My stock pick for this week is none other than Megaworld Corporation (MEG) because of the bullish setup of both Megaworld and the Philippine Stock Exchange Property Index (kindly see my Property Index post here). During the last trading session, Megaworld’s 2.9% gain brought the stocks to the current price of PHP2.10 and ranked 3rd most active stocks traded with almost PHP395 million in value turnover (next to Banco de Oro and Philex Mining).
As we look closer, Megaworld could be forming a 2-month inverted head-and-shoulders pattern with a short-term target of PHP2.30 at breakout point. I got this target price by adding the height of the inverted head-and-shoulders to the possible breakout point; and this is also the 7-month resistance. Today’s buying pressure actually tried breaching the neckline, but was unsuccessful. On a personal note, I got in at PHP2.04 to anticipate the break. In any case, if the price goes below PHP2.00, I’ll cut my position. Unable to ride Manila Mining‘s (MA) breakout from the symmetrical triangle pattern last week (kindly see my posts here 1 and 2), I’ll take my chances on MEG’s bullish pattern pushing through.
Looking at the bigger picture, after the yearlong consolidation of Megaworld that started in August of 2009, its stock price moved sideways, as confirmed by the 50, 100 and 200-day moving averages crossing each other several times (see image right above). Also, when the intermediate support and resistance is connected, the slight decline of the sideways movement resembles a large falling wedge formation. This can be easily spotted by looking at its weekly chart (see image right below). When the formation was ripe, the MACD hovered towards the 0 line (weekly chart) and broke out in July of 2010. This triggered the bullish run which jockeyed the price from PHP1.32 all the way to PHP2.84 in just 5 months. The implication is that the current consolidation of MEG, which started last October, could be another falling wedge in the making (similar to the one in 2009). Still, we need a valid breakout. So if this large falling wedge looking pattern breaks out, by gauging its size, I’d set my target at PHP3.00. This is more than 40% from the current price and quite humongous for a blue chip.
Here’s something I also noticed: Analyzing from a different perspective, MEG’s chart has a history of consolidating into head-and-shoulders/inverted head-and-shoulders formation (see its 2-year chart right above). It seems like MEG loves these chart patterns. So could there be much love plotted in its chart again? Yes, but we’ll need to see the current inverted head-and-shoulders break out.
In simple terms, if I were a long-term trader, one option is to let my stocks run as long as the 2-year uptrend remains intact. On the other hand, because I frequently trade short-term, I traded that inverted head-and-shoulders pattern and plan to exit with around 10% profit from the current price. I’d also cut my losses if the stocks go below 2.00 Philippine Peso (PHP).
Enjoy the weekend!