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Chart of the Week - Aug 27, 2007

Manila Electric Company "B" Shares (MERB)

MERB Weekly Chart - Trying to form a Trough at 73.00

charts are courtesy of Metastock

MERB Daily Chart - Strong Rally, Testing its Previous High 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

One of the best performing stock in this four day rally so far among the blue chips is no other than Manila Electric Company "B" shares (MERB). With this kind of strength that it has displayed in the last four days, if the market were indeed to recover, this will certainly be one of the first ones to head back up to its previous highs last July. The charts above shows the weekly and daily charts of MERB.

In its weekly chart, MERB has been following an upward channel which it started forming since late last year. You can see from that chart that, despite the market's bloodbath in the last four weeks, the stock is still holding within this upward channel and merely tested its support. With the stock now forming a long white candle after testing its support the week before, we now have the possibility that the stock will continue its upward trend and eventually form a higher high, which would be higher than its previous high of 118.00. If the stock could merely close above 100.00 this week, the support at 73.000 is confirmed and chances are that the stock will eventually retest its previous high at 118.00, if not higher. At this point that the stock now appears to have already found a bottom, prices should no longer break below 83.00. If it does, the stock will most likely form another lower low, lower than its low at 73.00.

On the daily chart, MERB has been exhibiting some extraordinary strength in the last few days. You can see in the chart above that MERB has been following a downward channel since its peak in early July. Prior to last week, the stock was so weak that it even momentarily broke below its downward channel and looked like was going to even accelerate further to the downside. On news that the FED cut its discount rate, MERB had a total reversal of psychology and formed a bullish kicking pattern. Usually, since the stock has broken below the channel, you normally would see prices already encountering resistance at the upper trendline of the channel before it eventually climb back up if it was really strong. But in this instance, prices did not encounter resistance at the upper trendline of the channel but even exceeded it. This is highly unusual and indicates that the stock, from being very, very weak, has become very, very strong. To further strengthen the case of the being bullish in MERB, the stock appears to have already formed a V-reversal at the 73.00 level. Watch the steep short-term upward channel that it has been trading in for last five days. If the stock is really, really strong, there is a possibility that the stock will continue to hold above this channel and continue to climb further.

For the lucky ones, who were able to buy this stock in the last couple of days, I would suggest that you simply hold on to your positions and use a break below 93.50 as your mental stop. Same goes with Tsupiteros, who got stuck at higher prices and would like to sell their positions, just use a break below 93.50 as your mental stop. For Position-traders, this week is make or break. The stock will either encounter resistance here near the 100.00 level and continue to drop down, or, break above that 100.00 level and continue to trend up. If it breaks above 100.00, I would suggest Position-traders, to start buying the dips in this stock. But if it holds below 100.00, I would suggest that you simply watch the stock for next few days and see if there is really strength, otherwise, just continue to avoid it for now.

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.