Charting Asia

It's A Sony

Sony reports its earnings for the fiscal year 2007 on Wednesday. Its stock hasn't had a very good 12 months -- down 25% year-to-date. The maker of PlayStation, is expected to post an operating profit of 393.6 billion yen (US$3.79 billion) in a poll of 17 analysts by Reuters Estimates.

Sony's videogame division saw its operating loss shrink by about 100 billion yen in the year ended March 2008, helping boost overall profitability, the Nikkei business daily said. The game unit posted an operating loss of 232 billion yen in the year ended March 2007 due to hefty start-up costs for its PlayStation 3 game console.

But a sluggish stock market performance is expected to force Sony's financial unit to post appraisal losses on its securities holdings, leading to a lower group operating profit than its January forecast of 410 billion yen, the Nikkei said.

So as a run up to Sony's earnings results tomorrow, Charting Asia analyzes where its shares may go.

Sony appears to be a trending stock, but the trends develop within the context of well defined support and resistance levels, or trading bands. Sony is trapped between a wide trading band.

A trading band is similar to a consolidation level. The main difference is that a trading band is usually wider, and it contains more clearly defined rally and retreat behavior.

Sony has a recent history of trading in well defined trading bands. The August through November trading was confined between 5,200 and 5,900 and contained four clear rallies. The December breakout peaked near a previous support level which acted as a resistance point.

The upper edge of the current trading band is located near 5,200. This acts as a significant support level from August through November. This history of activity suggests it will pose a significant barrier to the development of a new uptrend.

The lower edge of the band is near 3,950. This forms the base for a double bottom rebound and can be seen as a rebound point for the start of a new uptrend.

The rebound potential created by the double bottom near 3,950 is confirmed by the move above the downtrend line. This downtrend started late 2007. The trend line could not be drawn accurately until the February high and retreat. The April breakout above this trend line was confirmed with the (GMMA) display. 

The short term group of averages shows an increase in trading activity and an increase in bullishness. The compression in the long term group of averages shows investors were also joining the trend break as buyers.

This buying strength has not developed quickly. Good buying strength is shown when the long term GMMA does not compress in response to a pullback in price. In plain terms, investors are buying because they see the lower price as an opportunity to enter a developing trend.

This reaction adds uncertainty to the success of the trend breakout and further confirms the potential for this to develop into trading band behavior with a retreat towards minor support at 4,300. The trading band width provides good trading opportunities. A sustained break above 5,200 is required before investors can be confident a new sustainable uptrend has developed. This breakout has a resistance target near 5,900.

To sum it up, the downward pressure on Sony has eased, but this does not signal the development of a new prolonged uptrend. Investors remain cautious as traders continue to drive rally and retreat behavior within the broad trading band. 

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