Shoreline Energy Corp. has taken investors out to sea

Jul 16th, 2012 – Comment

All things considered SEQ should at best be put on your watch list not on your buy list.


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Hey,

Just read your take on Legacy oil and gas.

Is Shoreline energy in the same sinking boat?

Bob

 

Hey Bob,

Thanks for the assignment. The trend for both Shoreline Energy Corp. (SEQ TSX) and Legacy Oil + Gas Inc. (LEG TSX) is down but there are differences worth noting. SEQ has a market cap of $19.75 million while LEG has a market cap of $746.66 million. SEQ offers a dividend that yields 13.7% while LEG does not pay a dividend. The average daily volume for LEG is 1.16 million shares a day over the last three months while SEQ only trades 7,783 shares a day.

By these measures SEQ is a higher risk investment given that it is a micro cap compared to a small cap and the shares are a very thinly traded. A review of the charts will provide greater context to the analysis.

 

The three-year chart pretty much says it all when it comes to SEQ. An aggressive downtrend, low volume with days it doesn’t trade at all, and resistance all along the 50- day moving average. The fact that the company has been able to increase production has done nothing for investors except left them scratching their heads.

 

 

 

 

 

The six-month chart provides a close-up of the resistance along the 50-day moving average. In addition the MACD and RSI have generated a number of buy and sell signals that informed investors could have taken advantage of. Notice the buy signal in mid February as the RSI moved out of an oversold situation and the MACD tuned up.

The sell signal that surfaced in late March when the shares were trading at $6.50 as the MACD and RSI turned lower would have helped investors avoid riding this puppy to its current value of $3.50.

The best case scenario might be a double bottom forming at the $3.28 low it hit on June 28, 2012. A double bottom is a reversal pattern that suggests a capitulation by sellers, giving buyers a chance to capture the agenda. It is not however a guarantee that we will see and end of the downtrend.

All things considered SEQ should at best be put on your watch list not on your buy list.

Make it a profitable day and happy capitalism!

 

Categories: Energy
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