Inter Pipeline Fund a hold

Feb 22nd, 2013 – Comment

What is evident at this point is that there is resistance that has formed at $23.50.


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Hi Lou,

Would you please conduct an analysis on  IPL.UN…it’s been taking a beating lately.

Thanks,

Robert

 

Hey Robert,

This will be the third time that I examine the case for Inter Pipeline Fund (IPL.UN TSX). The first was on a request from Andrew on October 17, 2011 when the shares traded for $16.33. It was advised that having broken through resistance at $16.25 that there was more gas in the tank. On January 04, 2012 Irene wanted my opinion on the company with the stock trading at $18.67. What I deduced from the charts was that a solid uptrend was in place and that although there were multiple tests of support along the 50 and 200-day moving averages there had been no serious breaches. I called IPL.UN a buy based on a 5.6% yield on distributions and a strong business case.

What was also mentioned last year was that investors must watch their investments like a mother bear watches her cubs. The strong business case from last year included the fact that the company carried 35% of the bitumen volume produced in the oil sands of northern Alberta. The resistance to new pipeline capacity such as the proposed Keystone XL and Northern Gateway projects to move increased production to market has put downward pressure on bitumen prices. Changes in the environment are always a call to review why you made the investment in the first place and if conditions still support holding the stock.

A review of the charts will form the basis of my conclusions.

 

 

The three-year chart provides a textbook example of a very profitable advance. A solid uptrend line and multiple tests of support along the 50 and 200-day moving averages without a major breach. Your concern about the retreat that started in December of 2012 when the stock hit resistance at $24.00 should not be ignored. The shares did break below the 50-day moving average in late January and traded to a low near $22.00 by mid February. The MACD and RSI both generated sell signals in December indicating that some investors were booking profits. The stock caught a bounce off of $22.00 and has reclaimed some of the ground that it gave up.

 

 

 

 

 

 

The six-month chart provides a close-up of what was in play back in December. The RSI indicated that a retreat was forming and the MACD confirmed it just before the holidays. The indicators also signalled the move off of $22.00 in mid February. What is evident at this point is that there is resistance that has formed at $23.50.

On January 30, 2013 the company announced a $1.5 billion capital budget, the largest in its history, to expand its capacity to transport bitumen. The next big event will be the signing of contracts for space on the pipe and the disclosure of prices producers are willing to pay. Currently my view is that IPL.UN is a hold.

 

Make it a profitable day and happy capitalism!

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