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Chart of the Week - February 2, 2009

 San Miguel Brewery (SMB)

SMB Weekly Chart - Consolidating within Ranges 

charts are courtesy of Metastock

SMB Daily Chart - Established Resistance at 10.75 but Trading within a Sideways to Upward Trend

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

San Miguel Brewery (SMB) has been in the spotlight recently on the back of news that Kirin Holdings Co., the second largest brewery in Japan, will want to acquire a 43% stake in the company. From a closing price of 8.80, the stock rocketed to 9.50 on the announcement and was even able to climb up to as high as 10.25 on the same day. The big question is, how much will Kirin buy SMB? From the way the stock has been behaving recently, it would appear that the market is expecting a purchase price of no less than 10.00 per share. Let me discuss the technicals below.

The charts above shows the less than nine month life span of the stock of SMB. The charts are all in a daily time-frame because a longer time-frame, such as a weekly or a monthly chart, will be irrelevant at this point due to the lack of additional data. In any case, unless you are a long-term investor, this chart is enough.

The first chart shows that the chart of SMB is divided into different ranges. The pivot points are 8.10, 9.00, 10.50 and 12.50. This means that if SMB breaks above or below one of these pivot points, the stock tends to settle at a higher or lower range above or below the next pivot point. As an example, just recently, SMB gapped up above its pivot point at 9.00. You will notice that after gapping up above 9.00, the stock has encountered resistance at 10.25 and has formed a trough at the 9.30 level, which is above its previous pivot point at 9.00. It has since consolidated between the 9.00 pivot point and its next pivot point at 10.50. So what is the relevance of these pivot points to the current trading of SMB? Given these assumptions above, I would tend to expect SMB to continue to consolidate between 9.30 and its previous high at 10.75 for now, that is, unless a significant move would occur that would make it go above or below this range. If the stock breaks above 10.75, then, chances will probably be high for the stock to retest its previous high at 12.50. However, if the stock breaks 9.30 (9.00 to confirm), then, chances are that the stock will head back down towards its lower pivot point of 8.10.

On a more micro look on the daily chart of SMB, you will have to look at the second chart of SMB above. Obviously, the stock has begun to trend up after the announcement of Kirin. The stock traded back down to as low as 9.30 but was able to climb up to as high as 10.75. It is now trading back down below the 10.00 level. One look at that chart above, you will obviously notice that the stock is trending up. The mere fact that it is trending up, is already a bullish indication for the stock since most of the stocks in the market right now are trending down. However, the stock appears to have encountered significant resistance at the 10.75 level. Notice how the price immediately turned back down after hitting the 10.75 level. On the other hand, a lot of people who missed the move from 9.30 to 10.75 are now probably looking to buy as close to 9.30 as possible. If so, the stock may be range-bound for now between those prices unless there is development on the negotiations with Kirin.

Tsupiteros, who would like to buy this stock, may want to buy it as close to 9.30 as possible. If you are able to buy it near 9.30, you may opt to take profits as close to 10.75 or 11.00 as possible. Would it be ok to position into the stock at this point and just wait for the final deal with Kirin? Sure but, just remember, the stock will only continue to be bullish as long as prices hold above 9.30. If, for any reason, the stock breaks below that previous low at 9.30, I would bet that the deal with Kirin is already probably off.

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.