StockWatch (Apr 13-17, 2009): PSEi, EDC

PSEi (Chart: Daily Resistance: 2330 Support: 1970)

The index had a short stint of selling action on the last days of March which brought the index down to the low of 1965 which is the area of the 130 day MA (orange line). The last trading day for that week had the index running a white candle with relatively large volume. On the following week, the index continued where it left off from Apr 3 and continued with its upward movement. Interestingly the index was alive with volume on the 2 trading days before the holy week. Usually, when long weekends comes up, the index is expected to have lesser volume prior to the long weekend. But Apr 7&8 was the opposite. It had large volume and was moving bulishly. For next week, expect the index to continue with upward movement.

However, please take note that the RSI is now near the overbought level once again. Be on the look out for a possible bearish divergence. We have now posted a new higher high for the index and the RSI should also follow. If it is not able to create a higher high for the RSI, this means we have a bearish divergence on the RSI and selling might follow.

Just in my opinion, I think the correction last March 30-Apr 1 was very short and shallow. This gives higher probability that the expected continuation of the upward movement this week may not have enough steam to keep the index moving upward for a longer time. So I would recommend to keep an eye on your stops if incase the index starts to move south again. The next resistance is at around 2330, which is the 260 day MA(green line). The support is at around 1970, which is the 130 day MA(orange line). It is also important to watch out for the volume on the way up. If volume is diminishing on the index’s upward movement, then this is a sign that it is loosing steam.


EDC (Chart: Daily Resistance: 4.80-5.00 Support: 3.90)

After slowing down for a while, EDC continued its bullish movement the previous trading days and broke the 260 day MA(green line) acting as resistance. Trading ended last April 8 with a record high in volume.

Eventhough the stock had large volume on April 8, I am having doubts if it could still sustain further upward movement this week. Looking closely at April 8, the volume was at a record high, but it did not translate into a long white candle. With such a large volume, I expected that this stock should have already zoomed past the target price, but it did not. At the very least it should have gone past the previous day’s high of 4.45, but it was also not able to move past that level. I am more inclined to believe that there might not be any further upward movement. Also when I tried to redraw the depth of the rounding bottom and taking the conservative (shorter) length, target price is at around 4.50. To be on the safe side, I would rather sell at the current price of 4.45, rather than wait for any further upward movement.

Also, watch out for island reversal formation. The stock has already formed several gaps with its rally, so there is higher possibility of an island reversal formation.