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Issue #46 
November 18, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| A Thanksgiving week pause?
DOW Friday close at 13117
This past week saw the DOW trade between a very evident support level at 13000 and a minor but clearly defined resistance level at 13367-13381. On Friday there was a fierce battle between the bulls and the bears with both sides trying to bring definition to the short-term outlook. The bears were trying to confirm a weekly break of support (13079) and cause strong pressure to be brought for a break of the 13000 level. The bulls were simply trying to prevent that definition from occurring. All during the day the bulls and bears battled at the 13079 level. A close below that level would have been quite negative. A close above it would give the bulls one more week to see if some fundamental news could come out to help the market rally. At the end of the day the bulls were successful in defending the level and the DOW rallied in the last 15 minutes of trading.
The close was not a bullish sign but simply a statement that the DOW is not yet ready to break lower. The key word is "yet" as the bulls were not able to make a positive statement, just postpone the pressure that has been brought to bear on the marketplace.
Monday will be critical for the week as the postponement of pressure might have just been a a weekend pause. Nonetheless if the DOW can stay above the 13022 level intra-day on Monday, it is likely that the week will be calm and may have a very slight upward bias. With Thanksgiving on Thursday and Friday being a very light trading day, the definition for the week will likely be done on Monday.
Resistance will continue to be strong at 13369-13381 and support at 13022. The 13211 will likely act as a pivot point for the week. If the DOW is able to get above that level the pressure will be off for the week.
In looking at the chart and trading range for the week, it can be said that no definition, other than stating the support and resistance levels, was seen. The chart continues to look bearish.
NASDAQ Friday Close at 2637
The NASDAQ tested its major breakdown point at 2707 with a rally up to 2698 intra-week. The re-test was expected but since it failed to even get up to the resistance level or even close the week anywhere near it, it would seem the index is weaker than many imagined. The close was only 9 points above last weeks close and made no positive statement other than to say it paused on the way down.
If there is any kind of rally this coming week, as with the DOW Monday should be a key day for the week. Any daily close below 2620-2627 will bring renewed pressure to bear.
The NASDAQ daily chart has a clearly defined inverted flag formation that if broken (a break below 2584) would give an objective of 2420. The flag itself does have a wide range between 2698 and 2584. Trading within the flag would not negate the formation (a close above 2707 would be needed to negate the formation).
As I have mentioned several times over the past month, the NASDAQ did have 3 gaps that had been left unfilled on the way up to the 2862 high. Two of the gaps have been filled over the past two weeks. The last gap that is open is down at 2461-2505. The DOW is not an index that has a habit of leaving open gaps and since the two other gaps have been closed it is likely the last will be closed as well. With the inverted flag formation, if broken, having an objective of 2420, that number fits in perfectly with closure of the last gap.
Resistance in the NASDAQ should be strong at 2674 on a daily closing basis. Some minor support at 2620-2627 on a daily closing basis, and stronger at 2584.
The chart on the NASDAQ looks very bearish but it does show the potential for trading up to the 2700 level without changing the bearish outlook. Nonetheless if no strength is shown soon, it is likely to continue to break down in a dramatic fashion.
S&Poors 500 Friday close at 1459
As I mentioned last week, the SPX, when compared to the other indexes, has shown a bit more strength in its support level. The low weekly close for the past 4 months in the DOW had been 13079, which was broken last week. The SPX low weekly close is 1433 and that level has not even been reached intra-week. Because of this fact, the SPX must be watched closely for clues as to what may be happening in the indexes.
The SPX has also been to hold above, on a weekly closing basis, the 1454 level. That level is considered a decent but not major support area. Since that support level did hold up, it opens the door to consider that the index may have some strength and may stage a nice rally. There is very decent resistance at 1479, on weekly closing basis, and at 1481 and 1490, on a daily closing basis. Rallies up to those levels are possible. Nonetheless unless those levels are broken, the chart will continue to look generally bearish. As with the other indexes, this coming week will probably be defined on Monday.
The range in the SPX is clearly defined by these four levels. Support at 1433 and 1454 and resistance at 1479-1481 and 1490. A break above or below either of these levels, on a daily or weekly closing basis, should generate strong follow through.
Overall the chart looks bearish but the index seems to be showing the least amount of negative outlook of all the indexes. Not something necessarily positive but a fact that should be considered when looking to find stocks to short.
I do believe that one of the main reasons the indexes were able to hold up (not break down) on Friday is because of the Thanksgiving week coming up. Trading will slow down as the week progresses and come to a stop for what is a 5-day weekend. Traders probably decided that a slow week, followed by such a long stretch of time without trading, would not be conducive to committing large positions.
If no changes in the fundamentals are seen over the next 10 days, it is likely that the bears will resume their downward pressure on November 26th.
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Stock Analysis/Evaluation
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CHART Outlooks
This week should not have many surprises. Perhaps a small rally in the indexes will occur, but generally speaking resistance levels in the indexes and stocks should hold up. Short positions continue to be the way to go.
OVTI (Friday Close at 19.95)
OVTI is a stock that got into a well-defined up-trend that started back in March and culminated in October 15th with a high of 25.17. That price level had been clearly defined as strong resistance level in August 2000. The correction back down to 18.11, over a period of 4 weeks, has given a segnal that the up-trend is temporarily over.
The 20 and 100 week MA's were both broken last week, on a closing basis, thus confirming the up-trend is temporarily over. In addition, the 20, 50, and 100 day MA's had been broken, over the past couple of weeks.
The rally on Wednesday, up to the 21.07 level, tested the 20-day MA. That rally came after a gap opening above the 100-day MA, presenting an opportunity for the bulls to generate a strong rally. The very next day the stock was once again trading below the 100-day MA. The break above the 100-day MA as well as the re-test of the 20-day MA can now be considered failures. The stock looks like it wants to head lower.
There is strong resistance, on an intra-day basis, at 21.07 and strong resistance, on a daily closing basis, at 20.87 (previous daily closing high as well as 20-day MA). Support is decent at 19.03 and if the indexes do not break down should hold up the first time around. There is also some support at the recent low of 18.11 (intra-day) and again at 16.30-16.52 (on a daily and weekly closing basis). Strong intra-day support and objective of trade is 15.73, on an intra-day basis.
Sales of OVTI between 20.30 and 20.50 with a stop loss at 21.17 and an objective of 15.73 will offer a risk/reward ratio of at least 4-1.
My rating on the trade is a 6 (on a scale of 1-10 with the strongest probability rating being 10).
SVNT (Friday close at 12.30)
SVNT has produced a major double top on the weekly charts that should generate a strong move down over the next few months. SVNT had been in a major up-trend since September 2006 from the $6 area up to 15.75. The double top is a major indication that the upside is over and creates a probability that the most recent weekly closing low at 11.49 will be taken out. A drop down to at least $10 could be seen, based on the bearish tone of the marketplace.
SVNT has an inverted flag formation in place that if broken (a break below 12.01) would give an objective of 10.16. Top (or in the case of an inverted flag formation, the bottom) is at 13.06. There is also strong resistance, from the 20 and 50 day MA's, at 13.18. In addition, there is one more resistance level seen, from a couple of previous daily highs, at 13.36. With all this resistance, it will be hard for SVNT to break above if there is no fundamental news or strong help from the indexes.
There is quite a bit of support between 11.87 and 12.00 and unless the indexes are breaking down aggressively that level is likely to hold the first time around. Strong support is seen at 11.49 and major down at 10.92. Probable objective of the trade would be the 9.88 weekly low seen back May of the year 2000. If broken, though, drops down to the $6 level could be seen.
Sales of SVNT at 13.00 or better and using a stop loss order at 13.50 and an objective of 9.88 will offer a risk/reward ratio of 6-1.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
TPX (Friday closing price 32.18)
TPX is a stock that has given a strong indication that it has found a top. On the daily charts, there is a double top at 37.54 on a closing basis, and on the weekly charts the 37.05 weekly closing high was re-tested. It was then followed with a break of weekly support at 33.96 and a break below the 20 and 50 day MA's. A sell signal was given.
Two weeks ago TPX broke below the 20-week MA and on Friday confirmed the break with a second close below. This past week TPX tested the 20-day MA and backed off over $2 immediately thereafter.
Taking into consideration that this week the indexes might attempt to generate a small rally, it is possible that TPX will rally as high at 33.44-33.55 where there is strong resistance from previous highs. Support is found at 30.91 (decent), at 29.20 (minor) and at 27.53 (major).
Sales of TPX between 33.00-33.40 should be attempted. Placing a stop loss at 33.85 and having an objective of 27.53 will give a risk/reward ratio of at least 6-1.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
INAP (Friday closing price 12.48)
INAP, a few weeks ago, broke above a strong resistance level at 16.00 and rallied up to the $17 level where it stalled. Two weeks ago and probably due to a negative report, INAP proceeded to gap down and a few days later broke below its major support level at 13.30 thus giving not only a major failure signal but a sell signal as well.
With the potential for a mini rally this week in the indexes, it is possible that INAP might generate a rally back up to re-test the breakdown level at 13.30. Such a rally would be a good opportunity to sell the stock with a clearly defined limitation of risk as well as a good risk/reward ratio.
INAP has strong resistance at 13.30-13.50 on a daily closing basis. Support is seen at Friday's low of 11.58 (11.98 on a closing basis), minor support at 11.10, and major support at 10.10. Below the $10 level there is no support until the 5.50-5.00 level. Keeping in mind that this stock was trading above $1000 back in the year 2000, it stands to reason to believe that this company has major fundamental problems.
Sales of INAP between 13.20 and 13.40 and placing a stop loss at 13.60, on a stop close only basis, and an objective of 10.10 would offer a risk/reward ratio of 8-1.
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Updates
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| Updates on held stocks
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Open Positions and stop loss changes
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NUAN confirmed the double top and break of support on Friday by closing below 20.32. In addition, it broke an inverted flag formation when it went below 19.33. The break of the flag offers an objective of 17.70. Key level to watch now is a close above 19.33. Such a close will negate the break of the flag and likely generate a rally. Nonetheless the close below 20.32 has now put the stock into a sideways mode and the support between 17.70 and 18.28 should be tested sometime soon. HRB closed below the 19.65 support level, on a daily closing basis, but managed to close above the 19.30 weekly closing support it had broken the previous week thus offering the possibility of a reversal signal. Keep in mind that it only closed 20 points above that level and that is not necessarily considered a major break. Nonetheless any daily close above 19.65 will be reason to cover shorts. MMM had a strong up day and was able to close a few ticks above a weekly resistance level at 81.45. There is decent resistance at 81.92, on an intra-day basis, and the daily chart continues to show an inverted flag formation that, if broken (a break below 79.22), would have an objective of 75.20. If the stock is able to get sufficiently above 81.92 (sufficiently means 20-30 points) I would liquidate the short position. Getting near the 81.92 level can be considered an opportunity to add more shorts using a stop loss order at 82.25. The probabilities of the downside resuming are strong but Friday's action may signify the stock is trying to recover. C staged a rally that found strong resistance up at 37.50 and 36.04 on a daily closing basis. Both of those levels can now be considered strong resistance. This past week the stock did not give any indication either way of what direction it is likely to have over the next few weeks but the weekly chart continues to look very negative. I do not have even a minimal signal of what the stock will do for the next few weeks other than to say that the trend is definitely down. This coming week may not give too much of an indication as it is considered a holiday week, so we may have to wait until next week to make any determination. Right now support is at 31.05 and resistance at 37.50. CAT had another bearish week and continues to break down both on daily and weekly closes. This Friday it managed to close below the 100-week MA and if there is follow through (confirmation) next week the stock will be in a defined downtrend. Some support at 67.52 and based on the action on Friday that level seems an objective for this coming week. Keep in mind that CAT does show a breakaway and runaway gap. The runaway gap at 68.93-70.71 has now been closed. This means the breakaway gap at 67.76-68.08 will now be a target. JPM tried very hard this past week to reverse the weekly break by rallying up to 46.02. Nonetheless when it was all said and done, the weekly close at 43.09 continued to be below the 43.59 breakdown level, on a weekly closing basis. No reversal signal given! Probable trading range for this week will be 42.81-44.34. Close this week, if no new news comes out, will likely be at 43.59 or lower. Chart continues to look quite bearish. INTC will likely be in a trading range between 26.15 and 25.15 for the week. The chart is showing that the stock is undecided as to where the next direction will be. I do not believe that this week any decision will be made. A break, on a daily closing basis, above or below those levels will likely generate follow through. WIND got close to a minor support level, on a daily closing basis, at 10.74. In addition, at that same price, the 100-day MA is currently trading at. A close below 10.74 will generate a test of the $10 level. The 11.36-11.38, on a daily closing basis, will now be strong resistance. The weekly chart shows that Friday's low coincided exactly with the 100-week MA and therefore it is quite likely that the stock is at a major decision point. I don't think anything will be decided this coming week but within two weeks we should see some defined trend. AOB is currently in a trading range between 12.00 and 11.00. On a weekly closing basis the 11.17 level is quite important and a break of that level on a Friday would be quite short-term negative. By the same token a close above 12.18 on a Friday would be quite positive. Stock is likely waiting to see what the indexes decide to do and is probably going to trade within this range this coming week. SVNT is at a likely definition point as well. The 13.18 level on a weekly closing basis is quite important. Not only is it a previous resistance level (though minor) but also where the 20 and 50 week MA's are currently trading at. I am going to remove my stop loss order that I placed at 13.16 and "wing it" this week. I do not expect any major decisions this week and the chart is compelling enough to hold on to the short position unless some definition is given. BEAS had a bearish close on Friday when it closed below the 16.50 level. The inverted flag formation was broken and the objective of such a break is 13.90. The news that Oracle will not be acquiring the stock was the catalyst for this break. Even though the earnings report was bullish, the stock fell because of that news. 16.50 on a daily close will now be resistance.
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1) HRB - Short from 22.44. Stop loss lowered to 20.76. Stock closed on Friday at 19.50.
2) AOB - Shorted at 12.03. Stop loss at 12.38. Stock closes on Friday at 11.43
3) JPM - Shorted at 43.64. Stop loss now at 46.12. Stock closed Friday at 43.09.
4) CAT - Shorted at 73.72. Stop loss lowered to 72.10. Stock closed on Friday at 69.44.
5) INTC - Shorted at 26.80. Stop loss lowered to 26.62. Stock closed on Friday at 25.51.
6) MMM - Shorted at 83.88. No stop loss at this time. Stock closed on Friday at 81.57.
7) WIND - Shorted at 11.28. Stop loss at 11.60. Stock closed on Friday at 10.86.
8) C - Shorted at 38.70. Stop loss at 37.60. Stock closed Friday at 34.00.
9) RMBS - Shorted at 21.49 and added 2nd position at 18.90. Averaged at 20.695 Stop loss lowered to 20.35. Stock closed on Friday at 19.30.
10) SVNT - Shorted at 12.83. Stop loss at 13.50. Stock closed on Friday at 13.01.
11) BEAS - Shorted at 16.83 and added 2nd position at 16.48. Stop loss at 17.56. Stock closed on Friday at 16.35.
Previous Newsletters
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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. |
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