StockWatch (Aug 26-29, 2008): PSEi, PLTL

PSEi (Chart: Daily Resistance: 2775 Support: 2634/2615)

The index had a sell down week last week, with the index breaking support established from July. One of the possible patterns we were observing last week was an island reversal. Currently, the index is still respecting the gap that was formed on the first week of August so the possible island reversal that we are observing is still neither confirmed nor invalidated. It will be invalidated if the gap is closed or a pull up happens for this week. Also the rising wedge that we have observed and whose support was broken last week is almost near its target price of 2615, which is also a point in the support line from July. The MACD is not looking good as a cross below the signal line already happened, but on the other hand the RSI is looking better. It is possible that at RSI 50 we may experience some respite from the continuous selling action last week, because RSI 50 is sometimes a support area especially after a bullish action, which is what happened with the index for the past weeks prior to the sell down. Also looking at the volume towards the end of the trading week last week, we are seeing a decrease in volume, which is a good indication that selling action is dwindling, but it is still not an assurance that selling action will cease. So for the coming week, a cautious trading is recommended, it is still possible that the index would still move down to sideways. Watch out for 2615, if this is broken, it is best to stay on the sidelines again for the mean time. Watch out also for a possible inverse head and shoulder formation.

PLTL (Chart: Daily Resistance: 9.90 Support: 8.40/8.00)

PLTL is showing 2 patterns, one is a slightly skewed symmetrical triangle; the other is a rounding bottom pattern from Oct 2007. In both patterns, a breakout occurred with sufficient volume with a possible target price of 10.00. But looking at the chart, the target price has already been reached with the highest at 9.90. If one is to follow a strict observance of entry and exit price levels, any one who is holding this stock should have already sold near the highest price since the target price is considered to have been reached already. For those who have not yet sold their positions, I would advise to observe the support level at 8.40. If price for next week goes below the support line, sell immediately. For those who are going long for this stock, observe the same support level. If support holds, then this is a good indication for the stock. Another good indication is that the 3 MA’s are in its correct bullish position plus the MACD is now way above the center line. Aside from those, it can also be observed from this stock that we are currently in a bullish phase of the stock. (Bullish phase is characterized by the RSI always oscillating above the 50 level and MACD always oscillating above the centerline). Even if the RSI goes below the 50 level as long as it is able to pull itself back above that level, it will still be a good indication of the continuation of the bullish phase. As of current, there seem to have formed an island reversal, but this is just for the short term. For those going long on the stock and would like to keep safe, the break of support at 8.40 is a signal to sell. For those observing the Elliot wave pattern, if my analysis is correct, we are now in Wave 4, so there is still hope for this stock as Wave 5 is still not formed. Price level at 8.00 is critical for Wave 4, it must not overlap the peak of Wave 1 for it to be considered as a correct Wave 4.

For the coming week, judging from the stochastics and the RSI, there is a higher possibility of either a sideways or upward movement of price. Still, cautious trading should be observed as support level is still being tested and it still hasn’t proven its strength.