2010 was a marquee year for Andrew Tan’s flagship company Megaworld Corporation or MEG in the Philippine Stock Exchange as it was able to book a 69.86%. However, MEG’s outlook had started to look a bit bleak around December as it started to form a head and shoulders pattern which technical analysts consider as a bearish pattern. In my presentation in Absolute Traders’ year-end chart analysis forum last December, I noted that people should start to avoid MEG at that mean time given its technical set-up. In my colleague’s post in January 12 (kindly see it here), he mentioned again MEG’s likely downturn. And guess what? Exactly a week after that (January 19), MEG’s breakdown occurred.
Since breaching the head and shoulders’ neckline at PHP 2.20, MEG had slipped to a low of PHP 1.98. After doing so, it managed to rally back to to the neckline but was unable o move past above it. For almost a month now, MEG has been stuck within a rectangle pattern (trading between PHP 2.00 and PHP 2.20). Its bias, however, is bearish given its recent breakdown from a head and shoulders pattern. Hence, a fall below the rectangle’s support at PHP 2.00 could send it down to its downside target of PHP 1.80 or to its former high at PHP 1.74.
So to avoid possible losses, I would immediately cut my long positions especially if the support at PHP 2.00 gets broken. Of course, I would want to sell my positions at rallies. But that’s just me. By the way, this is not to say that Megaworld Corporation is not a fundamentally sound company because it is. Perhaps the market is just waiting for a more attractive price before they get on board once again.