Chart of the Week - Manila Electric Company

Short-term Traders/Tsupiteros:	Medium-term/Position Traders:
Support - 200.00	Support - 100.00 / 200.00
Resistance - 226.00	Resistance - 300.00
Trend - Sideways to Up	Trend - Sideways to Down
Recommendation - Trade the range as long as Above 200.00	Recommendation - Avoid if 200.00 breaks

Just when everybody thought that the play in Manila Electric Company (MER) was over, the stock was able to rally from its trough at 163.00 and was able to climb up to as high as 226.00. The reason is that people are speculating that if Mr. Pangilinan buys out the remaining stake of the Lopez family in MER, it will trigger a tender offer possibly at a premium to the market price. Let's see how the technicals look like.

From a long-term perspective, you can see in its monthly chart that the stock has already formed a peak at the 300.00 level and is now dropping back down. It rallied from the 163.00 level all the way back to 226.00 but, if we follow the trend in the monthly chart, one may conclude that this rally from 163.00 to 226.00 was nothing more than a "dead-cat bounce" as prices may well likely drop near the 100.00 level before the real solid support is found. The key to finding out whether this rally is indeed just a dead-cat bounce or will lead the price back towards its previous high at 300.00 is its weekly chart.

In its weekly chart, you can see that prices have bounced off its support at 163.00 and but is currently encountering resistance at 226.00. The shooting star pattern that it formed last week may be indicative of a peak in the stock in this time-frame. However, the peak is not confirmed unless we see a downswing this coming week. Let's go to the daily chart for a closer look.

In the daily chart, you can see that the stock is trying to hold above its support at 200.00. Whatever happens, the stock must hold above this level to continue to be bullish in the medium-term. If, for any reason, the stock closes the week below the 200.00 level, that would confirm that peak of the stock at 226.00 and would trigger another downswing in the stock, possibly even below its previous trough at 163.00. I know some people may see MER as a glass half-full as there is a potential reverse head and shoulders in the works. Again, I will be bullish on this stock only if prices are able to hold above the 200.00 line. If the stock breaks below 200.00, the reverse head and shoulders pattern would be invalidated. For the short-term trend of the stock to be bullish, we need to see a convincing rally above the 205.00 level.

In summary, MER has already peaked in the long-term at 300.00, thus, any rallies that you see from this point on, will likely be just rallies within its overall downtrend. I can only be bullish again in this stock if prices are able to form a bottoming-out pattern somewhere near its major support at 100.00. Besides, what's going to happen after MVP buys out the remaining stake of Lopes in MER? If or when that is done, there is no more reason to buy MER anymore.

So, how do we trade this stock? For Position-traders, who are currently long, I would recommend placing mental stops on the break below the 190.00 level. For Position-traders, who would like to buy, I would suggest buying only if prices are able to convincingly breakout above the 205.00 level. I can't blame Tsupiteros if you already entered long positions in this stock near the 200.00 level. If so, I would suggest to just use a break below the 199.00 level as your mental stop. As for those who are looking to buy this stock, I would suggest buying it only on a solid upswing above the 205.00 level, otherwise, I would suggest to avoid it.

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.