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Chart of the Week - July 7, 2008

 Geograce Resources, Inc. (GEO)

GEO Monthly Chart - Downtrend Continues

charts are courtesy of Metastock

GEO Weekly Chart - Downtrend Accelerates but Trying to Hold Above its Support at Current Levels 

charts are courtesy of Metastock

GEO Daily Chart - Trying to Rally but Still Hesitating to Climb

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Geograce Resources, Inc. (GEO), which has been one of the darlings of the stock market in the last two years, was not spared by the market's bloodbath as prices have now gone down by more than 80% from its peak at 3.10 last year. The fact the prices are going down despite commodity prices continuing to climb higher, is not a good sign for the bulls. Can you just imagine what will happen if commodity prices suddenly start reversing to the downside. Being one of the darlings of the market, I bet that a lot of people are currently stuck with this issue and are thinking to themselves whether they can still recover their money.

The long-term trend of GEO is no longer looking very bullish. Its long-term support at 1.00 has broken down and the stock is now trending down in all its time-frames. If you will look at the weekly chart of the stock above, you can see that prices tried to defend that support at 1.00 by holding above that line for quite some time. From January up to May, the stock merely traded between 1.04 and 1.30. The fact that the stock never climbed back up above 1.50 during that time, was already a bearish indication for the stock. When the stock broke below its major support at 1.00, everybody simply gave up on the stock and resulted in prices going straight down towards 0.53. The big question in everybody's mind right now is, has the stock already found support at current levels, or, is it continuing to trend down? In the weekly chart, you can see that prices are now trading at its support. However, we have yet to confirm whether prices will indeed hold above these levels or not. The monthly chart above tells of an even deeper support at the 0.25 to 0.33 levels, which are the stock's first major retracements during the first couple of weeks that it climbed in August and September 2006. Can the stock actually drop back down to those levels? With the way the market has been behaving recently, that isn't impossible.

In the short-term, you can see that the downtrend recently has been abated. This is evidenced by the Doji patterns in the last two days. The big volumes in the last two days also indicates that some people have begun to accumulate the stock. However, prices seemed be encountering resistance already at the 0.59 level. With prices already relatively low, I would tend to assume that the stock could already rebound from current levels. If, for any reason, the stock continues to trade below 0.60 in the next couple of days, I'm afraid those who started to accumulate this stock at current levels might start getting impatient and be the ones to push the stock even lower as they start selling back their positions. To be bullish on this stock in the short-term, prices must first break above this short-term resistance at 0.59. A break above this 0.59 level may result in a rally back up towards 0.69, if not higher.

I sure hope no Tsupiteros reading this newsletter got caught in the downtrend of this stock. For the majority of Tsupiteros, I would suggest that you simply avoid this stock and look for other stocks to trade. For the more aggressive Tsupitero, you may want to buy GEO right now. In fact, I can't blame you if you already bought a position in this stock in the last couple of days. However, the stock better start showing some signs of strength soon. For those who bought recently, I would suggest that you use a break below 0.56 as your mental stop. A break below 0.56 would indicate that the stock's downtrend is still very much in effect and there is a risk that prices may even drop below its previous low at 0.53 if prices break below 0.56. For those who still have positions in this stock at higher levels, I would suggest that you try and sell the rallies in this stock. Ideally, you would like to sell as close to the 0.75 to 1.00 area as possible. The only problem is, what if it no longer climbs back up to those levels? I would not recommend this stock to Position-traders anymore at its current technical picture.

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.