Petrominerales Ltd. has crushed shareholder value

Jul 13th, 2012 – Comment

I’d give this one an avoid until things improve.


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Hi Lou,

I appreciate your opinion on TCK.B and other commodities. You were right on TCK.B, and if you check the shares they almost touched support at $30.00. Could you please provide comments on Petrominerales?

Thank you

Hector

 

 

Hey Hector,

Good to hear that you found some value in my analysis of Teck Resources Ltd. ( TCK.B TSX). The retest of support at $30.00 was    in hindsight a good call. To the case of Petrominerales Ltd. (PMG TSX) we should recall that it was spun out of Petrobank Energy and Resources Ltd. (PBG TSX) in late 2010. I last ran the charts for PMG on January 3, 2011 when the shares were trading for $33.16. Dave wanted to know what had happened to the value of his PBG shares. Clearly it was the spin-out of the PMG shares that took PBG lower.

It was noted that PMG would have to be monitored closely to see if it could add value to investors who received the shares in the spin-out or were considering a purchase. In addition overhead resistance at $35.00 was cited.

Another review of the charts will help inform my comments on the shares of PMG.

 

 

The three-year chart depicts a stock in the grip of an aggressive sell off that started in late February of 2011 when the shares topped out at $40.00. Since then it has been nothing but a painful decline for investors who failed to preserve capital.

What is worth mentioning is the death cross that formed in June of 2011 when the shares were trading at $27.50. Finally make it a point to notice the repeated failure of the shares to hold support and the numerous times every attempt to move higher has been met with resistance. This is as solid a downtrend as you are likely to ever encounter.

 

 

The six-month chart provides a close up of the resistance along the 200-day and the 50-day moving averages. The MACD provided solid sell signals in late February of 2012 when the shares traded for $23.00 and in late April when they traded at $17.00.

The lesson to be taken from this case study is to get off a bad ride as early as possible and preserve capital. Your first early loss is generally your best loss.

At this point there is no reason to chase this one. There is an established downtrend and no signals that a reversal of the selling is imminent. I’d give this one an avoid until things improve.

Make it a profitable day and happy capitalism!

 

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