Turbulence Seen for JAL Shares: Charts

Japan Airlines (JAL) has found itself at the center of a bidding war over the last few weeks, with Delta Air Lines and American Airlines among potential suitors fighting to form partnerships with the struggling carrier. With lenders now calling for a more drastic overhaul of JAL's operations, is this a good time to be holding the stock?

JAL has all the characteristics of a chart from 2008 and that type of nosedive is not good in a rising 2009 market. The relentless downwards pressure drops the price below old support levels and establishes new downside targets.

Airplane Takeoff
Airplane Takeoff

There are five key features on the weekly JAL chart and none of them are bullish.

The first three features are the historical support and resistance levels. They start with resistance near 275. This sets an upside target for any successful breakout above the support resistance level near 212. This is a very long term target with a low probability of being achieved. It’s a blue sky objective. It's important because it has consistently defined resistance.

The second support resistance level is near 212. This is a near term target if JAL is able to break through the two other strong resistance barriers.

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The third feature is the support level near 170. This support level has been broken but the recent initial rally has moved the price above this level. The success or failure of the retests of support are an important indicator of future price moves. The trading band between 170 and 212 is used as a projection tool. It suggests a downside target near 130 if support at 170 is unsuccessful.

The support and resistance levels help define the potential up and downside targets but they do not provide information about the trend strength and character. This information comes first from the downtrend line. This is a well defined and well tested line.

The price has moved towards the value of the line and then retreated. Although the price has peaked above the line, there has not been a close above the line. This suggests the line is a good definition of the trend. A break above the line is very bullish. In the current context this gives an upside target near 212. This is the importance of the historical support and resistance levels.

The trend line tells us nothing about the strength, persistence or character of the trend. For this information we use a Guppy Multiple Moving Averages (GMMA). The key feature here is the consistent wide separation in the long term group of averages. This shows investors are committed and consistent sellers. When price rallies, investors sell. The strength of their selling makes it difficult for the price to move above the value of the downtrend line.

The increasing separation in the long term group of moving averages suggests there is a low probability in the short term that the direction of the trend will change. JAL is grounded.

The width of the current trading band is used to project a downside target of 130.

The momentum for achieving this target is provided by the relentless downside pressure. Traders looking for a rebound want to first see a move above the trend line. Then they want confirmation compression in the long term GMMA. This shows investors have stopped selling.

Compression and crossover shows investors have become buyers. Only very aggressive investors will make their JAL takeoff booking now. There is a high probability of much cheaper special tickets becoming available over the next few months.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.

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