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Chart of the Week - August 4, 2008

 Music Semiconductors Corporation (MUSX)

MUSX Monthly Chart - Trading within a Very Long Consolidation

charts are courtesy of Metastock

MUSX Weekly Chart - Testing the Resistance of its Consolidation.          Big volumes may be Bullish 

charts are courtesy of Metastock

MUSX Daily Chart - Encountered Resistance at 0.33 but Already Held Above its Support at 0.28

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Music Semiconductors Corporation (MUSX) has come alive last week with guns blazing. I have no idea what is going on in here but the buyers certainly are quite aggressive even at current levels. The volume of transactions is something worth noticing. Could that mean that there is accumulation going on? Will the stock hold below its major resistance at 0.35 or will it be able to breakout above it?

You can see in the weekly and monthly charts above that the stock has been consolidating within a range for a very long time already. To be precise, the stock has been consolidating between 0.15 and 0.35 since March 2003. Recently, as highlighted by the weekly chart above, the stock has been generating some volume, despite it still trading within its long-term range. Since December 2007, the stock has been forming some volume spikes, which did not occur when the stock was trading prior to December 2007. Obviously, something was already cooking as early as then. I would guess that this increase in volumes is an indication of accumulation in the stock. Technically, when prices consolidate within a range such as this, it indicates that the forces of the bulls and the bears are equal with each other. When prices drop near 0.15, the bulls start getting aggressive, but when prices climb near 0.35, the bears start getting aggressive. Normally, now that prices are near its resistance at 0.35 once again, we should see the prices drop back down and repel from its resistance line. However, what is different this time around is that the stock has generated volume. The volume is what can push the stock to break above its resistance at 0.35 since there are buyers who are able to absorb all the sellers at current levels. In my opinion, the stock is now getting ready to push above its resistance at 0.35 and breakout above its long-term resistance line. Take note, when a stock forms a very long consolidation, if the stock is able to breakout above its consolidation, it should form a very, very strong trend to the upside. If the stock is able to breakout above its resistance at 0.35, minimum target to the upside is already at the 0.55 level. I wouldn't be surprised though if it eventually even climbs up to as high as its next medium-term resistance at 0.77, if the stock is really, really strong. First thing's first though, it will need to convincingly breakout above that 0.35 level resistance line in order to start the ball rolling.

In the short-term, you can see in the daily chart above that the stock has climbed up quite a bit already. From its trough at 0.205 formed just last July 8, 2008, the stock has already climbed more than 60% to 0.33. Last Thursday, the stock formed a long black candle and looked like that the rally was over. When it held above its support at 0.28 and it again formed another long white candle, I already knew that this rally just isn't over yet. I wouldn't be surprised if prices consolidate first here between 0.28 and 0.33 for now. However, as long as prices continue to hold above the 0.28 level, I will continue to expect higher prices from here. If the stock does not anymore drop near 0.28 from here, that would already give you an indication that the stock is indeed very, very strong.

I can't blame Tsupiteros if you already took profits from your positions in this stock last Thursday. For those who are still holding to their positions in this stock, I would suggest to just hold and use a break below 0.28 as your mental stop. For those who would like to buy this stock, I would suggest to just buy it as close to 0.28 as possible.

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.