|
|
|
|
|
|
Issue #44 
November 4, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
|
| Fed has spoken and the response was negative!
DOW Friday close at 13595
The DOW gave a second failure signal this past week when it attempted to get up to the 14000 level and failed. After the announcement the Fed had lowered the interest rate 1/4% it rallied but then reversed and in one day took out the 20 and 50 day MA and got down to the 100-day MA.
The two-week rally from the daily closing low of 13522 (intra-day at 14007) is now considered a successful re-test of the highs. The chart formation presently in place can be seen as a head & shoulders formation and a break of 13522, on a daily closing basis, would be considered a break of the neckline and would project a drop down to the 12800 area. On an intra-day basis the strong support is at 13407. Below that level there is no support of consequence until the 13250 level is reached.
On the daily closing chart the trend-line showing the head and shoulders formation might have already been broken with Friday's action. A rally up to the 13691 level would be possible under this scenario as a re-test of the break itself. In addition, at that same price (13691) you have very strong resistance from 4 different and important highs back in June, July, and August as well as the 50-day MA. The right shoulder of the head & shoulders formation is at 13807, on a closing basis, and would be another strong resistance level above the market if the 13691 level of resistance does not hold.
Simply said, the DOW is presently in a range between 13807 and 13522 on a daily closing basis. The 13691 Intra-day (13668 on a close) will be the major pivot point and level all the bears will target as the sell point. If the DOW is unable to get or close above that level on the upside it is likely it will break the supports shortly thereafter and drop strongly. A rally up to 13691 is expected and could be seen as early as Monday.
The chart now looks heavily tilted toward a strong downside movement and if unable to rally early in the week and break above the resistances, it is likely that it will get hit once again just as strongly as it was hit on Thursday of last week.
NASDAQ Friday Close at 2810
The NASDAQ continues to be the strong index as it was the only one of the indexes that managed to close higher this week than last week. In addition, the NASDAQ made new 7-year intra-day and weekly closing highs this past week thus confirmed the fact that money is shifting into this index and out of the others.
The NASDAQ was also able to successfully hold above the previous breakout area (2800-2812 - daily closing basis) as well as hold itself above the 20-day MA. All of this can be considered bullish and should the NASDAQ be able to maintain itself above the 2800 level and generate a rally above 2835 it could mean further strength.
The 2835 level must now be considered an important resistance, on an intra-day basis, but there is really no resistance on a daily closing basis until the closing high at 2859 is seen. On the other side of the coin the 2800 level is very important support and any close below 2795 would likely generate quite a bit of follow through on the downside. Below 2795 there is decent support at 2751-2764 and then major support at 2707-2725. A close below 2700 could open the door for moves down to 2600 and 2500.
The NASDAQ did hit a long-term level of resistance when it rallied this past week to 2861 and it is evident that whatever direction the NASDAQ takes from here, using the weekly charts, will likely signal a 3-6 month trend.
It is also evident that the charts of the DOW and the SPX differ quite a bit from that of the NASDAQ. This divergence does signal a change in the leadership of the indexes and when that has happened in the past it has normally been a bearish sign.
S&Poors 500 Friday close at 1509
As I have mentioned often in the past year, the SPX continues to be the index to watch for clues as to the direction of the indexes. Like the DOW the SPX also gave a strong second failure signal last week. The 1550 resistance level, on a daily closing basis, held strongly and the index ended up the week by breaking the 20 and 50 day MA as well as getting down to the 100 day MA, much like the DOW did.
The problem is a little greater on the SPX than on any of the other indexes as it was barely successful in making new all-time highs and has now failed to confirm that long-term breakout on two separate occasions. Such action, on the charts, will look like a major top is formed.
Once again the SPX went down to the 1490 level of support and was able to bounce off of it. Nonetheless the repeated test of support is indicative of a lack of strength and unless there is some strong fundamental change over the next week or two, it is likely the support level will break and put the index into a strong down move.
There is no support on consequence in the SPX until the 1452 level is seen. A break of the 1490 level will likely cause an additional drop of 3-4% in the index. A drop down to the 1380-1400 level could easily occur if the index breaks below 1490. On a weekly closing basis the 1535-1536 will now be major resistance and on a daily closing basis it will the 1540.
All the indexes have given signals that this particular level in the charts is going to be difficult to break. In addition, the fundamental picture with higher oil prices, a dropping dollar, fear of inflation, and potentially a stop to lowering interest rates by the Fed, shows a scenario that is unfriendly to higher index prices. The question then remains whether the indexes will get into a a wide sideways trend or whether a top has been found and a downtrend will begin. The answer to that question is likely to be seen in the next couple of weeks.
|
Stock Analysis/Evaluation
|
|
CHART Outlooks
With my bearish outlook for the DOW chart and the not-so-bearish looking NASDAQ chart, all my mentions this week will be sales of DOW stocks.
JPM (Friday Close at 43.15)
JPM broke a very important support on Friday when it closed below the 43.52-43.65 daily closing level. There is one more addition closing low at 43.00 that has not yet broken but the stock seems to be under strong pressure. The stock was at a high of 47.55 on Wednesday and in two days managed to go down over $4. On a weekly closing basis JPM managed to make a 15 month closing low and unless it reverses itself this week (a close on Friday above 43.54), is likely to go down to the next support level at 40.40. The break of major support sets up a short scenario that is very attractive and probable. Finding the right entry point will be difficult chore.
Resistance will now be found, on a weekly closing basis, between 43.84 and 44.20. Major resistance is up at 45.55-46.00. Support is down at 43.00, on a daily closing basis, and down at 42.06-42.16 on an intra-day basis. Strong support below that, using the weekly charts, is not found until the 40.40 level is seen.
JPM did break an inverted flag formation when it closed on Friday below the 43.54 level. Objective of the flag formation is the $37 level. Because of this close on Friday, it is likely that JPM will be unable to get above the 44.20 level and rallies up near 43.84 should be sold. Nonetheless if the stock is able to get above 44.20, a rally up to the mid 45's will probably happen. Sales of the stock at that point would once again be a good trade with stops above 46.00. The chart shows JPM in a downtrend and with the current scenario in the indexes it is very likely that it will go down further.
Sales of JPM between 43.54 and 43.84 and using a stop loss order at 44.30 and an objective of 40.40 will offer a 4-1 risk/reward ratio. The objective of the inverted flag formation is the $37 level. Support on the chart, should the 40.40 level break, would be down below 36.00. Should the stock rally and get above 44.20, a rally up to 45.62 would be expected but would offer another shorting opportunity with a stop loss at 46.10.
My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10). The rating increases to a 7.5 should the stock be able to get up to the mid 45's.
INTC (Friday close at 26.80)
INTC has been in an up-trend since March when it was at a low of 18.75. With the DOW now under pressure and INTC getting into major resistance levels, it is likely the stock will have a correction soon.
INTC has been having a lot of problems getting above the 26.97 level, in fact there is presently a double top in place, on a closing basis, at that price. In addition, using the weekly charts, should the stock be able to get above that level, the 27.40 level also offers very strong resistance with a major high being made at that price in 2005.
There is strong support on the chart down at 24.93-24.96, from two previous weekly lows as well as the 20-week MA. Strong support will also be found at 23.15-23.40, and major support is at 22.12-22.24.
Sales of INTC at Friday's closing price of 26.80 and using a stop loss at 27.50 and an objective of 24.96 will offer a 4-1 risk/reward ratio. Watch the action early Monday morning and if INTC is able to open or break above the 26.97 level then you should wait until I approaches the 27.40 level to sell. Should the indexes have the break I am expecting, it is likely that INTC would break below the support at 24.96 and head down to either the 23.15 or 22.12 level thus increasing the risk/reward ratio to over 7-1.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
CAT (Friday closing price 74.76)
CAT has a chart much like the DOW as it made a new all-time high when it rallied up to 85.90 in July and then failed to follow through. It subsequently had a re-test of the previous high at 80.00, which failed as well. CAT is now testing the support levels down just below 73.00 and looks like it wants to generate a break of support.
Resistance is now found at 75.16, stronger at 75.98, and very strong at 76.30 on a daily closing basis. Support is strong at the 72.60-72.67, on a daily closing basis. The problem with the support level is that is has been tested repeatedly (4 times) since May and with any further pressure will likely break. Supports levels of more than 2 lows are always magnets for the sellers. Below 72.60 there is no support until the 67.50 level is reached.
There is one additional reason to be bearish, other than the failure-to-follow-through and subsequent failed re-test. The weekly chart shows a possible inverted flag formation on the weekly chart, which if broken (a break below 72.60 on a weekly closing basis), would project a drop down to the 67.00 level.
Sales of CAT at Friday's closing price of 74.76 up to 75.10 and using a stop loss order at 76.40 on a stop close only and an objective of 67.00 will offer a risk/reward ratio of at least 6-1. Should CAT be able to get above the 75.16 level it is possible that rallies to 76.00 or slightly above will occur. Nonetheless if the 75.16 resistance levels holds up, CAT would likely break down this coming week. Any close below 72.60 will be a good reason to add to the short position.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
MMM (Friday closing price 84.89)
MMM this past week broke below a major support level at 84.88-85.06. This break occurred two weeks after a major drop in the stock from 95.36 to 84.88 (due to a fundamental change). In addition, MMM also gave a failure signal on the weekly charts when it went above the previous 5-year high of 88.60 and then failed to maintain that level.
After the major break MMM traded, on a daily closing basis, between 85.79 and 86.36, creating an inverted flag formation of great clarity. This past week MMM broke below the flag as well as the previous major support and seems to be on continuation of the recent downtrend. The flag formation shows an objective of $76. On Friday MMM attempted to close above the 84.88 weekly closing support level but was only able to test the area without accomplishing a reversal.
Resistance is now strong at the 84.88-85.06, breakdown level on a daily closing basis. The top of the inverted flag at 87.06 will now be considered major resistance should the stock manage a rally. There is absolutely no support on the charts until the mid 75's. There is a gap that was left open on the way up at 77.51-79.23. That gap will now work as a magnet since the major support seems to have broken.
Sales of MMM at Friday's closing price of 84.88 and using a stop loss at 85.26 stop close only or an intra-day stop at 86.46 and an objective of 75.77 will offer a risk/reward ratio of at least 6-1.
My rating on the trade is 7.5 on a scale of 1-10 with the strongest probability rating being 10.
|
Updates
|
| Monthly Update on Stock Portfolio
|
Status and stop loss changes
|
|
Status of account as of 9/30 Profit of $6944 using 100 shares per mention (after commissions) Closed out profitable trades for October per 100 shares per mention (after commission)
CLDN (short) $316
INAP (short) $36 CRAY (long) $34 ININ (long) $249 SNDA (short) $548 ABC (short) $29 PMCS (long) $146 Total Profit for October, per 100 shares, after commissions $1358 Closed out losing trades for October per 100 shares of each mention (including commission)
SONS (long) $79
INTV (short) $36 XING (short) $20 AOB (short) $167 MWA (long) $102 PAAS (short) $166 UTSI (long) $67 RMBS (short) $74 MMC (short) $46 SNDA (short) $116 PAAS (short) $38 SNDA (short) $79 PAAS (short) $329 NUAN (short) $48 Total Loss for October, per 100 shares, including commissions $1367 Open positions in profit per 100 shares per mention as of 10/31
HRB (short) $65
Open position in loss per 100 shares per mention as of 10/31RMBS (short) $170 NTES (short) $68 Total $303
CEGE (long) $23
Status of trades for month of October per 100 shares on each mention (including commissions)WOLF (long) $77 Total $100
Profit of $194
Status of account/portfolio as of 10/31Profit of $7138 using 100 shares traded per mention (after commissions)
|
1) PMCS - Liquidated long positions at 8.70. Profit on the trade of $160 per 100 shares (2 mentions) minus commission.
2) ABC - Covered short position at 45.63. Profit on the trade of $43 per 100 shares minus commission.
3) CEGE - Liquidated long position at 3.16. Loss on the trade of $47 per 100 shares plus commission.
4) NTES - Covered short position at 21.36. Profit on the trade of $13 per 100 shares minus commission.
5) ESLR - Shorted at 11.70. Covered short at 12.10. Loss on the trade of $40 per 100 shares plus commission.
6) JNPR - Shorted at 34.97. Covered short at 35.38. Loss on the trade of $41 per 100 shares plus commission.
7) PAAS - Shorted at 31.10 and 32.06. Covered short at 33.12 for a loss of $308 per 100 shares (2 mentions)plus commission.
8) MMC - Shorted at 24.93. Covered short at 25.25. Loss of $33 per 100 shares plus commission.
9) HRB - Shorted at 22.46. Stop lowered to 21.31 stop close only. Stock closed Friday at 20.59.
10) WOLF - Long at 13.82. Stop loss changed to 12.26 stop close only. Stock closed Friday at 12.66.
11) C - Shorted at 38.70. Stop loss at 39.60. Stock closed Friday at 37.73.
12) SNDA - Shorted at 38.93. Covered short at 39.58. Loss on the trade of $65 plus commission.
13) RMBS - Shorted at 21.49. Stop loss at 20.52. Stock closed Friday at 19.51.
14) NUAN - Shorted at 21.74. Covered short at 21.96. Loss on the trade of $24 per 100 shares plus commission.
Previous Newsletters
|
The opinions and commentaries by Mr. De Vito are not a recommendation to buy or sell, but rather
a charting guideline, based on his own knowledge and experience, regarding the stocks he is following or
that are brought to him by others. Mr. De Vito does not presently offer a track record of his trading experiences.
No inference of success and/or failure should be assumed. The
information enclosed above, regarding his background, length of trading, and experience, is correct
but is not meant to suggest, state, or infer any future success in trading, based on his opinions. The information herewith included should only be used by investors who are aware of the risk inherent in securities trading. Mr. De Vito accepts no liability whatsoever for any loss arising from any use of the information and/or comments he supplies. |
|
|
|