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Chart of the Week - Nov 26, 2007

PNOC Energy Dev't. Corp. (EDC)

EDC Weekly Chart - Trading Within a Sideways to Upward Trend

charts are courtesy of Metastock

EDC Daily Chart - Bullish Bear-Trap Formed 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

PNOC Energy Dev't Corp. (EDC) was one of the PSE's highlights this week as the government was able to sell its 60% stake in the company to the Lopez Group's First Gen Corporation. The movement of the stock was anything but ordinary as the stock plummeted P0.70 or 10% the day before the winner was announced. With First Gen Corp. bidding at a whopping P9.75 per share, the stock immediately gapped up to 7.10 the next day, with people expecting that prices will also climb up to as high as 9.75. The stock only managed to climb up to as high as 7.30 before dropping back down to 6.70. It was able to close that day at 6.90 and is currently trading at 7.00. What can we expect from EDC from this day forward?

The weekly chart of EDC above shows that the stock is currently trading within a sideways to upward trend, with its support around the 6.30 level and its resistance at around the 8.00 level. The fact that prices appears to have formed a bullish hammer pattern right at the 6.30 level indicates that the support of the stock has held. If this trend of EDC continues, we may see prices head back up to 8.00 or higher in the next coming weeks ahead. A close above the resistance at 7.30 would confirm this possibility.

On the daily chart, with prices breaking below its support at 6.80, dropping down to as low as 6.30, and, immediately gapping up higher the next day, the stock is confirmed to have formed a bear-trap. That was a bullish behavior as it indicates that there is inability of the stock to trend down. Notice that prices have already been holding above the 6.70 level for the last two days and has now formed a white candle last Friday. This may indicate that the stock is already forming a short-term trough at the 6.70 level and is getting ready to retest that resistance at 7.30, if not continue to trend higher.

I can't blame Tsupiteros who got whipsawed in this stock and sold on the break below 6.80 on the day before the bidding. If I were trading this stock, I too would probably have sold thinking that there might be bad news coming out of the bidding, which is why people sold. However, if I were again trading this stock, I would have already bought back higher right now and just place mental stops on the break below 6.70. Hopefully, in a couple of weeks time, I would be able to take profits at around the 7.60 to 8.00 levels.

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.