The Stock: Ensign Energy Services
Recent price: $17.90
Trend: The oil patch is a prime lubricator of the Toronto Stock Exchange. Although metal mining stocks are setting the pace during the spring rally (the S&P/TSX Metals and Mining Index has jumped 121% in the past three months), the energy sector's potential to drive the TSX this summer should have investors ready to man these primed pumps. Oil stocks have broken out of a long-term trend funk and are now Stock Trends Bullish. Among the best performers in the group are oil field service stocks. Drillers have been big stars in recent Stock Trends screens for stocks in a new uptrend. A number of oil services exchange traded funds are current Stock Trends Bullish Crossovers: Powershares Dynamic Oil Services ETF, HOLDRs Oil Services ETF, iShares Dow Jones Oil Equipment & Services ETF, SPDR Oil & Gas Equipment & Services ETF.
Stock Trends has also alerted for enticing trend signals for Superior Energy Services , Diamond Offshore Drilling , Schlumberger Ltd. , Halliburton Co. , Oil States International , Parker Drilling , and Key Energy Services .
Driller stocks have logged in an impressive move this spring as the price of oil has rebounded back to the $72 level. Investors anticipating an increasingly tight crude oil market know the oil services sector offers a premium parking space.
The Trade: Canadian investors have a number of driller stocks to play this aggressive trend. Ensign Energy Services Inc. , one of Canada's largest oil field service operators, is a recent Stock Trends Bullish Crossover (the 13-week moving average trend line has crossed above the 40-week moving average trend line) and a current Stock Trends TSX Portfolio holding. This model portfolio looks for stocks that have changed long-term trend from Bearish to Bullish. Strong trading volume and short-term price momentum are also prerequisites for hitting the buy signal for this portfolio. ESI's rally from its low at the end of February has been powerful - the stock has advanced twelve of the sixteen weeks since its bottom. It has outperformed the S&P/TSX Composite Index every week for the past month. Trend and momentum investors have a convincing convergence of conditions for buying ESI: a bullish trending energy sector with price momentum leadership in the oil field services group, and positive relative performance of the stock.
The Upside: The question for every momentum trade is whether a rally has legs. ESI has moved from its low of $8.73 to its high last week ($17.90) in steady fashion - but largely on the strength of small retail traders. Up until two weeks ago the weekly average traded value of the stock was under $4,000 in 2009. June has seen an increase in average traded value, signalling more buying interest from institutional money managers. An important component of a trend's sustainability is not only growing trading volume, but growing trading volume of big money. During last summer's bull trend ESI's average traded value revealed institutional buying as the stock moved to its July peak. This summer's rally should be aided by renewed buying pressure from the institutional crowd. Look for ESI to move through resistance at $18 to plus-$20 level in the current energy sector strength.
The Downside: Every trade alert generated by Stock Trends is based purely on share price trend and momentum indicators. Exits should always be based on price performance. There is a good chance that the $18 resistance level could make for a difficult early part of this trade. Price volatility for ESI has shrunk in the past few weeks, but will likely expand again. The 13-week moving average trend line is offering a base trend support at $14 currently, but a more practical stop price (share price that triggers a sell order) would be closer to $16 if an investor buys at the current share price.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/