Friday, October 2, 2009

SinoPac - TAIEX to 10,000

Update 10/5/09: Based on my price levels, I took a short position on EWT at $12.25 (1 cent off the days high) via Dec 13 puts @ 1.05. Targets are seen below.

So with all the hoopla of the impending MOU, ECFA, and whatever other alphabet soup acronym they come up with, a fund manager sees the TAIEX jumping another 33% by the first half of next year. So let's see where does that put the TAIEX-- currently trading at 7411.88 right now, another 33% puts it circa 9857.80, about 1.5 points shy of the '07 highs of 9859.65.

Now the number make sense, but the question is do we get there? I certainly don't read the future, but I just read charts. Similar calculations on EWT (the ETF for the Taiwan Index on the US stock exchange), also puts a 33% jump on EWT at the previous highs of $16.17 to the penny. Impressive huh? :)

Take a look at this 5 year chart on EWT below:

Closed yesterday in the US side at $12.16 and likely to open lower tomorrow if the TAIEX continues to struggle today. You can see that it's hitting some decent supply area in the $12.20-$12.50 region, where there's a cluster of previous support and resistance over the past years.

Rather than taking a long position based on this recommendation to buy on the TAIEX, I would rather short the EWT anywhere in the $12.25-$12.40 region with a stop above the highs at $12.40, with targets of $11.72 - $11.47 - $11.00 - $10.60. Of course, his time frame is in the months, and mine is short-term.

But, that just means I believe you can get a better entry going long the TAIEX in the short to intermediate term if you wait for prices to come back from these overbought conditions. If you are so inclined to take a long position on the TAIEX, I would wait until it gets to around $11.00.

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