Intertape Polymer Group Inc. needs to hold support at $7.00

Aug 31st, 2012 – 1 Comment

The question we want to answer is if the current selling action is a correction or a full scale reversal.


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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,

I have been watching Intertape for almost a year now and jumped in and out last fall making some money. I certainly wish I had held it longer. I haven’t seen many (any) stocks go up so consistently for so long.

Do you know what is behind the recent sell-off? I haven’t seen any news to trigger it and was wondering if it crossed some point that triggered this change.

Eric

 

Hey Eric,

Thanks for the assignment. This will be the second time that I examine the case for Intertape Polymer Group Inc. (ITP TSX). The first was on May 4, 2012 on a request from Wayne when the shares were trading for $5.46. Three months ago the charts told the tale of a stock that had more in the tank and it was advised that ITP was a case of buying higher and selling higher. And that was exactly what happened until selling gripped the stock in late August of 2012 taking it from the $9.00 high down to its current price of $7.17 which represents a 20.33% pullback.

There is nothing substantial in the news stream that would suggest that there was a material change in the affairs of the company but if you spend some time with the Q2 results that were released on August 15, 2012 you might have made note of the outlook for Q3. Management provided guidance that the next quarter would look a lot like Q2 and that investors would have to endure a period of volatility before an anticipated margin expansion stabilized.

If you go back to my last post on ITP you will see that Fabrice Taylor from The President’s Club investment letter, in a piece published by the Globe and Mail on July 05, 2011, identified the opportunity when the shares were trading at $1.50. You can rest assured that investors who caught the ride at those levels had an incentive to take profits when they were told that the stock would experience a period of consolidation.

Another review of the charts will help clarify the opportunities and risks associated with the shares of ITP as we proceed through the rest of the year.

The three-year chart illustrates the advance that continued from the 2011 lows until the retreat that started in the last week. What is worth noting is that on the maximum charts that are available through globeinvestor.com the resistance that forms at $10.00 is visible as far back as 1993. In addition the RSI signalled a shift in momentum towards selling just days after the release of the Q2 report.

 

 

 

 

 

The six-month chart indicates that the RSI and MACD both generated sell signals on August 22, 2012. What is also evident is that the stock is trying to hold onto support at $7.00. At this point the best course of action would be to wait and see if $7.00 holds. If there is a breach at these levels you have to go back to $3.50 before any significant support comes in. The question we want to answer is if the current selling action is a correction or a full scale reversal. If you own the stock take some profits if you are thinking of buying patience would be a virtue. The trend is your friend until it ends and right now the trend is down.

 

Make it a profitable day and happy capitalism!

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