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Chart of the Week - May 26, 2008

 Paxys, Inc. (PAX)

PAX Monthly Chart - Trying to Rally from Oversold Conditions but... s

charts are courtesy of Metastock

PAX Weekly Chart - Downtrend Ends, Trading Range FormedM 

charts are courtesy of Metastock

PAX Daily Chart - Dark Cloud Cover Pattern is Bearish

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) was once again in the limelight last week as prices were able to climb from 3.05 just seven days ago to 4.55 last Friday. I guess people found value in the company because of the depreciation of the peso. As everybody knows, PAX is one of the worst performing stocks in the entire market in the last 12 months. From a high of 30.00 just last April 2006, the stock dropped to as low as 2.95 last February. The company's bottom line was negatively affected by the appreciation of the peso. However, did it warrant a 90% decline in the value of its shares? Or, was it really just overvalued at 30.00?

In its monthly chart above, you can see that PAX already dropped to 2.95 last February, climbed back up to as high as 5.90, and, retested its low at 2.95 last April. With the stock trading back up to 4.10, it would now seem that the 2.95 level is formidable support of the stock. By looking closely at the monthly chart of PAX above, you will notice that PAX started trading heavily in the market since November 2004. Before November 2004, the stock only averaged by less than 100,000 shares a day. By November 2004, the stock suddenly averaged by less than 5,000,000 shares a day. Last November 2004, the low of the stock was at 2.98 (adjusted). So, as you can see, there is basis on why the stock is trying to rally from this level. However, at this point, the stock is still merely trying to rally and has yet to confirm to us that it is now on the way up. The previous high at 5.90 is now the stock's line in the sand in the medium-term. Wherein, as long as prices stay below 5.90, we may expect prices to simply consolidate here between 2.95 and 5.90 in the medium-term. I will only conclude that the stock is now on the way up once again if it is able to breakout above that previous high at 5.90. Volume last week as well as during the last time it went to 5.90, were extremely heavy. Could that indicate accumulation in the stock?

For the short-term, you can see that the stock has already rallied quite significantly in the last couple of days. Last Friday, the stock gapped up at the open, continued to form a higher high but closed the day at its lows and with a long black candle, thus, forming a bearishly-looking dark cloud cover pattern. Could this spell the end of the run for PAX in the short-term? That is possible but is not conclusive yet. This may also be just a correction within its short-term uptrend. The level to watch out for in the short-term is the 3.80 level. As long as prices continue to trade above 3.80, prices may still form another higher high. However, if the stock continue to drop on Monday and still forms another long black candle, I'm afraid that will already indicate to me that that rally towards 4.55 may already have been the peak of this run and prices may simply move sideways in here, at best.

How do we trade this stock? I have to say, PAX is already a bit dicey at this point as prices are already relatively high to buy but have yet to show a clear sign that it is already reversing back down. I can't blame Tsupiteros if you already took profits from your positions in this stock last Friday. For those who are still holding, I would suggest that you just continue to hold and use a break below 3.80 as your mental stop. I wouldn't buy this stock yet unless prices can prove that it can hold above 3.80 or, bettter yet, 4.00, in the short-term. Once prices prove that it can hold above support, then, Tsupiteros, who would like to buy this stock, may start buying. I would completely avoid this stock if prices suddenly breaks below 3.80. Potentially, if prices break below 3.80, the stock may drop back down towards 3.00 once again. I would recommend Position-traders to still recommended to just continue to remain in the sidelines in this stock for now, unless prices convincingly breakout above that 5.90 level.

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.