Posted by Keith Schaefer on April 24, 2009
After researching several international oil stocks, I realized a common link - many of the prolific producers and growth stories have their assets in Colombia. North and South America meet at the Panama-Colombia border.
I asked Brian Hoffman to compare the stock charts of three growth stories operating there. Brian is an affiliate of the Market Technicians Assoc. and a member of the Canadian Society of Technical Analysts, as well as being a CA and a CPA. Here is his report.
By Brian Hoffman
Pacific Rubiales Energy Corp. (PRE-TSX, $5.72), Petrominerales Ltd. (PMG-TSX, $10.85) and Gran Tierra Energy Inc. (GTE-TSX, $2.91) are low-cost, high-netback oil exploration and production companies operating in Colombia. All three companies have drilling programs that include high-impact wells with the potential for production of up to 10,000 BOE/d. The following technical analysis for these companies shows that the trend is currently bullish for one company’s share price while the trend has turned bearish for the other two companies’ share prices.
During the second half of 2008, PRE’s share price traced out a declining wedge pattern, which is a bullish formation. The December share price breakout from the declining wedge (top panel) confirmed the Relative Strength Index (RSI) trendline breakout (bottom panel). RSI is a momentum indicator, or oscillator, that measures the relative strength of a security against itself.
A buy signal is triggered when an upward breakout in the RSI is confirmed by an upward breakout in the price. Conversely, a sell signal is triggered when a downward breakout in the RSI is confirmed by a downward breakout in the price. The RSI and price breakouts for PRE were also accompanied by an upward breakout in the On Balance Volume (OBV) trendline (middle panel). OBV measures the general buying and selling pressure on a security’s price.
Although the technical outlook for PRE’s share price is quite bullish with all three technical indicators now in an uptrend, the share price has entered into a consolidation pattern and faces resistance at about $6. The price may breakout above $6, quite possibly after the Bollinger bands (the envelopes surrounding the price movements in the top panel, which measure price volatility) narrow, or pinch, as there is a tendency for sharp price changes after the bands narrow (note the sharp price changes after these bands narrowed in August and February). A downward break in the recent RSI trendline, currently with support at the 50 level, would be bearish if accompanied by a downward break in the price trendline. A stop-loss placed about 3 per cent below the price trend line would be prudent.
In January, PMG’s share price experienced an upward breakout from a triangle pattern (top panel), which confirmed the RSI trendline breakout (bottom panel). The share price almost doubled to $12 after that buy signal was confirmed.
Despite a rising OBV trendline (not shown) the technical outlook for PMG’s share price turned bearish with a recent downward break in both the price trendline (top panel) and the RSI (bottom panel). The bearish outlook was reinforced since volume dropped off in March during the latest price surge (middle panel).
The share price has started a consolidation pattern and appears to have support at $10. A breach of that support level could result in the price decreasing to the next support level at about $8.
Notice the sharp price changes after the Bollinger bands narrowed in June, January and February (top panel). These bands have narrowed again in April and may foreshadow a sharp price decrease given the negative technical outlook.
In February, GTE’s share price experienced a downward breakout from a rising wedge formation (top panel), which confirmed the downward breakout in the RSI (bottom panel), which is quite bearish. There was an exhaustion breakout prior to the downward breakout from the rising wedge (point marked A in top panel). Exhaustion breaks provide a warning of a pending trend reversal, which in this case preceded a big drop in GTE’s share price during February. Notice how the rising OBV trendline was also breached in February, which further contributes to the negative technical outlook for GTE’s share price. Although the OBV trendline resumed an uptrend into early April, it failed to reach a new high before starting the downtrend later in April.