Catalyst Paper Corp generates a negative reaction

Apr 27th, 2011 – Comment

You asked if you should average down and as a general rule I don’t recommend it. Why add to a losing position?


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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,

Can you please share your views on Catalyst Paper Corp. I recently bought in at $0.39 and have watched it slide down to $0.25. Should I buy more or cut my losses and sell?

Regards,
Tony

Hi Tony,

Catalyst Paper Corp ( CTL TSX) will report its Q1 2011 results on April 27, 2011.  CTL produces newsprint, other paper products, and pulp. They have four operating mills and generate over $1 billion in sales but they have not been enjoying much prosperity. When I review a company’s corporate presentation and at the top of their priority list is to focus on cash flow and liquidity followed by reducing fixed and labour costs it frames the story as a scramble.

Yes, at times I have seen  management teams pull an elephant through a keyhole, but I’m not sure that this is one of them. Lets consult the charts to get a better handle on this stock.

The three year chart indicates that the stock enjoyed a good ride from the September 2010 lows at $0.10 to the February 2011 high at $0.50. The RSI and MCD both signalled a change in momentum from buying to selling. In addition a double top formed as the stock met resistance at $0.50.

The six month chart illustrates the RSI moving out of overbought territory in early February and the MACD turning down. The double top emerged in late February and early March and set up the decline to support along the 200 day moving average at $0.24.

I have no idea what attracted you to this stock in the first place. On an operating basis its focus is on cutting costs and shutting down operations. Technically it is in a downtrend and that’s not a good time to get on a ride.

You asked if you should average down and as a general rule I don’t recommend it. Why add to a losing position? I think you would be better off to find another stock thats going up and hitch your cash to that rising star.

Happy Capitalism

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