This blog is committed to the serious study and valid understanding of technical analysis and its objective application to stock selection, risk management and execution primarily in the context of trading stocks listed in the Philippine Stock Exchange (PSE).

Tuesday, April 1, 2008

DGTL 4/1/08 BREAKOUT FADEOUT

DGTL gives back 75% (0.12) of yesterday's 0.16 advance settling 0.02 below 1.60 - a level that we have seen reverse its role from acting as support in Jan-2008 and subsequently as resistance in Feb-2008 and Mar-2008. The stock's decline is as steep as yesterday's advance except that today's volume is noticeably lighter at only 701,000sh. Yesterday's volume is 14,842,000sh - over 21x today's accompanying turnover and close to 9x that of the 15-day MA - supporting the validity of the breakaway move. However, it is price, not volume, that ultimately matters, and I will be hard pressed to find a more illustrative example of this object lesson than this recent 2-day extreme turnaround. The more aggressive trader would have entered yesterday during the frenzy, and the less risk tolerant would have waited for a continuation signal today before participating. That is not to say that one technique is better than the other because there are obvious trade-offs between the 2 systems. The aggressive trader stands to be stopped earlier with a small loss in case the breakout fizzles but if the advance prospers, he gets to capture the bigger portion of the up move by participating earlier. By waiting for a second day confirmation, the risk averse trader avoids taking a premature loss in case a quick fade out occurs but if the breakout promptly catches fire he gets to climb on board a bit later in the move sacrificing the early portion of the advance. In any case, I will be looking closely at the critical level of 1.60 and whether (a) another role reversal is in the offing that could provide a base from where the stock price stabilizes and continues its advance or (b) it continues to act as resistance that sends the stock re-entering the confines of the 1.42-1.60 trading band. For those who participated yesterday, the focus of the trade now shifts to risk management and swift execution of stops in case a range pattern re emerges.

PRICE AND TURNOVER
Close: 1.5800 * Change: -0.1200 (-7.06%) * Value: 1,117,800

TECHNICAL ANALYSIS
Primary trend undefined * Intermediate uptrend * Short term consolidation * Prior support 1.42 * Potential support (role reversal) 1.60 * Resistance 1.84 * Faded breakout of 3-month range * Potential price objective of breakout move 1.84

* Personal Disclosure: I own a trivial number of shares of DGTL.

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