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Chart of the Week - June 15, 2009

 Philippine Long Distance Tel. Co. (TEL)

TEL Monthly Chart - Rebounding Off its Support at 1810.00

charts are courtesy of Metastock

TEL Weekly Chart - Broke Above its Resistance at 2300 but...h 

charts are courtesy of Metastock

TEL Daily Chart - Trending Up Strongly, Approaching Resistance at 2600

charts are courtesy of Metastock

Legend: blue lines - range for Tsupiteros

            dotted blue lines - range for Position Traders

            red lines - important trend lines

The Philippine Long Distance Tel. Co. (TEL) has finally broken out of its two and a half month consolidation and is now trending up. Some are saying that TEL climbed up significantly because MER climbed up a lot. If you remember, the block of Lopez/MVP has bought a significant position in MER, therefore, any increase in the stock price of MER should have a positive effect on the share price of TEL, simply on valuations alone. The fact that breakout artists pushed the price up when they bought on the breakout above the 2320 level, simply exacerbated the move.

On the monthly chart, you can see that the stock has formed a clear-cut range of between 1810 to 3285. Some would probably say that the trough at the 1810 level may now lead to a new high in the stock as that would represent a higher low in its long-term trend. That may probably true, however, given that TEL is no longer a growth company and is now a very mature entity, I would tend to think that the stock will just consolidate below 3285 for the next 12 months or so. Furthermore, given that the stock has already trended strongly from its trough at 209 last Oct 2002 to 3285 last Oct 2007, I would tend to think that the stock will still need to absorb all those gains and just consolidate for now.

In the weekly chart, you can see that the stock has convincingly broken out of its resistance at the 2320 level. This breakout last week represents the end of its one and a half year downtrend. Does this mean that the stock will now trend up from here? Maybe but given the choppiness of its overall trend in the weekly chart, I don't think prices will go straight up to 3285 from here. The next real challenge for the stock will be its previous highs at the 2800 level. Remember, the break above the 2320 level simply indicates that its downtrend has ended. It does not confirm that the stock will start to trend up. For the stock to trend up, we would a lot more confirmations that simply a breakout above a resistance level. However, even if the stock drops back down, that 2300 level may not become a support for the stock. Whatever happens, the stock should no longer break below that 2125 level, or else, the bears may reassert themselves.

In the daily chart, you can see the very strong trend that it is in right now. The fact that prices formed a long white candle last Friday may indicate that prices will continue to climb higher by Monday. However, if we follow the short-term trend of the stock, the 2600 level may prove to be quite a challenge in the short-term.

Long-term traders of this stock are recommended to just trade its range by buying as close to 2125 as possible and selling as close to 3285 as possible. Medium-term traders as well as Tsupiteros, on the other hand, may want to buy as close to 2300 as possible. Tsupiteros, who are already long, may want to take profits as close to 2600 as possible. Medium-term traders, on the other hand, who are already holding this stock, are recommended to just hold and use a break below the 2300 level. Just remember, all long positions, including long-term positions, are off if the stock unexpectedly breaks down below that 2125 level. Barring any collapse in world markets, I would expect the stock to eventually hit near 2800 in the next few weeks time.

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.