CanElson Drilling Inc. headed for a retest of support

Sep 25th, 2013 – 1 Comment

At this point it looks like a retest of support is unfolding.


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CDI LOGO

Hi Lou,
I was wondering if I could get your opinion on CanElson Drilling . Been holding this stock for a couple of years and am finally seeing some capital appreciation. Wondering if I should trim some gains or hold on. The reason I am asking is because it always seems to lag its industry peers (Precision Drilling in particular) for price growth.
I appreciate your thoughts and inputs.
Cheers,

Ryan

 

Hey Ryan,

Thanks for the assignment. Let me address your concern regarding relative price appreciation. CanElson Drilling Inc. (CDI TSX) has a market capitalization of just over $490 million whereas Precision Drilling Corp (PD TSX)has a market capitalization of $2.8 billion. Money managers and investors will typically target a large cap company before considering a small cap in a effort to reduce their risk. Having conducted a quick calculation of the price appreciation of the shares from the April 2013 lows to the September highs, PD was up 46% while CDI was up 52.9% which would indicate that we are talking a 6.9% spread in your favour.

A study of the charts will inform my opinion on trend, support, and resistance.

 

CDI

The three-year chart indicates that CDI was trading in a range bound pattern since early 2012. Support along the lower boundary of the range came in at $4.25 and resistance was found at $5.00. The move higher in April of 2013 was signalled by the MACD and the RSI and confirmed by the golden cross that formed in June as the stock broke above $5.00. Since June the stock has enjoyed a nice move to its 52-week high of $6.54 on September 23.

 

 

 

 

 

 

CDI2

The MACD and the RSI on the six-month chart are both turning lower which indicates that we can expect some profit taking. There is support at $6.20 and below that at $6.00. At this point it looks like a retest of support is unfolding. Whenever a reader asks about capturing gains I always advise going with your gut. Investors tend to get hung up on a sell decision whereas I advise go to cash and get that monkey off your back. If the uptrend continues you can get back on. If the shares retreat you can decide if you want to get back in at lower prices. Remove the distractions and you will be able to make a better decision.

 

Make it a profitable day and happy capitalism!

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