In today’s edition of the Daily Stock Report, we are going to look at Enghouse Systems Ltd. (ENGH.TO). After Enghouse Systems reported disappointing quarterly earnings, the shares fell out of the Green Favored Zone directly to the Red Unfavored Zone in the SIA S&P/TSX Composite Index Report back on March 10, 2023, to a price of $32.77. As we see in the relative strength matrix position chart, Enghouse has further fallen within the red unfavored zone and remains there today, near the bottom of the matrix. The shares did rally back to the yellow zone but did not re-enter our green favored zone, succumbing instead to relative strength pressure when it fell right back into the red zone. As of yesterday’s close, the shares are at $23.80 which represents a 37% drop since March 10, 2023.
This is another great example of staying away from investments in the red unfavored
zone. Many advisors may instinctively look for names in the unfavored zone with the mentality that the shares are oversold and a “value buy” is in play. However, “value buys” may in fact be “value traps” and the shares may continue to fall further in price, as has occurred here. This further validates SIA’s methodology of rejecting a contrarian stance. Securities in the unfavored zone reveal neither relative strength nor market interest since sellers remain in control and attention is scarce. SIA Charts relative strength rankings allow advisors to identify stocks that not only outperform peers and benchmark indices but also those that underperform. Such underperformance often signals declining investor expectations for growth at the company or sector level. Currently, ENGH.TO resides in the #214 spot out of 215 positions in the SIA S&P/TSX Composite Index report.
Let’s dive in and see what the 5-year candlestick chart looks like to examine what could lie ahead for Enghouse Systems. From July of 2020 through to June of 2022 ENGH experienced a steady downtrend, at which point the shares reversed trajectory up until March 2023, at the $32.00 level. At that time the company released their quarterly earnings, triggering the fall of the floor from under it. Subsequently, another downtrend materialized with the shares quickly approaching the $22.00 area which coincides with the June 2022 low which was the end of the first downtrend.
We are currently at a critical point for the shares, as support will need to hold this $22.00 level. To the upside, resistance is at $26.00 followed by approximately the $30 area. However, the shares do not seem to be showing any attributes of a change in trend materializing anytime soon.
In looking at the Point and Figure chart we can really see the shares fall from grace since its all time high of $70.00 since the 2020 peak. With the SIA Report overlay tool using the S&P/TSX Composite Index Report you can see how effective the shares performed in the various Green/Yellow/Red Zones of the report. You can see the critical $22.00 level as support as the shares held here two times in June of 2022 and April of this year with the shares right at this level now, so this is the area to watch. If they can not hold support here, the next level of support is at $20.31. To the upside, resistance is at $27.34 and, above that, $32.03. With a SMAX of only 1 out of 10, the shares are not exhibiting much, if any, short term strength against the asset classes.
Enghouse Systems Ltd is a Canada-based provider of software and services to a variety of end markets. The firm's operations are organized in two segments namely, the Interactive Management Group and the Asset Management Group. The firm has operations in Canada, the United States, the United Kingdom, France, Germany, Sweden, Israel, Croatia, Denmark, Norway, India, Japan, Hong Kong, Singapore, and Australia etc.
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