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Chart of the Week - January 12, 2009

 PNOC Energy Dev. Corp. (EDC)

EDC Weekly Chart - Trending Down but Rallying from an Oversold Position 

charts are courtesy of Metastock

EDC Daily Chart - Established Resistance at 2.46 but Trying to Hold on to its Gains

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Among the big cap stocks, PNOC Energy Development Corporation (EDC) was one of the stellar performers of the PSE last week as prices were able to rally from 1.82 to 2.46 or a 35% gain in just three days time. No news on this one. Foreign funds simply noticed it and began to buy it aggressively. Is there buying justified?

The weekly chart of this stock shows how relentless its downtrend has been. From a peak of P7.80 last October 5, 2007, the stock has been in a free fall eversince. I guess the big question in everybody's mind right now is, is it time to buy it? It's all-time low at 1.82 registered last December 24, 2008 was a 76% discount from its all-time high at P7.80.

The problem when a stock goes into a strong downtrend is that it is very, very difficult, if not impossible, to say when the stock would bottom-out. I'm pretty sure that when the first time EDC dropped to as low as 2.95 last Sept 18, 2008, some people already thought that that was the bottom of the stock. That same thing happened last October 28, 2008 when the stock registered a new all-time low at 2.30.

If you look at its chart since September, the stock has been making a routine. The drops aggressively from its highs. The stock forms a new all-time low, then, after one or two days, rallies strongly like what it did last week. Once the one week rally is over, the stock would start to consolidate and move within a sideways to downward trend. Before you know it, the stock would be trading back down towards its previous low of 1.82. It would then consolidate first for a while, then, plunge towards a new all-time low. As you can see, there is a possibility that the stock does exactly the same thing right now. Of course, there will come a time when the stock will bottom-out and will  no longer register a new low. However, it's just very hard to tell and I can't see any difference between what is happening now to what happened last September or October. There is also that possibility that when a stock does the same thing twice or thrice already, that it will now probably do something different this time around as the market would probably anticipate it already.

I would like to congratulate those brave souls who were able to buy near 1.82 and sell last week. For those who would like to buy this stock, you may want to wait for another down cycle to occur before buying, or, you may want to buy it now but just range-trade the stock. In the short-term, I expect some consolidation to occur between 2.18 and its previous high at 2.46. But if you are a Position-trader, I would probably not recommend this stock for now unless it shows some signs that it is indeed bottoming-out already. For the meantime, I would just expect this rally to be nothing more than a dead-cat bounce and that prices will still continue to trend down eventually from here. Let the market prove me otherwise.

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.