StockWatch (Oct 17-21, 2011): PSEi, MPI

PSEi (Chart: Daily Resistance: 4170 Support: 4003/3798/3715)

The index rallied last week, stopping just short of crossing above the 200 day moving average. I didn’t expect the index to rally beyond the 4050 projected peak of the 4th wave (green bar on the chart). I was more of expecting a sideways movement when it reaches that level. Instead the index pushed beyond 4050 and even beyond the previous low of 4129 (labeled F1).

The 4129 level is supposedly the 1st wave count, and based on rules for counting, wave 4 should not overlap wave 1. The recent market activity had invalidated our standing 5-wave count (labels F1-F4). So what does this translate to?

Scenario 1: Some Elliot wave practitioners point out that if the 4th and 1st wave overlap happens, then we would have to re-label our wave count, changing our previous wave 3 as wave A of the A-B-C pattern. This now makes our previous 4th wave, as wave B. This gives us a projection of near 3650 (61.8% of the length of wave A) as the nearest end point of our wave C. The next possible end point of wave C would be near 3350 (100% of the length of wave A).

Scenario 2: Some Elliott wave practitioner acknowledges the occurrence of a wave 4 and wave 1 overlap. They believe on a more lenient interpretation such that wave 4 is allowed to overlap no more than 10-15% of wave 1. With this consideration, wave 5 projections can go near 3600 (127% of wave 4) or 3450 (162% of wave 4).

Either way, both scenarios point to a possible downward trend and both point to nearly the same level.

Scenario 3: Now considering we start labeling F3 as wave 0, then we have wave 1 (labeled (1)) at 4003, then wave 2 (labeled (2)) at 3798. The projected wave 3 would be near 4260 and the projected wave 4 would be just above wave 1 near 4028. This wave counting also points to a downward movement as we near the peak of wave 3. Albeit, this would be a more positive outlook (on the short term) than scenario 1 and 2 for the reason that the projected downward movement is shorter and it also has the possibility of forming wave 5.

The stochastics alone also points to a possible downward movement for next week as well as the RSI reaching 50 level. Add to that the current 200 day moving average acting as resistance. So with all those consideration, we could expect the market to move lower by next week.

As one might be tempted to get in the market because of the rally last week, I would suggest to hold on to your cash for now until we have more indicators supporting last week’s rally. One of the things to observe for next week is the support near 4003. If the downward movement does not go below 4003, then this gives scenario 4 more credence for short term bullishness as wave 5 starts to form.

MPI (Chart: Daily Resistance: 3.14 Support: 2.78/2.56)

MPI caught my attention because of the large increase in volume for the past 2 weeks. There has been a lot of interest on this stock as shown by the unusually large volume on the upward movement.

However, as of current, this stock is now on its way down. Do observe this stock on its way down. As long as the volume on the downward movement does not increase, this stock may be a viable item to buy later.

There are several scenarios that could play into this stock. One scenario would be if the stock is able to hold its price above 2.78 (which is the 62% retracement), then there is a possibility that the 3rd wave could materialize which could bring this stock back up to near 3.72.

Otherwise, if the 62% retracement at 2.78 does not hold and the stock continues to move downward, the next support will be at 2.56, which is the previous low. If the support at that level holds, then we might be seeing a reversal pattern here, which is a double bottom.

As of current, I am a bit skeptical on the possibility of the 3rd wave to materialize as there is no reversal pattern that I could see that would support the 3rd wave to reach 3.72, way past above all the moving averages. What I think would more likely to happen is for this stock to move sideways, because it has been on a downward trend for almost a year now and possibly the sideways movement would start forming a reversal pattern.

Would this be a stock to buy? Possibly if the support at 2.78 holds and price starts to move upward again with large volume, otherwise I would wait for a reversal pattern to materialize.

StockWatch (Oct 10-14, 2011): PSEi

PSEi (Chart: Daily Resistance: 4050/4100  Support: 3860/3715/3630)

The index made a dip on the first half of the week and recovered on the second half.   From the looks of it, the index is moving sideways with large swings. If the resistance at 4050 still holds by next week, this may lead to the sideways ranging movement of the index.

The index seems to be bullish on the second half of last week, but it is still not recommended to get in the market, as we are unsure of the index’s trend for the past 2 weeks.  If the index rallies, I would suggest that you sell your positions rather than holding on to them.  There are a lot of other resistances along the way and you would be holding on to those stocks for a long time and also, when the 5^th wave materializes, you would incur more loss.

Observe as well the RSI reaching 50 level, as of current it is still possible that the index would encounter resistance when that level is reached.

StockWatch (Oct 03-07, 2011): PSEi, SMPH, FGEN, AGI, DIZ

PSEi (Chart: Daily Resistance: 4060/ 4130 Support: 3715/3630)

The downward target level of the head and shoulder formation and the projected length of the 3rd wave near 3700 were reached on the first trading day of last week, with the index going as low as 3715. And right after reaching the target level, the index did bounce back on the latter half of the week.

The 4th wave was projected to top on either of the following levels: 4050/3970/3870. But as of current index level, we have gone past the 2 projections; 28% and 34% of the length of wave 3, which leaves us with the remaining 4050 level (50% of wave 3 = 4059; thick green line on the chart) as the potential resistance to the current 4th wave.

However looking at the RSI, there is a possibility that the 4th wave would go beyond the projected resistance at 4050. Usually, when coming from an RSI of below 30, RSI 50 acts as resistance and from the current RSI the index still has some room to move before reaching RSI 50. The index can possibly move near the previous low, at around 4120 (4129 was the previous low on Aug 9).

For next week, expect the index to move upward on the first half of the week and on the second half, probably move sideways for some time before starting with the 5th wave.

For those who are still contemplating on selling their positions, one must act fast as the window of opportunity is becoming smaller as the index nears 4050 and 4120, before the 5th wave starts its downward movement.

If assuming the projected top of the 4th wave near 4050 holds, the projected 5th wave can go as low as any of the following projected target levels; 3620, 3350, 2920 (100, 162 and 262 percent of the length of wave 1 respectively; considering wave 3 a normal extended wave).

There are a couple of stocks that were unusually strong in a generally bearish condition, like SMPH, FGEN, AGI and DIZ. These stocks had the common characteristic of having larger volume on the upward movement, relatively larger than the volume on the downward movement during the creation of the 3rd wave on the index. Aside from the volume, I could not see any bullish area pattern that could be attributed to the strength of the upward movement.

The only thing I could deduce from those stocks is that traders seem to give high value to those stocks (this is very evident on SMPH and FGEN, but a little on DIZ and AGI) and are probably considered as bargain stocks at their current price level. I would not recommend buying them currently, but rather continue to observe those stocks as they may be the first few stocks to pull out from the current bearish cycle.

SMPH

FGEN

AGI

DIZ

StockWatch (Sep 26-30, 2011): PSEi

PSEi (Chart: Daily Resistance: 4050/3970/3870 Support: 3700)

The index had the biggest drop in a day since Oct of 2008. This floored my jaw as my hopes were shattered for the index maintaining a sideways movement.

The previous support near 4130 and the 130 and 260 day moving averages were also wiped out last week.

On hind sight, the drop is expected as the index has formed a head and shoulder formation whose neck near 4129 was broken last week. The target level for the head and shoulder formation is near 3700.

Counting the Elliott wave, we are now on the 3rd bearish wave and based on projected length of wave 3 which is 162% of the length of wave 1; this wave may reach up to the same level as the target level for the broken head and shoulder formation which is also 3700.

For the current index level at 3885, we still have way more space to drop to reach near 3700, so buckle up for further downward movement next week.

Observing the RSI, the index is now way oversold. The typical reaction to a very oversold equity is a bounce up once it goes below RSI 30. At current, RSI is now at 21, so we may also see a bounce up by next, but I don’t expect this bounce to be the 4th wave. This would probably be a short bounce with a little sideways movement.

Assuming the 3rd wave reaches the level near 3700, the 4th wave is projected to top anywhere between 3870, 3970 and 4050 (24%, 38%, 50% of the length of wave 3; Green bar on the graph).

In conclusion, we’re definitely on a bearish cycle now, so if you were stuck and wanted to get out, the 4th wave maybe the chance for you to move out of your positions. There is opportunity to profit riding the 4th wave, but for the risk averse, it would be best to continue sitting on the sidelines.

StockWatch (Sep 19-23, 2011): PSEi, NI

PSEi (Chart: Daily Resistance: 4360/4400 Support: 4260/4230)

The index’s situation slightly deteriorated last week. For the past 3 weeks the index has never gone below the standing support line of the sideways channel near 4290, but last week, the index breached that level forming a new low.

It looks like the channel might be redrawn/shifted lower, with the support near 4260 (130 day moving average) and resistance near 4360 (65 day moving average).

Trading strategy would still be the same, which is to play the possible range on certain stocks (for example DIZ) and not to hold your positions for long term.

Although the actions last week maybe a little bit discouraging, the index is still on a safe middle ground. I am just hoping that the index would be able to sustain the current sideways movement and not create a new low that is lower than the previous low of 4130 (Aug 9 low). If it does go below that level, then we may be seeing the start or confirmation of the bearish cycle.

NI- Weekly Chart

NI (Chart: Daily Resistance: 4.0/ 4.5 Support: 3.40)

NI showed a spectacular show of force Friday last week with the volume exceeding recorded volume since the start of this bullish trend for NI.

Looking at the weekly chart, we can see that the volume on the downward movement of the stock for the first 2 weeks of September is dwarfed by the volume of trades last week. This only means that the bullish sentiment for this stock is still preserved and may continue for this week.

I could not see any possible pattern to be the basis of a target price for this bullish activity, but basing on the Elliot wave pattern alone on the weekly chart, we may be on the 3rd wave. Usually the 3rd wave is the longest of all waves and measuring the length of the first wave as the minimum target price relative to the start of the 3rd wave, the 3rd wave could potentially reach at least up to 5.50.

Amidst the ranging movement of the index, this stock seems to go against general sentiment and is a viable candidate for going long. The MACD on both the weekly and daily chart seem to confirm the bullishness of this stock.

Again as with any stock, be on the lookout for dips on this stock that is accompanied by large volume (those that exceed 20M trades). If any such occurrences appear, then start unloading your position.