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Chart of the Week - Aug 17, 2009

 Philex Mining Corporation (PX)

PX Monthly Chart - Testing its Major Resistance at 11.00

charts are courtesy of Metastock

PX Weekly Chart - Parabolic Spike 

charts are courtesy of Metastock

PX Daily Chart - Dropping Back Down from its Peak at 11.25

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

There was quite a demand in the shares of Philex Mining Corporation (PX) in the last two weeks brought about by the announcement that Mr. Ramon Ang is interested in the SSS' stake in the stock. Given that Mr. Manny Pangilinan is also trying to acquire a majority in the stock, people perceived the news as another "Meralco" in the making. Yes, I totally agree, it is another "Meralco" in the making. The only problem is, I think we've already seen the "300".

People have no idea how high in the charts PX is right now. If you will look at the monthly and weekly chart of the stock above, it would appear to me that prices are now at the very pinnacle of the chart. For months, fundamental analysts have been bearish on this stock because of its high valuation. I believe this time, they will finally be right (haha). You can see in the monthly chart above that the stock has a tendency to drop back down once it hits that major resistance line, which is currently at the 11.00 level. If history repeats itself, I wouldn't be surprised if I see this one near 7.00 in a couple of months time. The weekly chart, on the other hand, is now what we call in Technical jargon as a Parabolic Spike. This is a behavior wherein the stock goes near vertical. The psychology here is that no one could buy the stock low when it was trending up because prices always form a shallow correction and tends to trend up once again. At the very end of the price cycle, everyone gets so frustrated of not being able to buy low so, in frustration, everybody starts to chase prices thinking that the stock will no longer go down. I'm not sure if that psychology fits PX right now but you get the picture. Since everybody has bought already in frustration, there is just no one left to buy higher.

The daily chart is much more worrying picture, in my opinion. After hitting a high of 11.00, the stock dropped to 10.50. A lot of people saw this behavior and thought that the stock was still very strong. The next day, the stock climbed up to 11.25 but, instead of continuing to go up, it closed the day unchanged. Last Friday, some people began realizing that the stock is having a tough time going beyond that 11.25 level, so they began to take profits. At this point, I would watch very closely what the stock would do here at the psychological 10.00 level. This is now the line in the sand for this stock in the short-term. If this stock will still be very strong, it would now have to hold above this level. If, for any reason, the stock fails to hold above 10.00, it may drop straight back down towards the 8.00 level. Remember the way the stock climbed from 8.00 to 11.00, that may also be the way how it corrects from 11.00 to 8.00.

I sure hope Tsupiteros as well as Position-traders, who have positions in this stock, were able to take profits already. If you are one of those who have yet to sell, I suggest that you try and sell on strength immediately.

You may ask, what about the proxy war of MVP and RSA? There are so many factors that could happen in the future that could change the direction that these people might take. For example, given the high price of PX right now, one of the major shareholder might actually be cashing in right now and could put a dampener on any price appreciation on the stock. Gold might drop back down to $750 in the world markets. Mr. Ang might change his mind about acquiring a stake in the stock. All I know is, there is nothing more objective than the charts and it is now telling me to take profits. At the current price of PX, I believe all the good news in the stock has already been factored in. Sure, there may still be some upside in the stock. I am no Nostradamus. However, from the way I see this, the risk-reward of the trade is no longer worth the gamble.

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.