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Chart of the Week - November 24, 2008

  Ayala Corp. (AC)

AC Monthly Chart - Downswing Continues, Approaching Support Levels

charts are courtesy of Metastock

AC Weekly Chart - Downtrend Continues but Currently Testing Support   

charts are courtesy of Metastock

AC Daily Chart - Downtrend Continues but Approaching Support

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Ayala Corporation (AC) was one of the most sold down stocks last week. In fact, the stock has continuously been dropping since its high at 246.00, which was registered last Nov 5. From that point on, the stock has already dropped by 72.00 pesos or almost 30% in just three weeks time. Could there be some bad news coming up in this stock? Or is it simply because of the foreign funds' forced liquidation on the stock?

You can see in the stock's monthly chart that the stock has been trading within a clear-cut sideways to upward trend with its support currently pegged at the 100.00 to 110.00 levels and its resistance at around the 537.50 to 600.00 levels. With the stock now trading at 174.00, it is now very close to its long-term support. Unless something really bearish happens, I would tend to expect AC to hold above the 100.00 level and continue to range-trade between 100.00 and 600.00.

In the stock's weekly chart, you can see in the chart above that, while the stock is obviously trending down, it is now trading right at its support. Support was pegged at the 180.00 to 183.00 levels in the weekly chart but is currently trading at 174.00. In my opinion, a 10.00 deviation from the support should not be a concern if prices are able to immediately bounce back up from current levels. If the stock is still breathing and is able to rebound from current levels, I wouldn't be surprised if I see the stock climb back up towards its medium-term resistances at around 250.00 to 265.00.

With regards to the short-term or its daily chart, you can see in the chart above an almost identical picture from its weekly chart, wherein the stock is trending down but is now very close, if not already is, right at its supportline. The supportline is precisely at the 163.00 level. However, I wouldn't be surprised if the stock already finds support at current levels. If the stock is able to rebound from current levels, I would expect prices to climb back up towards its resistance at 200.00.

As you may have noticed in all these time-frames, the stock is nearing, or is already is, oversold. In my opinion, it has now come to a point, wherein prices could start rebounding from current levels. If it does, the challenge will be up to what price will it rebound? The long-term resistance of the stock is at 600.00. Obviously, prices will not easily climb back up to that level anytime soon. Therefore, we are now left with two scenarios: the stock climbs back up towards the 200.00 level; or, the stock climbs back up towards the 250.00 level. If the stock does already encounters resistance at the 200.00 level and eventually retests its previous low, say it forms a trough at 171.00, then, that would indicate that the stock is really weak and prices may even pierce below 171.00, the next time it drops. However, if the stock manages to climb back up to 250.00, say it forms a trough at 171.00, then, the next time that it drops back down to 171.00, prices will now have the potential to hold and form a higher low.

So how do we trade this stock? While prices are indeed oversold on all time-frames, that certainly does not necessarily mean that you can immediately buy the stock already. Remember, the fact that prices are trending down on all of its time-frames means that its downtrend is quite powerful and, chances are, that when you buy the stock, that it will still go below your cost. However, this downtrend will not last forever and, at some point, prices will start to rebound. Therefore, as you can see, AC is now a very risky stock to trade and I will certainly not recommend this stock to any Tsupitero who has a conservative mentality. But for Tsupiteros, who are willing to be a little bit more aggressive, I would suggest to just buy the stock as low as you can. Position-traders, on the other hand, are not yet recommended to buy this stock at this time. For me to recommend positioning in this stock, I would first have to make sure that its medium-term trend is up. Therefore, I will certainly not recommend buying this stock as long as it stays below the 265.00 level. But for Position-traders, who do not mind going against the trend, I would suggest to just buy it as close to 100.00 as possible, which is the long-term support line of the stock.

Notes:

Short-term Traders/Tsupiteros vs. Medium-term/Position Traders: Recommendation for short-term traders or Tsupiteros are meant to be used by traders whose holding period are limited to one day to two weeks. Medium-term or position traders are meant to be used by traders whose holding period are two weeks to three months. Long-term investors whose holding period is more than three months should not follow these recommendations.