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Chart of the Week - January 19, 2009

 Manila Water Co., Inc. (MWC)

MWC Weekly Chart - Downtrend Continues, Approaching Support at 8.80 

charts are courtesy of Metastock

MWC Daily Chart - Broke Below a Triangle but Trying to Hold Above 10.00

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Manila Water Co., Inc. (MWC) caught everybody by surprise last Friday as news broke out that its water regulator did not give in to its request for a rate hike on February. Foreign funds panicked and the stock immediately gapped down to 12.25. It dropped to as low as 10.00 but local funds began picking up the issue, thus, resulting in the stock climbing back up to 11.25. It closed the day though at the 10.75 level. I guess the fundamental question for this stock would be, how does the shelving of the rate hike affect the valuations of the stock? Is the 25% drop in the price of the stock justified? According to Citiseconline, earnings would fall by 17.3% if the rate hike were not given. Let's see how the technicals looks like.

The weekly chart shows that the stock has already formed a peak at the 19.25 level in early 2008 and has continued to trend down since then. For the last couple of months, the stock has been trying to hold steady above the 12.00 level and has formed a symmetrical triangle. Symmetrical triangles are usually continuation patterns, which means it is a pattern which continues the prior trend of the stock. True to its form, the stock has broken below the formation last Friday and has begun to trend down once again. Medium-term support is pegged at around the 8.80 to 9.50 levels. Will it drop to those levels? Let's look at it more closely by looking at the daily chart and its behavior last Friday.

There's not much difference anyone can see when you compare the stock's weekly chart from its daily chart. However, what is very distinctive in the daily chart is the spike in volume last Friday. No, there are no cross transactions or block sales in MWC last Friday. The volume that you see there are real done transactions on the board. This heavy volume is an indication that there were a lot of buyers and sellers. I guess even the foreign funds got quite surprised to see a lot of buyers in this stock suddenly appearing out of nowhere. This massive buying has led the stock to climb from 10.00 to 11.25 before closing last Friday at 10.75. Obviously, the 10.00 level is quite a strong support. I don't think prices can break below that level anytime soon. However, the 12.25 level is also a very strong resistance line. Just imagine all those who got stuck at prices prior to last Friday. For sure, everybody who bought this stock in the last few weeks are just dying to sell their positions at break-even, if they could. Therefore, the best that this stock could do for now is to just consolidate between 10.00 and 12.25. Worst, since it is trending down, it may form another new low.

Tsupiteros, who currently have positions in this stock, are recommended to just hold and use a break below 10.00 as your mental stop. For those who would like to buy this stock, you may want to buy it as close to 10.00 as possible. Just look to sell your positions as close to the 11.25 to 12.25 area as possible. As for Position-traders, I would not recommend buying this stock for now. Those who have positions in this stock are recommended to sell your positions as close to 12.25 as possible as well.

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.