Baytex Energy: A Contrarian Play

Today I published the most recent version of the Canadian Short Report - a report designed for the contrarian investor focusing in on the open short ratio published semi-monthly by the Investment Industry Regulatory Organization of Canada (IIROC). The thesis is relatively straightforward: there becomes a point where the short interest ratio becomes so high (and the price becomes so low) that there is excess demand for a stock. As more buyers come into the market, the price rises again. This type of technical analysis seeks to find that ideal entry price point.

This week it appears as though Baytex Energy fits the mold for a good entry point at around the current trading price of $1.50. For two consecutive reports (i.e. one month), the short interest ratio has remained above 10 after spending the last year or so around 5.50 or below. In addition, the share price has decreased, which is great news for buyers as the long-term short interest ratio and share price changes are negatively correlated.

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Thanks for reading and I hope you all enjoy your weekend.

—Geoffrey Learmonth, The Sunday Investor