Can you give me your analysis on Canadian Oil Sands.
Thanks for the assignment. This will be the fourth time since 2010 that I examine the opportunities and risks associated with Canadian Oil Sands Ltd.(COS TSX). The last was on June 1, 2012 when the shares were trading for $20.09. Ian was attracted to the 7% dividend yield and wanted to know if it was a good time to buy the stock.
The analysis at that time indicated that the shares had been in a downtrend since April of 2011. There was also persistent resistance along the 50 and 200-day moving averages. In addition support at $19.00 needed to hold given that there was only a thin ledge of support at $16.00 and nothing beneath it until $10.00. What was evident at the time and continues to this day is that the fate of COS is tied to the price of oil. It was advised that if Ian was determined to chase the dividend that he should buy in but watch the support at $19.00 like a hawk.
In hindsight that was the right call. The stock moved sideways until January of 2014 when it started to move higher hitting a 52-week high of $24.69 by June of 2014. Sadly that was the best that COS had to give. Another scout of the charts will help determine how you might take advantage of the situation related to COS.
The three year chart for oil tells the story of the debacle that has befallen the global energy sector. Prices started to breakdown in June of 2014 and have not been able to find a bottom. There was the bounce on January 30, 2015 but the research suggests that it was driven more by short covering than by a return of demand for the product.
The three- year chart for COS is almost an identical twin of the three year chart for oil. The decline that started in June of 2014 was followed by the death cross that surfaced in October informing investors that it was time to review their investment thesis. The breach of support at $19.00 in October and the subsequent move below $16.00 in November were quickly followed by a break through support at $10.00 in December as the company cut the dividend to preserve cash. By January of 2015 COS hit its 52-week low of $6.00. This analysis provides a case study in preserving capital. COS didn’t not drop to its 52-week low over night. There were plenty of opportunities to get off the ride with a bigger bag of cash.
The six-month chart depicts the generous bounce off the 52-week low as COS followed the move in the price of oil. The MACD and the RSI are both indicating that there could be more to the upside coming off the low. However we are a far cry from a reversal of the down trend and need to watch for resistance at $10.00.
Make it a profitable day and happy capitalism!