Here’s why the Enbridge stock is in a strong downward trend

Enbridge stock has suffered a sharp drop this week, falling to its lowest level since February, following some notable company announcements. Its US-listed shares have now declined for seven straight weeks and are down 16.50% from their high for the year. So, is it safe to buy the dip?

Why Enbridge stock has slumped

Enbridge is a top Canadian company that ranks as the sixth-biggest firm in the country by market capitalization after RBC, TD Bank, Shopify, BMO, and Scotiabank. 

It is a major player in the energy industry, where it moves, stores, and distributes energy across North America. It does that by operating oil and natural gas pipelines, gas utilities, and storage terminals. 

Enbridge stock slumped this week after it announced the resignation of Greg Ebel as the Chief Executive Officer. He will be replaced by Michele Harradence on January 1. Ebel, who became CEO in 2017, has shepherded the company well, with its stock moving from the low $20s to the current $48. 

Enbridge shares also slumped after the company announced its intention to buy Tallgrass’ crude transportation businesses, which include 75% of Pony Express Pipeline and 51% of Powder River Gateway system. It will also acquire storage capacity of 8.4 million barrels and Stanchion Energy, a crude marketing business. The transaction is valued at $2.55 billion and will help it to grow its market share in the US

In another major development, the company said that it would raise C$2.6 billion from a group of bankers, including RBC, CIBC, BMO, and Scotiabank. These banks will buy shares worth C$2.6 billion, which the company aims to use to fund recently announced acquisitions. 

Enbridge’s business is doing well

These developments come at a time when the company’s business is doing well as energy demand continues to rise. Like Energy Transfer, its revenue jumped to C$29.3 billion from C$14.5 billion in the same period last year. Its six-month revenue jumped to C$51 billion from C$33.3 billion last year.

This revenue growth, however, was offset by a surge in commodity costs, which jumped to C$22 billion from C$8 billion last year. This surge had an impact on its profitability, with the earnings attributable to shareholders falling to C$1.3 billion. It is also spending substantial sums of money on interest payments.

On the positive side, its profitability will likely improve in the coming months as demand for energy continues. 

Enbridge stock price technical analysis

ENB stock chart | Source: TradingView

The daily chart shows that the Enbridge stock price has slumped in the past few months, moving from the year-to-date high of $57.6 to a low of $48 today. The down-gap that happened on Thursday was notable because it remained within a consolidation phase for weeks.

The stock has remained below the 50-day Exponential Moving Average (EMA) and the Major S&R pivot point. At the same time, the Relative Strength Index (RSI) moved to the oversold level of 30.

Therefore, the most likely scenario is where the stock continues falling, potentially to the ultimate support level of $43.75. On the flip side, a move above the resistance level of $52 will invalidate the bearish outlook.