StockWatch (Jun 01-05, 2009): PSEi, MEG, EDC

PSEi (Chart: Daily Resistance: 2400/2620 Support: 2300)

The index has been continously climbing for the past weeks. It looks like the bulls are confirmed to be back as we can see that the index has been very much over bought for the past 3 weeks as indicated in the RSI. I have been very much observant about the RSI being overbought for the past 3 weeks, because in a non-bullish situation, usually when the index hits the RSI overbought level, the stocks immediately turn south. However for a bulish situation, the RSI overbought level will always be triggered and the graph usually stays above the normal overbought level of 70. Also RSI overbought level is usually re-desginated to a higher level than the usual 70 (because it will always be triggerred if it is around 70). Usually the bullish overbought level is at 80 and from the looks of the index, there seems to be more steam for the index to push through since the bullish overbought level of 80 is still not triggerred.

Also what can be seen from the index’s chart is the breaking above a significant resistance line at 2350 last Friday. This line was the support line of the index when the index created a large gap down last Octoer of 2008 which conversely becomes the current level of resistance prior to Friday. This line was broken with a significant volume and it is highly possible that Friday’s bullish ending will still continue come Monday.

General Analysis:
A lot of stocks are exhibiting characteristics of a rounding bottom pattern. You can make profit on this pattern in 2 ways: One, you can ride the stock up until it reaches near resistance, which is the previous high. A lot of stocks are still halfway from reaching major resistance levels. Second is that you wait for a break-out of the pattern. Or you can do a combination of both, you ride the stock up until a certain level near resistance and sell a few for the moment and then wait for breakout and buy again. Watchout for break-outs with low volume, these are possible bear traps.


MEG (Chart: Weekly Resistance: 1.02/1.20 Support: 0.47)

MEG seems to be going sideways for now, but looking at the weekly chart, it seems that a pennant formation is brewing for this stock (pole formed last May 08). Resistance is at 1.02. A break above this level with large volume would confirm the formation. Possible target price for the pennant formation is at around 1.5




EDC (Chart: Daily Resistance 4.50 Support: 3.30/3.60)

EDC seems to be forming a cup and handle formation. The break-out price is above 4.50. Possible target price of up to 6.5. As long as the price stays above 3.30 I think this stock is still good. Watch out also for the crossing of the 65 day MA (red line) above the 260 day MA (green line)