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Phillip Morris Czechs its Comments

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Phillip Morris (NYSE:MO) issued an apology for releasing a study that found the Czech Republic financially benefits from the premature death of smokers. How did that one slide by the public relations department? Phillip Morris didn't needed to apologize for their stock performance during 2000 and most of 2001, but one may be coming soon.

Phillip Morris Daily Chart

In June Phillip Morris broke below its ascending channel. The decline stopped at $43.50, and rallied right back up the bottom of the channel. Price once again dropped down to $43.50, and completed what could be considered a head and shoulders top. As often happens, price rallied to test the neckline of the pattern, only to fail yet again. With MO currently below the 200-day moving average, it should be a good short candidate on a drop below $43.50. Lets see if MO's point and figure chart confirms that theory.

Phillip Morris Point and Figure Chart

Phillip Morris started its up trend when it gave a buy signal in May of 2000 (point #1). But apparently all the sellers weren't shaken out, as a sell signal was given two months later (point #2). The up trend remained intact, but any bullish price objectives calculated off of the first buy signal were cancelled. Demand firmly took control when a triple top buy signal was given at point #3. This buy signal gave us a bullish price objective of $54. 10 Xs in that column * the box size of 1 * the bullish multiplier of 3 = 30. Add that to the column low of 24, and we get our bullish price objective of $54. As Phil continued to climb towards that objective it pulled back twice, but never enough to flash a sell signal (point #5). Phil continued to climb to $52 before reversing into a column of Os, and eventually giving a sell signal at point #6. That cancelled the bullish price objective of $54, of which Phil came within $2 of. Buyers had a little life left in them, and gave another buy signal at point #7 that climbed as high as $53, but supply has taken back over by giving a sell signal at point #8.

But enough about the history of Phillip Morris, where's it going now? If we go back to our bar chart, shorting this stock at $43.50 looks like a good play. The point and figure chart also confirms that by trading $44, sellers have taken control of this stock. But if we look just below, the bullish support line could limit any downside potential. This trend has been in place for over one year, and could pose stiff resistance. Waiting for the stock to trade $41, which would break the bearish resistance line, might be a more prudent move. If the company continues to put their foot in their mouth, that might not be too far off.

Jeff Canavan
Assistant Analyst

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