A& W Revenue Royalty Income Trust dealing with a new downtrend

Apr 29th, 2011 – Comment

With the uptrend line broken, a new downtrend established, overhead resistance along the 50 day moving average, and thinning volume I don’t think its a great time to get in.


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Hi;

I was wondering what your thoughts are regarding owning A+W.

Is it a good buy for someone looking for dividend income?

Many Thanks;

Doug

Hi Doug,

I last posted on A& W Revenue Royalty Income Trust (AW.UN TSX) on November 8, 2010 for Ryan. At the time it looked like the units had gotten ahead of themselves and would be pulling back. Lets check the chart and see how the units have performed and what might be in store going forward.

The three year chart outlines the pullback after November 8, 2010 from $21.05 down to $19.50. The RSI and MACD both generated sell signals at that point. The units then caught a bounce off the 50 day moving average  to the high of $24.00 in January of 2011.

Since then it failed to overcome resistance at $24.00 and has pulled back breaching the uptrend line and the 50 day moving average.

The six month chart illustrates the big move up in mid December as the units bounced off the 50 day moving average. The MACD generated a screaming buy signal at the time. The move from the $19.50 range to nearly to $24.00 in less than six weeks produced a very generous return of close to 22%. Sweet!

However as we got into February of 2011 the MACD and RSI indicated that it was time to take profits and get off the ride. You wanted to know if AW.UN would fit into your portfolio of income producing securities. I hesitate to call the distributions from the units dividends as you have, given that I do not believe that they are. I would recommend that you seek the advice of a Chartered Accountant to help you with tax issues related to the income stream.

Another thing to keep in mind is that AW.UN is a small cap company. That in and of itself implies a  higher level of risk. In addition the food services unit recently sold off 25% of its interest in AW.UN in a bought deal. Some see this as a sale at the top of the market.

With the uptrend line broken, a new downtrend established, overhead resistance along the 50 day moving average, and thinning volume I don’t think its a great time to get in.

Happy Capitalism!

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