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Chart of the Week - May 5, 2008

 Philippine National Bank (PNB)

PNB Monthly Chart - Trying to Rally from Oversold Conditions

charts are courtesy of Metastock

PNB Weekly Chart - Broke Out from its Consolidation but...m 

charts are courtesy of Metastock

PNB Daily Chart - Shooting Star Pattern may be Bearish 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Philippine National Bank (PNB) was one of only a handful of stocks that climbed up this week as the bank finalized its merger with Allied Bank. Will this news finally lead to an uptrend in the stock? It's possible but I doubt it. I'll show you why.

First, let me analyze the long-term chart of PNB using its monthly chart above. You can see that in the long-term, PNB has never actually trended up yet since its all-time high at 545.00 last 1994. Last year, it was already on the brink of trending up but, unfortunately, it appears as though the stock has held below its previous high at 79.00 (formed last 2002) by already forming a peak at 65.50. If you will look at the monthly chart of PNB closely, you can see that prices have now broken below the upward channel it has been following since 2004 and is now continuing to trend down. While prices are currently rallying from oversold conditions right now, if I follow its trend, the stock may eventually retest its previous low at 18.75 soon. The question is, will it form another new low?

In the medium-term, you can see in the weekly chart above that the prices have formed a bullishly-looking long white candle this week. However, since the stock is still obviously trending down, last week's rally may be nothing more than a "dead-cat bounce". Although I won't discount the possibility that last week's rally may continue this week, as long as prices continue to trade below 40.00, I will be bearish on this stock in the medium-term. In fact, if prices only rally up to as high as 35.00 and start to head back down, I would definitely expect prices to eventually form a lower low lower than its previous low at 26.50.

For the short-term, the stock has been climbing up strongly in the last couple of days. Obviously, this is because people were anticipating the announcement of the finalization of the merger with Allied Bank. The problem is, while this may actually be good news for the long-term viability of the bank, this news is not something new and has already been factored-in by the market. So, the question now is, did the stock break out of its consolidation in the short-term, or, is it still actually testing its resistance right now? Give that the whole market is continuing to be very weak, I would tend to think that this rally might just be an opportunity to sell. In fact, the merger news on the stock could actually be treated by Tsupiteros as a "sell on news". I am still giving the stock the benefit of the doubt that it could start to trend up in the short-term. However, if the stock fails to hold above the psychological 30.00 level, I would presume that prices may head back down towards its previous lows at 26.50 to 27.00.

To be bullish again in this stock in the medium term, prices must first take out 40.00 to the upside. For the long-term, the stock will need to break above its high last year at 65.50 in order for it to trend up.

I can't blame Tsupiteros who sold their positions in this stock last Friday. For those who are still holding, I would suggest that you use a break below 30.50 to 31.00 as your mental stop. For those who would like to buy this stock, I would wait for a confirmation first that prices will be able to hold above that 30.00 level. If the stock is able to hold above 30.00, then, prices may be able to climb up again above the 33.50 level and head towards 35.00, if not higher. For position-traders who are currently holding the stock, I would suggest that you try and sell as close to 35.00 as possible. Better, of course, if you could sell as close to 40.00 as possible. The problem is, if prices no longer climbs back up to those levels. I would suggest that you also use a break below 30.00 as your mental stop. I would not recommend buying this stock if you are a position-trader.

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.