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Chart of the Week - Aug 6, 2007

Geograce Resources, Inc. (GEO)

GEO Weekly Chart - Broke Below its Support, Trying to Hold Above 1.80

charts are courtesy of Metastock

GEO Daily Chart - Trending Down Strongly 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

With Geograce Resources, Inc. (GEO) being the leader of the third line sector, where GEO goes, the whole sector goes along with it. And with the stock breaking below its medium-term support last week, everything just started to crumble down. Has GEO really peaked already, or, is this downswing nothing more than just a correction within its overall uptrend?

The weekly chart above shows that GEO has indeed broken below its support. Its support on this time-frame being the 2.65 level. When that support line broke, all hell simply broke lose as the stock dropped from its close the previous week at 2.65 to 1.56 at its intra-day low last Friday or a more than 40% decline in just one week's time. With the stock forming a long black candle last week and closing the week near its lows, I would assume that this downswing simply isn't over yet. You can see in the chart that the stock is trying to hold above its support at around 1.80. If it fails to hold above this support line, there are no more obvious support levels to speak of until it reaches the 1.08 level. Will it go back down to that level? I wouldn't know but it certainly is not impossible. While the stock has indeed broken below its support line, it does not necessarily mean that it already is trending down. At this point, we have yet to find out if GEO is indeed already trending down in the medium-term or will simply consolidate within a range. But definitely, a peak at 3.05 has already been established and the stock will surely have a difficult time breaking above that level anytime soon. I would only confirm a downtrend in GEO on this time-frame if it breaks below its support levels at around 1.00 to 1.08.

In the daily chart, you can see that the downtrend has now accelerated and has now broken below all obvious support levels. Some would argue that since GEO already formed a big volume last Friday that it may already form a bottom. While volume is certainly an indicator, it definitely isn't conclusive. With the stock also forming a long black candle in this time-frame and closing the day near its lows, chances are that we haven't seen the worst of this downtrend yet. While prices seemingly have formed a trough at the 1.56 level, if prices doesn't break above its closing price last Friday at 1.78, it may continue to form another lower low ahead. And if prices break below 1.56, next stop may already be around the 1.20 to 1.30 levels. To be bullish again in GEO in this time-frame, prices must first take out 2.10 to the upside. Otherwise, any rallies at this point, may just be nothing more than a dead-cat bounce.

I sure hope all Tsupiteros reading this website have sold your positions in GEO a few days ago already. If you still have positions in this stock, I would suggest that you try to sell your positions on any rallies. While it may be tempting to buy it back right now, I will discourage you from doing so. With this downtrend being very, very strong, the odds of you making money from this on the long side is slim. At some point, the stock will start forming a trough and begin to rally. However, you just can't say when and at what price. It may happen already tomorrow or it may happen in a one week's time wherein, by that time, prices would have been a lot, lot lower than where it is right now. For those who would want to buy GEO, I would suggest that you simply wait for the stock to stabilize first before you enter it. Right now, I just wouldn't risk it yet.

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.