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Chart of the Week - Feb 25, 2008

Paxys, Inc. (PAX)

PAX Weekly Chart - Rallying Strongly from its Lows but Still Trending Down

charts are courtesy of Metastock

PAX Daily Chart - Established Resistance at 5.90, Trending Down Again 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Paxys, Inc. (PAX) climbed spectacularly this week from 2.95 up to as high as 5.90 on news that the client of its subsidiary, PRC LLC, which already filed for Chapter 11 protection in the US a couple of weeks ago, has just reached an agreement with its subsidiary and its lenders. However, the stock appears to have encountered a brick wall at the 5.90 level and is now starting to drop back down. Where is this stock headed from here?

The weekly chart of the stock above shows that, despite the huge rally that it did this week, the stock is still very much trending down. It simply was too oversold to the downside, which is why the rally was very, very strong. Strictly speaking, with the stock continuing to trend down, the stock is still vulnerable to form lower lows in the future. However, since the rally from 2.95 to 5.90 was very, very strong, I would bet that most people would now be willing to buy the stock the next time that it drops back down near 2.95. Can it actually still drop back down near 2.95? If it is true that most people will be willing to buy the stock as close to 2.95 as possible, then, the stock will most likely no longer drop anywhere near 2.95 anymore in the short-term. Of course, after some consolidation between 2.95 and 5.90, the stock might become vulnerable once again to a new low. At this point, it's just too early to say whether the stock has bottomed-out already, however, the fact that prices have been in a severe downtrend for quite a while already, I wouldn't be surprised if it is already bottoming-out. If you will look closely in the weekly chart of PAX above, the 3.00 level is near the level where accumulation in this stock started to occur in late 2004.

In the short-term, the stock is now clearly trending down eversince its peak at 5.90 a few days ago. The fact that prices closed the day at its lows and with a long black candle last Friday may indicate that prices are still going to continue moving lower this coming week. However, I expect the bulls to try and defend the psychological 4.00 level. Whether the bulls will be successful at defending that level is still to be seen. Just for Monday alone, the level to watch out on the upside is last Friday's high of 4.75. As long as prices stay below 4.75, I will continue to expect lower prices in the short-term.

Tsupiteros, who currently have positions in this stock, are recommended to sell as close to 4.75 as possible. I do not recommend buying this stock unless prices are able to break above 4.75. Position-traders are suggested to avoid this one as well. As I said, it's just too early to say at this point whether the stock has already bottomed-out or not. I will continue to expect the stock to trend down unless proven otherwise by the market.

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.