock, it paid a good dividend and had a steady upward climb. I felt it was always too high to buy into but it kept on climbing. Today I invested the money I salvage from the sale of the PBG in the BTE feeling quite confident it was a better investment. Now that I read your article regarding PBN-T, Petro Bakken Energy, I am wondering if I subjected myself to another round of big losses by having bought the BTE? I am an “advanced” senior and may not have too many years left to outlive a lengthy recovery should this stock take a dive as the PBG and the PBN did. With all the turmoil in the Middle East, I believe the price of oil will stay high but again it did not help the above mentioned stocks. I would greatly appreciate you comments.
 Best regards,
Hi Claus,
Thanks for the assignment. A number of issues arise from your scenario. The one that causes me the most concern is that you are a self described “advanced senior”. When we leave the work force we want to generate income from investments. Unfortunately we are living through a period of generational lows in yield on fixed income investments. What that does is push many seniors into higher risk investments.
Here are a few issues you need to consider if you are going to chase dividend income from common shares. You should consider using stops to let the market take you out of a position instead of leaving your capital exposed to your hopes. In professional environments when traders have positions that are underwater the risk management department barges in and closes them out.
I have seen traders in environments with lax risk management burn $50 million holes in their capital. So use stops as the poor mans risk management department. Another factor that arises from your comments is the need to develop trading discipline. Our emotions are peaking when we have capital at risk. When we are in profit we get full of hubris, we are masters of the universe. When we are facing a loss we can become frozen like a deer in the headlights unable to make decisions. There are many training courses available to help with trading discipline so take advantage of the same resources professionals use.
Let’s take a look at the charts for Baytex Energy Corp.( BTE TSX) for guidance as to trend and momentum.
The three year chart  illustrates the wonderful advance that BTE has enjoyed from the March 2009 lows. What we can see as well is that the stock has pulled back as we got into March. The RSI indicated that the stock was overbought and that got some investors selling off. The stock has tested support along its 50 day moving average and caught a bounce back to its recent high of $56.00.
When I see this sort of pattern develop I put the caution flag on the track. What I don’t want to get caught in is a double top. A double top is a reversal pattern that could signal the end of the advance. What I would want to see is a convincing move through $56.00 to give me confidence that we will continue to see higher prices.
The six month chart depicts the current situation. The MACD and RSI both signalled the pull back from $56.00 to the bounce at $50.00. What I am a bit concerned about is that average daily volume has been thin over the last month. An advance on thin volume always makes me cautious.
What is also visible is the break below the trend line in March.
What you need to do at this point is set a stop loss level that will preserve your capital while you chase the 4.3% dividend yield. Don’t set your stop too tight or you risk getting whipsawed. Set the stop at a point where you can admit you were wrong and still have enough dough to get to your next trade.
Categories: Energy
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