^Disclaimer

^{Privacy Notice}

^{Terms of Service}

Chart of the Week - May 4, 2009

 First Gen Corporation (FGEN)

FGEN Weekly Chart - Correcting Back Down from its Peak at 24.50 

charts are courtesy of Metastock

FGEN Daily Chart - Trying to Hold Above its Previous Low at 17.25

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

First Gen Corporation (FGEN) has been gaining interest in the eyes of the market recently because it is one of only a couple of big cap stocks that have been dropping down throughout this mini-bull market that the market has been experiencing in the last several weeks. The big question now is, is it time to be a contrarian and buy?

There are two schools of thought hounding the decision-making process of whether FGEN is now a buy or not. First, there is the idea that you should never the buy the weakest stock in the market. There is reason why stocks become weak. Sometimes, it is simply because of the market. But, sometimes, there may be something specifically wrong with the company to merit the selldown in the stock. Secondly, if the market is going to continue to climb higher from here, there is the idea of market rotation, wherein, people could possibly sell stocks that are currently high, which, in this case, are now the banks and properties, and, buy those that are currently low, which, in this case, are the Lopez stocks, namely, FPH, FGEN and EDC. Both of these arguments are valid and it will now go down simply on how the market perceives it to be.

Now, let's look at the technicals of the stock by starting with its weekly chart. You can see in its weekly chart that the stock is coming off from its peak at 24.50. This is but a natural phenomenon because, at 24.50, the stock was really quite overbought already in the short-term. What it is doing right now is simply a natural correction of that upswing. From the way I see it from this point of view, the stock is now at a "look to buy" stage. The major support of the stock from this point of view is the 15.00 level, however, can prices still actually drop to that level? Certainly, you would want to buy this stock as close to 15.00 as possible. However, between 18.75, which is its current price, and 15.00 is still a 20% difference. So, if you make a error in your judgment, you still could potentially lose 20% in paper.

Let's have a closer look at the stock by looking at its daily chart. You can see in the daily chart above the severe downtrend that this stock has been in for the last six weeks now. As you can see, simply being low is not necessarily a reason for going into the stock already. People have been attempting to buy this stock from 22.00. Some people bought at 20.00 and others started coming in at 18.00. So, I'm sure there are a lot of people who got stuck with this one at higher levels and are just waiting for a rally before selling the stock. If you look closer at the daily chart of the stock above, you can see also that the stock is now trying to rebound off its previous low at 17.25. Two days ago, the stock dropped to as low as 17.75 and has now managed to climb up to as high as 19.25. However, the stock is still certainly trending down and its rally from 17.75 to 19.25 is certainly not conclusive yet that the stock has already found a bottom. With the stock now testing its resistance right now at the 19.25 to 19.50 levels, prices will now simply do one of two things: either prices will break thru these levels and start to trend up; or, it will hold below these levels and continue to trend down. If prices are able to breakout, then, I would expect prices to rally back up towards the 21.00 level, if not higher. But if prices hold below current levels, I would expect prices to even drop below its previous low at 17.25.

So how do we trade this stock? First of all, buying a stock that is trending down is a very difficult thing to do. Why? Because the momentum is down and prices will tend to go down continuously unless a clear a convincing reversal occurs. Having said that, for those who are still looking to buy this one, you may try one of two things: you may buy if prices are able to breakout above that 19.25 to 19.50 levels; or, you may want to try and catch the lows and buy if prices form another new low, maybe around the 16.50 level. Both of these strategies have their inherent risks and advantages. By buying above 19.50, you have the advantage of knowing that the momentum has probably shifted back up already. The only risk is, you are buying at the highs and are probably vulnerable to those who may be taking profits from lower levels. On other hand, if you buy near 16.50, you may be buying at a low price, however, no one can say that prices will stop falling when it reaches 16.50. For all we know, the stock may already be going back down already towards its previous low at 9.50.

Personally, I'm not touching this one yet unless a clear reversal in its trend occurs. I'm not the type who has a need to buy at the very low. With the whole market climbing right now, there are so many much safer stocks to choose from other than this stock right here. However, if you have the patience to wait, are willing to position in this stock and bear its volatility, this current downtrend of the stock may be viewed as an opportunity.

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.