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Looking At Canfor

02/20/13 09:46:34 AM
by Koos van der Merwe

The housing market is slowly recovering. Is it time to look at companies that produce wood needed in the building of houses?

Security:   CFP-T
Position:   Accumulate

Canfor Corp. (CFP-T) is an integrated forest products company producing softwood lumber, plywood, strand board, and other specialized wood products used in house building. The company also owns a 50.2% interest in Canfor Pulp Holding, which produces softwood kraft pulp and kraft paper.

Graphic provided by: AdvancedGET.
Figure 1 is a weekly chart with an Elliott wave count suggesting that wave 4 correction is in process. The relative strength index (RSI) is at overbought levels but has not yet given a sell signal, even though a move of the RSI below its moving average (five-period) is suggesting that a sell signal is on the cards. Previous sell signals by the RSI has proved effective.

As you can see on the chart, volume rose as the price rose, a sign of strength, and fell as the price corrected, another sign of strength. Should we buy at present levels? To answer that question, we should look at the daily chart.

FIGURE 2: CFP, DAILY. This chart of Canfor Corp. suggests a possible buy in the near future.
Graphic provided by: AdvancedGET.
The Elliott wave count of a daily chart (Figure 2) suggests that a wave IV is in the process with a wave V to a suggested high of $20.33. The RSI is moving sideways above the 50 level, suggesting that some downside could exist. The price has tested the lower band of the JM internal band indicator, twice, but has not triggered a sell signal; although the low on February 15 did break below the lower band, the closing price did not. Volume on that date was above average, suggesting weakness is on the cards for the short term.

CFP is a share I would start buying when the price once again tests or breaks below the lower JM internal band line. The flag pattern that appears to be forming with the wave 4 correction is a very positive pattern. Wave II appears to be a simple correction. Wave IV could then be a complicated correction, so we could see further downside as suggested on the chart. This is a share we should watch.

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.

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