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Chart of the Week - Dec 10, 2007

Manila Electric Company (MER)

MER Weekly Chart - Breaking Out of its Consolidation?l

charts are courtesy of Metastock

MER Daily Chart - Strong Rally but Encountering Resistances Now 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Manila Electric Company (MER) got resurrected from the dead this week as it rallied strongly from 68.00 just last Nov 27, 2007 to a high of 89.50 last Friday. Whew! Who ever said blue chips are slow and are for the conservative ones?! I don't know what's up with this one but foreign funds suddenly started to become buyers in this stock, which is why it acted this way last week.

For the medium-term, the stock is obviously trading in a sideways trend of between 68.00 and about 85.00. You can see in the chart above that it would appear that the stock may have already broken above its consolidation and is now beginning to trend up. Could this actually be possible? Yes, it is possible but I'm not betting on it just about yet. While volume certainly increased this week for this stock, it is not yet that extraordinary to say that a breakout above its consolidation is already valid. With so many people stuck at the highs of the range, the stock will first need to absorb all these sellers in order to start trending strongly to the upside. There are previous highs at the 93.50 and 104.50 levels. As long as prices remain below these levels, I would continue to bet on further consolidation on this stock for the time-being. However, I do think that eventually, the stock will breakout above this consolidation and continue to trend higher.

For the short-term, you can in the chart above that the stock has been trading in a very, very strong trend in the last few days. However, last Friday, the stock finally showed some signs of its momentum losing steam as the stock formed a long black candle. You can also see in the chart above that there are several previous highs at current levels. There are previous highs at 86.00, 87.00, 88.00 and 93.50. All these previous highs definitely pose as a threat for the bulls in this stock since the people who got stuck at these prices in the past are now just happy to sell their positions at break-even. On the other hand, with the way the stock climbed from 68.00 to 89.50, I would suppose that there are a lot of people who wanted to buy MER but was not able to do so since they did not want to buy while the stock was moving up. In the last few days, if you did not buy this stock while it was moving up, you may not been able to get in. Therefore, while there are certainly resistances just above current levels, I don't think the stock will easily drop back down to its previous low of 68.00. Any corrections at this point will most likely be met by buying from those who were not able to buy at lower prices.

For those who currently positions in MER, you may want to take profits right now since it already is trading at overbought conditions. But for those who would like to buy this stock, I would suggest that you try and buy on the next dip. A break below the 84.50 level will confirm that a correction is already occurring. However, as I said, don't expect a big correction to occur. It's hard to say where exactly will MER bottom-out on the next dip, that is, if it does dip from current levels. But, a 50% correction from last Friday's high may be a good level to watch out for. A 50% correction would be around the 79.00 to 80.00 levels.

Can MER continue climbing from current levels in the short-term? Sure! But, at the very least, it may consolidate for a couple of days first, before it even attempts at another higher high. Watch if the stock fails to drop anymore in the next two days. If it doesn't, chances are, it will continue to climb higher, possibly, towards the 95.00 level already.

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.