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Chart of the Week - Dec 17, 2007

A. Brown Company, Inc. (BRN)

BRN Weekly Chart - Appears to be Holding Below its Resistance at 2.34

charts are courtesy of Metastock

BRN Daily Chart - Bearish Engulfing Pattern 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

A. Brown Company, Inc. (BRN) suddenly came to life again last week as the Monto Oro Group, which BRN has an 11% in the company, won in the bidding for the National Transmission Company. I find it funny that the last two occasions that the company joined a bidding and they lost, the stock climbed ahead of the results of the bidding. However, now that they won, I just didn't see it in the price that anyone anticipated that they would win. While the stock jumped limit up on the news, it appears that the stock has failed to follow-thru on its gains and has hit a brick wall at around the 2.30 level.

The weekly chart above shows how volatile this stock is primarily because of investors behavior in anticipation of the results of its bidding. The two times that the company lost in its bidding, the stock has encountered resistances at the low 2.00s levels. The first one hit a high of 2.16 last February. The second one hit a high of 2.34 last July. In each time the stock hit resistance at the low 2.00s level, the stock eventually ended up dropping by at least 1.00 from its highs in the next few weeks thereafter. This time is a bit different since the company has finally won. However, from the way it behaved last Friday, it would appear that the behavior of the stock hasn't changed at all. Could this mean that the stock would eventually drop back down to as low as 1.38 or 1.00 below its high last Friday? If you simply look at its chart, that is what it is saying right now.

In the daily chart, you can see that, after gapping up limit-up on the news last Thursday, the stock tried to follow-thru last Friday but immediately encountered resistance at the 2.30 level. I guess all those who got stuck in this stock in its last run last July, were just very happy to be able to get out of their positions at break-even. With the stock forming a long black candle last Friday and forming a bearishly-looking engulfing pattern, I would tend to think that the stock will continue to drop further. The next support of the stock is its previous high of 1.80. If the stock fails to hold there, the next support will already be the 1.60 level. I'll be damned if this stock will still be able to climb back up near 2.30 on Monday. If it does, I would start looking to buy the dips.

I sure hope Tsupiteros were able to sell your positions in this stock last Friday. If you still have positions in this stock, you can only hope and pray that the stock will still be able to rally next week so that you may be able to sell at a higher price than where it is right now. If it rallies, expect prices to encounter resistances near the 2.10 level. The problem for those who currently have positions in this stock is what to do if the stock gaps down on Monday. If it does gap down, expect the stock to already establish resistance at the 2.00 level. I wouldn't consider buying this stock right now. The only time I would consider buying this stock would be if it holds above 2.00 and climbs back up to 2.30, or, if it drops back down near 1.40. Anything between those two extremes would be "alanganin".

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.