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Chart of the Week - Jan 14, 2008

Megaworld Corporation (MEG)

MEG Monthly Chart - Wide Consolidation between 2.70 and 4.60

charts are courtesy of Metastock

MEG Daily Chart - Approaching Resistance at 3.75

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

When a stock like Megaworld Corporation (MEG) moves by 10% a day, everybody takes notice. Usually, this stock only trades by about 0.10 to 0.20 cents a day but for the last couple of weeks, the volatility of the stock has increased as the stock broke below its major support at 3.75 but rebounded strongly from its trough at 3.10. With everybody avoiding the 3rd line sector already right now and with no other plays left except for the big caps, MEG has suddenly become a playground for the Tsupiteros who are still left playing in the market up to now.

The monthly chart above shows that the stock has just held resistance at its historical high of 4.60. The last time the stock traded at this level was more than 10 years ago or May 1996. It's interesting to note that the stock's high last October was exactly its high last May 1996 - 4.60. Does this mean that the stock is now bound to head back down towards its historical lows once again? Not necessarily. From this monthly point of view, the stock still has the major support at 2.70 to contend with before we become bearish on the stock. As long as prices hold above that previous low of 2.70, the stock may still eventually breakout above that historical high of 4.60. For the meantime though, expect prices to continue consolidating between 2.70 and 4.60 over the next few weeks.

In the short-term, the stock rallied strongly from its trough at 3.10 and is now approaching its resistance at 3.75. With the stock clearly trending down in the short-term, as can be seen in the chart above, I would tend to think that this rally should be treated as an opportunity to sell the stock at a higher level. If the trend of the stock continues, I expect prices to form a peak somewhere between current prices and 3.75, then, drop back down to form another new low, below its trough at 3.10. To eliminate the bearish connotations in this stock, prices must first take out its resistance at 3.75.

Position-traders, who still have positions in this stock, are recommended to sell as close to 3.75 as possible. Same goes with Tsupiteros as well. I wouldn't recommend buying MEG to Position-traders nor to Tsupiteros at the moment. You may want to wait for the stock to drop back down near 2.70 before attempting to buy.

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.