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Chart of the Week - June 8, 2009

 Metro Pacific Investments Corp. (MPI)

MPI Weekly Chart - Dark Cloud Cover pattern in an Overbought Condition 

charts are courtesy of Metastock

MPI Daily Chart - Trying to Hold Above its Support at 5.60

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Metro Pacific Investments Corporation (MPI) has been very, very active recently on news that a secondary offering will be done within the year. Obviously, the market perceives this secondary offering to be priced at premium to the market price, which is why it is going up. However, is the bullishness of the market justified at current levels. From its trough of around P2.00 late last year, the stock has already climbed 3 folds and has now registered a new all-time high. Let's see how the technicals look like.

The weekly chart of MPI is a dizzying sight as prices are now very high. The previous highs of the stock were 6.40 last Dec 2006 and 5.80 last Oct 2007. Both of these highs have already been broken last week as prices reached a high of 7.10. The stock were not able to close above those levels though as prices closed the week at 6.10. Notice the formation of a black candle in the stock last week. The position of that black candle shows that the stock has formed a bearishly-looking dark cloud cover pattern. The fact that this pattern occurred while the stock is at an overbought condition is not a good sign for the bulls. Notice also that despite the volume of the stock getting bigger last week, the stock still ended the week down from the previous week's close. This too is not a good sign for the bulls. In my opinion, while the stock may have formed a new all-time high last week, it looks toppish to me and may be vulnerable to some correction in the next couple of weeks ahead. The best that this stock can do in the next couple of weeks is to trade sideways. If prices are able to do that and it does not correct back down significantly, then, maybe the stock can continue climbing higher. But that would be more of the exception to the rule. The "rule" is that the stock will likely correct back down from here.

The daily chart is the more bullish picture as prices seem to be following a clear-cut upward channel with its support currently pegged at the 5.60 level and its resistance currently pegged at the 8.50 level. Of course, I am assuming that the stock will be able to hold above current level and continue to trend up. The first order of the day though should be for the stock to convincingly bounce up above its support at 5.60. For now, it hasn't done that yet and has merely formed a small consolidation between 5.60 and 6.50. It tried to rebound last Thursday but it failed as prices closed the day at 6.00, despite the heavy volume that day. It again tried to rebound last Friday but, after what happened last Thursday, the bulls just weren't that aggressive anymore. You can see that volume last Friday was now a lot less than its volume last Thursday. In my opinion, the bulls still has a chance in this stock but they will need to act quickly in the next couple of days. At this point, the stock is neutral, meaning, it isn't that bullish but it isn't that bearish either. To be bullish again on this stock, the bulls better make a solid breakout above that 6.50 level. If they could do that, then, maybe the stock can now make a run towards its resistance at 8.50. Take note, I would be very, very concerned for the bulls of this stock if prices unexpectedly breaks down below that 5.60 level.

So, how do we trade this stock? As I've explained above, the stock is bearish in the weekly time-frame but still has a bullish bias in the daily time-frame. In my opinion, the stock will not easily break above its previous high at 7.10, even if it breaks above that 6.50 level. Why? Because of its "look" in the weekly time-frame. In fact, if I were a position-trader and I were holding this stock, I would probably look to take profits right now as close to 7.10 as possible. So, how would Tsupiteros trade this stock? Knowing that the weekly time-frame is now bearish, the best that Tsupiteros can do to this stock is just trade the range of between 5.60 and 6.50 or 7.10. Buy as close to 5.60 as possible and sell as close to 5.60 or 7.10 as possible. Just remember, if prices unexpectedly breaks down below that 5.60 level, all bets on the long side are off.

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.