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Chart of the Week - Feb 4, 2008

Philippine Long Distance Tel. Co. (TEL)

TEL Weekly Chart - Strong Rebound from Support, Continuing to Trend Up

charts are courtesy of Metastock

TEL Daily Chart - V-Reversal Formed, Continuing to Trend Up 

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

Philippine Long Distance Telephone Company (TEL) was the hero of the market last week as foreign funds aggressively bought the stock last week. On Wednesday, they bought P64M worth. Last Thursday, they bought a whopping P617M worth. And last Friday, they were again net buyers by P264M. There was news during the week that the company will start to buyback its shares in the market. Maybe this news prompted these funds to buy the stock aggressively last week.

Since TEL constitute the biggest influence on the PSEi (28%), a strong movement on this stock can certainly affect the entire movement of the market itself. Had it not been for the strong performance of TEL last week, I'm pretty sure the market would have already retested its previous low at 2950 last week as most issues are still relatively weak.

People have been asking me the last few weeks whether the market is already in a downtrend in the long-term. Since TEL is the main influence of the market, as long as TEL continues to trend up, I don't think the market will start to trend down. You can see in the weekly chart of TEL above that the stock's uptrend is very much intact and now looks ready to form another new high. If it continues to follow this trend, I wouldn't be surprised to see TEL hit 3500 in the next couple of weeks ahead. The major support of TEL right now is already the 2500 level as long as this stock continues to hold above that level, the market will continue to stay up as well.

In the short-term, the stock appears to have imitated its movement last August wherein it form a V-reversal pattern when it dropped down significantly. In that August scenario, after forming a V-reversal pattern at 2270, the stock eventually ended up forming a new at 3285, just less two months after it hit bottom. Could it actually be the same exact scenario right now? If the stock is going to imitate that movement to the letter, we should see TEL hit around 3500 sometime between the first and second week of March 2008. Of course, markets very seldom behave exactly as they did before but at least we do have an idea of what the stock is capable of doing. With the stock already climbing almost P500.00 just in the last two weeks alone, I wouldn't be surprised if prices consolidate first at current levels and just move sideways for now.

Tsupiteros, who currently have positions in this stock, are recommended to just hold and use a break below 2900 as your mental stop. Those who would like to buy this stock are suggested to watch its behavior in the next few days first. If the stock corrects only shallowly and starts to move sideways within a very narrow range, it may just be resting before it continues to move higher. Position-traders, on the other hand, are still recommended to just hold as long as prices stay above 2500.

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.