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  • PHK - The NAV price action may tell us this decline could be for real 0 comments
    Jun 26, 2011 8:34 PM | about stocks: PHK

    Update 07/13/11:
    Looking at the price chart of PHK's NAV we can see that the 50 day simple moving average has crossed over the 200 day simple moving average at roughly 9.16, in effect signaling the so called "Death Cross" discussed below in my article of 6/26/10.
    I submit to the reader's consideration that a significant move lower in both PHK and its NAV (to a lesser extent) might be in the cards based on the historical evidence discussed below.

    PHK has been extremely volatile over the past few weeks ever since the Merril Lynch analyst published a research report doubting the fund's ability to maintain its stable distribution rate for the future.
    While I completely agree with the Merill report I looked for other clues to try and find out whether this most recent sharp decline in the fund's market price could be just the start of a more sustainable downward trend that will take market prices closer to the fund's NAV.
    In looking at the chart of the fund's NAV levels something that is out of the ordinary is quite evident : for the first time in 4 years or so - the fund's NAV crossed its 200 day moving average in a downward movement - a negative event in and of itself.
    It is also interesting to note that this 200 day moving average has served as a kind of support level since May 2010 as the fund's NAV got as close as 2-3% within this parameter but managed to bounce back higher and recover.
    This recent development poses a question of whether this "break" is a real one and if so, what could be the potential consequences.
    If we examine the last time PHK's NAV broke its 200 day moving average we must go back in time to June 7th 2007.
    At that time the NAV and its 200 day moving average crossed around 15.05.
    When we examine the charts of that period we immediately see that that "break" through the technical indicator (200 DMA) indeed was a real one with the NAV (and the fund's market price along with it) recording a series of lower lows culminating in the climactic fiasco in March of 2009.
    It took the NAV a few months from its recorded NAV low, before it was able to recover and cross the 200 DMA on the way up around June 3rd 2009.
    I would propose that a potential confirmation of a sustainable downward move in NAV may be the "death cross" of the 50 day moving average crossing of the 200 day moving average in a move lower.
    As it happened back around July 12th 2007 we are very close to see this signal triggered now.
    Currently the 50 DMA is at 9.31 (with a downward momentum) while the 200 DMA is at 9.24 and relatively stable.
    At the current pace we stand a good chance to experience this "death cross" happen within some 10 days or so.
    If NAV keeps its move lower during these 10 days, I would suggest that this move is for real and we could experience a very significant move lower in PHK's market price that would wipe out most of its premium vs. NAv (if not all of it.)
    In simple terms, if those technical indicators would work as warning signals as they did last time this event happened, we might see PHK's price go lower by 30%-35% (or even more if we see accelaration of NAV erosion).

    Stocks: PHK
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