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Chart of the Week - May 19, 2008

 TKC Steel Corporation (T)

T Monthly Chart - Trying to Rally from Oversold Conditions

charts are courtesy of Metastock

T Weekly Chart - Downtrend has Ended? M 

charts are courtesy of Metastock

T Daily Chart - Resistance at 4.70 but Trying to Hold Above 4.45 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

TKC Steel Corporation (T) was one of the worst performing 2POs last year as the stock dropped from its 2PO price of 9.68 to as low as 3.60 or a more than 62% drop from its 2PO price. If you will look at the chart above, the price was even pushed to as high as 23.00 last year. I sure hope there aren't anyone reading this website who bought above the 20.00 level and are still holding your shares up to now.

You can see in the monthly chart of T above that the stock has done nothing but drop for the last 8 months now. From a high of 23.00 last August 2007, the stock dropped to as low as 3.60 last week, a more than 84% decline in the value of the shares in just 8 months time. Could this simply be because of weakness of the entire market, or, could there already be something wrong with the fundamentals of the company? Of course, at current levels, the stock is now quite oversold already in the medium to long-term, however, that doesn't necessarily mean that prices could start rallying significantly from here. If the fundamentals are really weak or if the market continues to be weak, the stock might just form a range and move sideways for now. For those who bought at the 2PO prices of 9.68, don't expect prices to head back up to that level anytime soon. That just won't happen unless someone really spends and pushes the stock to that level. Although the level to watch out for in the medium-term is the 5.20 to 5.30 level. If the stock is able to close and breakout convincingly above those levels, that would indicate that the stock's downtrend has definitely ended and prices may be able to start trending up already. If prices continue to trade below the said levels, the stock will probably move sideways between 3.60 and 5.30 for now.

In the short-term, you can see that, after a big ascent from 3.70 to 4.70, the stock appears to be hesitating to climb further and has formed a potentially bearish Inside Day pattern. However, notice that the most recent candle is actually trading at the upper part of the range of the candle last Thursday. In my opinion, the stock is still relatively strong but may simply be resting at current levels. If the stock is able to continue to hold above its minor support at 4.45, then, prices could eventually mount a rally towards its medium-term resistance at 5.20 to 5.30.

Tsupiteros, who currently have positions in this stock, may continue to just hold and use a break below 4.45 as your mental stop. I wouldn't recommend buying this stock at current levels anymore unless it could prove otherwise that prices will no longer head back down towards its previous low at 3.60 and prices will be able to breakout above its previous high at 4.70. For Position-traders, I wouldn't recommend buying this stock yet, until it has proven to me without reasonable doubt that it will no longer form a new low from here. At this point, it's just too early to say whether the stock has already formed a bottom or not. While it does look like that it has, this current rally from 3.60 to 4.70 is only the first real rally from its lows. Most often, prices will still retrace this rally and prove that it will no longer form a new low anymore, before it eventually starts to trend back up.

For those who are still currently stuck with your 2POs, there isn't much you can do here anymore. You already held on to the stock from 9.68 to 3.60 so why not hold it a little while longer and see if you can still sell this one at higher levels. With the stock looking like it has ended its downtrend already, there is no use trying to sell the stock right now because you might just end up selling at the lows. On the other hand, there is a fear that, if you don't sell and prices drop back down, that you might regret it. If I were those who are stuck with the 2POs, I would probably look to sell the rallies but I would probably do it partially. Who knows? Maybe you would still be able to eventually sell up to as high as 7.50? Can't the stock climb back up to its 2PO price of 9.68? Sure, but it'll have to double its price from current levels. Do you really think that that is possible right now? Furthermore, with so many people currently stuck at its 2PO price, I would bet that everybody would like to sell as close to the 9.68 level as possible, which makes it even more improbable that the stock will head back up to that level. If you are able to sell at the 2PO price of 9.68, I would bet that prices will probably be on its way up above 10.00 already by then.

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.