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Chart of the Week - Mar 3, 2008

Megaworld Corporation (MEG)

MEG Monthly Chart - Testing Support

charts are courtesy of Metastock

MEG Weekly Chart - Double Top Pattern 

charts are courtesy of Metastock

MEG Daily Chart - Appears to be Holding Below its Resistance at 2.65 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Megaworld Corporation (MEG) was one of the highlights last week as the stock dropped to as low as 2.04 and was able to rally to as high as 2.65 before closing the week at 2.48. There were no new developments in the company so I guess the stock merely rallied because it was already too low. Above are the monthly, weekly and daily charts of MEG, which corresponds to the long-term, medium-term and short-term perspectives on the stock. I will explain each time-frame below.

First, the long-term. As you can see in the monthly chart of MEG above, the stock is still generally trending up but is currently testing its support. If the stock is able to hold above current levels, since the stock is still trending up, I wouldn't be surprised if prices still eventually forms another new high. However, if the stock fails to hold above current levels, the stock's trend may change from up to sideways and may simply move within a range, at best. The red horizontal line in the chart above is the stock's last line of defense in the long-term. This level is at the 1.50 level. If the stock continues to trend down and breaks below this level, I'm afraid the stock will now start to drop a lot lower than what everybody expects. For the meantime, there is still hope for the bulls in this time-frame but the short-term trends will simply need to turn up for the stock to start moving once again in the direction of its long-term trend.

The medium-term trend of the stock tells of a totally different story for MEG though. As you can see in the weekly chart of the stock, prices appears to have already broken below its support at 2.70 and is confirmed to have already formed a bearish double top pattern. Target to the downside of this double top pattern is the 1.58 level, using the Edwards and Magee formula. The fact that prices already closed well below the previous support of 2.70 last, last week, confirms the presence of this ominous pattern. The only way to invalidate the target of this pattern is for the stock to breakout once again above the 2.70 level. Unless prices continue to trade below 2.70, a medium-term trader in this stock should be bearish on the stock.

Let us now look at the stock a lot closer by examining its daily chart. For the last couple of months, the stock has been following a clear-cut downtrend and has never broken above the resistance of this downtrend until just a couple of days ago. When the stock closed at the 2.60 level last Thursday, MEG has already broken above that downtrend channel. This breakout above the channel indicates that, at the very least, the stock's downtrend has already subsided and MEG will now probably enter a period of consolidation between it's low at 2.04 and probably its high at 2.65. With the stock forming a Tweezer Top pattern last Friday, I would assume that the stock is already holding below 2.65 and will now drop back down towards that 2.04 level in the next couple of days. No, I don't think the stock will drop back down anywhere near 2.04 anytime soon. With the stock's recent run-up from 2.04 to 2.65 being very, very strong, there will likely be a lot of bottom-pickers well above that 2.04 level. However, some sort of consolidation will probably develop between 2.04 and 2.65.

In summary: the long-term trend of the stock is still bullish but is now testing support at current levels; the medium-term trend of the stock is bearish unless it is able to break above 2.70; and, the short-term trend is neutral with the stock likely to move sideways between 2.04 and 2.65 in the next few days. Therefore, if you are a Tsupitero, you might want to trade the range of between 2.04 and 2.65. If you are a medium-term trader, you should be avoiding the stock right now. And, if you are a long-term trader, you are now looking to buy into this downtrend. However, for the long-term traders, I would suggest that you wait for the shorter time-frames to trend up as well before starting to get in. In my opinion, it's simply too risky to start buying a stock simply because it is already low. For me, I'd rather buy a stock because it is already on the way up.

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.