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Chart of the Week - March 30, 2009

Paxys, Inc. (PAX)

PAX Monthly Chart - Rallying from its All-time Low

charts are courtesy of Metastock

PAX Weekly Chart - Strong Rebound but Approaching Resistance,  

charts are courtesy of Metastock

PAX Daily Chart - Bearish Meeting Lines Pattern

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 strongest stocks in the entire market last week was PAX. From a low of 0.43 last March 10, 2009, the stock was able to rocket all the way up to 0.91 last Friday. A 112% return in just 17 days time. Whew! However, last Friday, the stock appears to have hit a brick wall at the 0.91 level. Let's see how this looks like from a technical point of view.

First, let's look at its monthly chart. You can see in the monthly chart above the severe downtrend that this stock has made in the last two years. From a high of 25.00 last April 18, 2007, the stock dropped straight down to 0.43, a 98% decline in two years time. Who ever said you can't lose your entire money in the stock market?! The 0.43 low of the stock was even lower than its previous low at 0.53 last July 2, 2003. In hindsight, it would now seem that the 0.43 low of the stock was merely market noise as the stock is now well above its previous low at 0.53 once again. Obviously, the stock is now rallying off this low. The big question now from this time-frame is, up to how high can this stock rally from here?

The weekly chart of the stock shows a more noticeable rebound from the stock's trough at 0.43. However, as you can see from this time-frame, the stock is now approaching its medium-term resistance at exactly the 1.20 level. You can also see in this time-frame that the stock is still obviously trending down and will continue to trend down, that is, as long as prices continue to trade below this 1.20 level. The volume spikes in this time-frame always appear when the stock begins to rally from its lows. This also occurred when prices were consolidating between 2.50 to 5.00. The volume spikes does not necessarily conclude that there is accumulation going on but merely indicates the presence of Tsupiteros. Thus, the big question in this time-frame is, will the stock be able to break above that medium-term resistance at 1.20? If it breaks above 1.20, then, there is a possibility for the stock to climb up all the way to its next resistance at 2.50. However, if the stock fails to break above 1.20, then, there is a possibility for the stock to eventually form another new low.

Let's go one time-frame lower and examine its short-term trend. The daily chart of the stock shows the very strong uptrend that it is currently in right now. However, last Friday, you can see that the stock formed a bearishly-looking Meeting Lines pattern. Does this mean that the stock's short-term uptrend has finally ended last Friday? That certainly is how it is looking like right now. If so, prices may continue to drop and try to find support at around the 0.73 area. The 0.73 level is where the previous high of the stock is located. Thus, all those who previously sold near that level and saw the stock rocket all the way up to 0.91, will probably be willing to buy it back where they sold it, if they can. Of course, on the other hand, all those who bought near 0.91 last Friday and are currently stuck, are probably very, very nervous right now. These guys will be happy to sell their shares at break-even, if they can.

So how do we trade this stock? Because the stock is trending down in the weekly chart, I would not recommend to position in this stock yet. However, if you insist and would like to position in this stock, I would suggest that you try and buy it as close to 0.60 as possible. If this stock is really strong and is already trying to bottom-out already, it should no longer drop anywhere below the 0.60 level. As for Tsupiteros, I sure hope those who are holding this stock, were able to take profits last Friday. If you still haven't, I would suggest that you try and sell it as high as you can on Monday. For Tsupiteros, who would like to buy this stock, you may want to see if that 0.73 area will hold. If it does, then, by all means, buy the stock. However, knowing how volatile this stock is, I wouldn't dare try and guess its low and I'll just probably buy it when I see that the stock has clearly formed a higher low.

Be careful on this one Tsupiteros. Just remember, average daily volatility for this stock is currently at 10%. If you can't bear that kind of a volatility, I don't suggest that you try and position on this one. This, in my opinion, is a day-trader's stock.

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.