Playing Oil With Petro Canada

04/21/08 09:44:15 AM

by Koos van der Merwe

Petro Canada is a Canadian oil and gas company with International interests.

Security: PCA-T
Position: Accumulate

Petro Canada is one of Canada's largest oil and gas companies, operating in both upstream and the downstream sectors of the industry in Canada and internationally. The company creates value by responsibly developing energy resources and providing world-class petroleum products and services. Headquartered in Calgary, Alberta, the company employs more than 5,600 employees around the world. Shares trade on the Toronto Stock Exchange under the symbol PCA, and on the New York Stock Exchange under the symbol PCZ.

FIGURE 1: PETROCAN, WEEKLY. This chart shows the strong rise in line with the price of oil.

Graphic provided by: AdvancedGET.

Figure 1 is a weekly chart that shows how the stock price strengthened from a low of $5.52 in December 1994 to a high of $61.64 in July 2007. The price then dropped to hit the support line at $41.98 by March 14, 2008. At this level, my indicator of choice, a 20-period commodity channel index (CCI), gave a buy signal on divergence. The stock price then rose to test the resistance line at $52.15 as shown. The question is, will this resistance line be broken? For an answer, I turn to a daily chart.

FIGURE 2: PETROCAN, DAILY. This chart shows the flag formation that has developed.

Graphic provided by: AdvancedGET.

Figure 2 shows the flag formation seen in the weekly chart, with the price testing the upper resistance line at $52.15. But where the CCI on the weekly chart suggested further strength, the CCI on the daily chart has given or could soon be giving a sell signal. This is confirmed by the volume, which has fallen as the price has risen. Rising price + falling volume = weakness.
Does this suggest that the oil price will start falling? Possibly, for the short term only. Should the price break out of the flag formation, which is highly likely, it could rise to the target price of $62.72 (61.64 - 40,90 = 20.74 + 41.98 = 62.72).

Definitely a stock to watch and buy at the lower levels.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.