Longview Oil Corp a fuzzy lollipop

Nov 2nd, 2012 – Comment

The six-month chart provides a close-up of what appears to be the formation of a descending triangle which is a continuation pattern with downside bias.


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Good morning Lou,
Regarding LNV, the market was told over and over that Legacy Oil was not going to sell its shares of LNV and despite that, the price continues to languish with a noticeable downtrend.  Any insights as to whether this is a decent company to invest in both in terms of securing one’s principle while enjoying the dividend? LNV cut its Cap-EX in light of falling oil prices, which was a wise decision. So why would this company not continue to enjoy decent financial results and therefore sustain its dividend?

Thanks Steve in Winnipeg

 

Hey Steve,

Thanks for the assignment. I last ran the charts for you on the prospects for Longview Oil Corp. (LNV TSX) on September 17 when the shares were trading for $6.77. At the time it was advised that the bounce that the shares caught off the August lows had more to give and that you had to watch for resistance at $7.00. The shares continued to advance until September 24 when it reached $7.30 for an 8.5% gain in just over a week. But that was all that LNV had to give. It has subsequently retreated from those levels and now needs to hold support at $6.50.

The sense that I am getting from your interest in the company is that you have concerns, as well you should. You are asking if LNV is a good place to secure your principal? I think the trend speaks for itself. Since the company went public it has not been a secure place for principal. As far as the 9.077% dividend is concerned the research that I have conducted on your behalf indicates that the payout ratio is high and may force management to re-examine the distribution in 2013. One report indicated that the company was adding to its debt in an effort to maintain the dividend which is generally not sustainable.

A review of the charts will provide more evidence to help inform your decisions as how best to manage this stock.

 

 

The three-year chart outlines the punishment that LNV has endured since March of 2012 and the inability to hold support at $7.00 and along the 50-day moving average. The MACD and the RSI both generated sell signals in late September indicating that the advance off the August lows was coming to an end. The best interpretation of this chart is that the steep decline ended in August and the shares appear to be holding onto an edge of support at $6.50.

 

 

 

 

 

 

The six-month chart provides a close-up of what appears to be the formation of a descending triangle which is a continuation pattern with downside bias. Currently the MACD and the RSI are not indicating a reversal of the selling that started in late September. For my money there is still too much hair on this lollipop to make it a buy despite the dividend. If you like the story put it on your watch list and see if it can sustain an advance.

 

Make it a profitable day and happy capitalism!

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