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Chart of the Week - March 23, 2009

Philippine National Bank (PNB)

PNB Monthly Chart - New All-Time Low

charts are courtesy of Metastock

PNB Weekly Chart - Rebounding from its Lows,  

charts are courtesy of Metastock

PNB Daily Chart - Strong Rally from 9.70 but Approaching Resistances

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Last week, it was the banks' turn to be on the spotlight as the Financial Index went up by more than 7%. Among the banks, the one that registered the biggest rate of return was actually the most fundamentally unsound one of them all - PNB. Its previous all-time low was at 18.75, which was registered last Jun 6, 2003. From a low of 18.75, it was able to climb all the way up to 65.50 last July 13, 2007. It was all downhill from then on as prices registered a new low of 9.70 last Mar 12, 2009. I guess the big question now in everybody's mind is, is this current rally of PNB nothing more than a dead-cat bounce, or, could this already be the start of a bullish reversal in the stock?

If you will look at the monthly chart of the stock, you will see that its monthly support is still actually at the 5.00 level. In fact, there is nothing in the monthly chart to say that prices have formed a bullish reversal already. However, resistance of the stock is still pegged at the 22.50 level, which means, even if the stock rallies back up to 22.50, it will still be considered bearish in this time-frame.

Let's go one time-frame lower and look at the stock's weekly chart. You can see in this time-frame that the stock has actually accelerated to the downside. Previously, the stock was trending down and was following a not so steep downward channel (red solid parallel trendlines). However, sometime around Oct or Nov last year, the downtrend became worse and has broken below the downward channel. Since then, it has now followed a steeper downward channel (blue solid parallel trendlines). Last week, something totally different occurred, the stock actually broke above this steeper downward channel. This breakout, while it may not necessarily indicate that the stock is already trending up, it does indicate that its downtrend has finally been abated, at least.

The daily chart is where the action is in this stock right now as prices were able to breakout above its resistance at 10.25 and has begun to trend up eversince. However, as you can see in the chart above, the stock is now approaching heavy resistances at around the 12.50 to 13.75 levels. Will the stock be able to break above these resistances? I don't know but the big volume of the stock last Friday may indicate that this rally could be sustainable. The bulls better hope though that volume continues to increase as the stock continues to climb.

So how do we trade this stock? Because the stock is trending down in all of its time-frames except the short-term, I would presume that this rally that we are seeing right now is nothing more than a dead-cat bounce. Therefore, while Tsupiteros may want to buy this stock on any dips because it is currently trending up in the short-term, Position-traders may probably want to look for more evidences first that the stock is already trending up in the higher time-frames before you decide to buy it. Tsupiteros, who are currently long in this stock, are recommended to just hold and use a break below the 10.75 level as your mental stop. For those who would like to buy this stock, you may want to buy it as close to 10.75 as possible. As for Position-traders, I wouldn't recommend buying this yet, unless prices are able to convincingly breakout above its resistance at 15.00.

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.