PSEi (Chart: Daily Resistance: 3170/ 3320 Support: 3000/2950)
The initial descending triangle formation that was spotted last week was broken down on the first day of trading but was able to recoup the loss and successfully close above the support line of 3170. However the support at 3170 was short lived as the index broke down last Friday with a huge spread. The TP for the breakdown is around 3000, which is also a psychological support. The next support is at 2950, the previous low. The interesting part is that if support at 2950-3000 holds, then the index is a possible candidate for a double bottom, a reversal indicator from the recent decline of the stock market from October 2007, but ofcourse this remains to be seen. The bad part of it is that if support doesn’t hold, and proceeds to takeout the support at 2870 from the previous low of August 2007, then we have ourselves a grim picture of a breakdown from a double top, but judging from the RSI level, I think the grim picture of a breakdown from a double top would be very small as the index is still currently near oversold level. For now, the trading strategy would be more of staying on the sidelines until a bounce happens. Keep watch also for other stocks that might be forming a double bottom, a falling wedge pattern or showing signs of a bullish divergence.
RLC (Chart: Daily Resistance: 12/14.50 Support: 11.25/10.50)
RLC is one of those stocks that are displaying a double bottom formation. Looking at its past movement, we can see that it has formed a H&S formation from Sept-Dec of 2007. It brokedown from this formation by the second week of December and has since been moving downwards. The target price of the breakdown from the H&S formation has been reached at 11.25 and was able to rally back to a high of 14.50 before moving downwards again. Currently, it seems that this stock might be forming a double bottom assuming that support at 11.25 holds. If support at 11.25 is broken, the next support is at 10.25 which is the support line extending from Aug 2007 up to Jan 2008. If it bounces from this support line, watch out for a bullish divergence formation for the MACD and RSI. As of the moment, both of the indicators still has the possibility of forming a bullish divergence. If it does bounce from support at 10.50, this gives more credibility to a possible falling wedge formation with resistance at around 12. For the bottom fishers, 10.50 would be a better level to get in and cutting immediately if it goes below 10.
MEG (Chart: Daily Resistance 2.44 Support: 2.20/1.90)
MEG is also one of those stocks that may be displaying signs of bullish divergence. Looking at the previous movements, the stock brokedown from a symmetrical triangle (or could also be a H&S formation) last Jan 2008 and has since been moving downward. From mid January, the price action moved sideways and as of last Friday it has recently broken down again from the sideward channel. Considering the symmetrical triangle where it initially brokedown from, it has now reached the TP of 2.20. But considering the sideways channel where it recently brokedown, we can still see further possible downward movement down to the 1.90 level. As of current this is a candidate for a bullish divergence as the price has formed a lower low, while the MACD and RSI is still way too far from creating lower lows, which means there is a higher possibility for the MACD and RSI to form a higher low. We can confirm the bullish divergence by an MACD crossover of the signal line.
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