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Chart of the Week - Sept 29, 2008

 First Gen Corporation (FGEN)

FGEN Weekly Chart - Continuing to Trend Down but May Have Already Established a Trough at 14.75 

charts are courtesy of Metastock

FGEN Daily Chart - Rallying from its Lows on Big Volume

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) was sold down aggressively the week before last week on rumors that the company might not be able to refinance its loans for its acquisition of PNOC-EDC. With credit standard tightening in every part of the world because of what is happening to the US, FGEN would certainly be vulnerable given that it is highly leveraged right now. However, the behavior of the stock last week indicates that it might already have solved its problem. The huge volumes in the trading of its stock last week is definitely an indication of an accumulation.

In its weekly chart, you can see that the stock is obviously in a downtrend. However, at 14.75, the stock was already at extremely oversold conditions and is already at a point wherein it is at the support of its downward channel. With the stock forming an Inside Day pattern on very big volume, I would tend to think that a trough has already been formed and prices may start to rally. Major resistance is pegged at the 25.00 level, therefore, even if prices rally back up to as high as 25.00, the stock would still be considered to be trending down in the medium-term. Looking at its trend, I would normally consider this rally as nothing more than a dead-cat bounce. However, given the volumes that I saw in this rally, there may be something more to it than just a rally.

In the daily chart, up to the 17.00 level, I was still considering the rally as nothing more than a rally within the overall downtrend of the stock. However, when prices were able to break through that minor resistance line at 17.00 on volumes of 7 to 9 millions shares a day, I thought to myself that this is no ordinary rally anymore. At the very least, I would expect prices to test its next resistance at 20.00 within this run, if not test its major resistance at 25.00. Just remember, for this bullish scenario to occur, prices must no longer drop below 17.00. If, for any reason, the stock fails to hold above 17.00, I would start becoming bearish once again in the stock. But given the volumes that it generated in the last two days, I really doubt whether there any sellers left to sell down the stock. In my opinion, all those who wanted to sell has already sold. I will be very surprised if the stock falls back down below 17.00.

So how do we trade this stock? Tsupiteros, who currently have positions in this stock, are recommended to just hold and use a break below 17.00 as your mental stop. For those who are interested in buying this stock, I would suggest to buy as close to 17.00 as possible. For Position-traders, I would normally not recommend anything that is trending down in the medium-term but because of the volume that I saw last week, I could make an exception for this one. For Position-traders who are interested in buying this stock, I would suggest to just follow the entry of the Tsupiteros but simply widen your stop to a break below the 14.75 level.

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.