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Issue #47 
November 25, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| A short-term pivot point week ahead!
DOW Friday close at 12981
This DOW continued its break of supports this past week with a daily close below 12846 (lowest daily close since April 17th) and a second weekly close below the major weekly closing support at 13079. In addition, Friday's close was below the 50-week MA leaving the index in a do-or-die chart scenario for this coming week. The DOW did not confirm the break on the daily closing chart by closing higher on Friday. Such action leaves the door slightly open for a possible rally this coming week.
A small but likely significant clue for Monday will be the 12988-13010 level on a daily closing basis. A close above that level will take some pressure off of the index and perhaps allow a further rally. A close below that level will likely bring strong selling pressure the rest of the week and a drop down to at least the 12768 on a daily closing basis. Further downside might also be seen if the big traders start liquidating their long positions due to what would be a clear break of the 13000 level.
With the positive close on Friday, the 13043-13079 level, on an intra-day basis, will likely be strong resistance. Failure to rally the DOW past that level intra-day will likely keep the bears in command. The 12950, and then again the 12900 level, will likely act as intra-day support. Trading below the 12950 will weaken the intra-day chart but trading below the 12900 will likely be a signal the DOW is heading down.
This week is likely to be much more important than last week, due to the lack of full participation by the traders in the marketplace during the Thanksgiving holiday. Monday will likely set the stage clearly for what the rest of the week or even the month will bring. Keep in mind that the trend is down and in order for the DOW to generate a turn-around, even if temporary, it probably needs some fundamental support. If no news comes out, the probabilities are that the DOW will continue to go lower and bring a test of the 12517 low seen in August. In addition, the break of the 50-week MA, if not reversed, should bring a test of the 100-week MA, which is presently right at 12222.
NASDAQ Friday Close at 2597
The NASDAQ continued its breakdown but was able to find some previous daily closing support and 50-week MA at the 2560 level. Due to that support it was able to rally on Friday.
Resistance, on a daily closing basis, will be decent at 2602 and then again at 2618, and major at 2626-2630. On an intra-day basis the levels at 2600, 2626, 2635, and major at 2644. The higher it can go the more the support will strengthen.
As with the DOW, the NASDAQ will likely give a strong clue on Monday as to how the week will proceed. Having closed very near the highs of the day it is probable some follow through to the upside will ensue. Determination of the strength of Friday's rally will be seen by how high it can go intra-day on Monday. It the index fails to get above 2602 on Monday the ensuing drop will be strong. If able to get up as high as 2644 then the ensuing drop has a decent chance of closing at or above 2560 on subsequent weakness, perhaps even giving the index a light at the end of the tunnel.
Either way, the chart continues to look weak and selling rallies continues to be the thing to do. At this moment the 2560 and 2630, on a daily or weekly closing basis, is the "trading" range for the NASDAQ. Closes above or below those two levels will generate significant follow through.
One last thing, the NASDAQ did break an inverted flag formation last week when it closed below 2584 and Friday's close at 2597 does open the door to negating that flag. Nonetheless with Friday being a very low volume and participation day if the index is able to close Monday below 2584, the break of inverted flag will still be in effect. Another close above it will negate the flag.
S&Poors 500 Friday close at 1441
The SPX, much like the other indexes, did a short-term about face on Friday and left several questions still unanswered. The break below 1433 on Thursday was a signal the index was heading lower but that break was not confirmed on Friday and it means the weekly chart still has not broken its support.
One major negative is that the weekly chart continues to show the break of the 50-week MA is still very much in effect. Such a break has an objective of 1388 and on the weekly charts. No support level, other than 1433, on a weekly closing basis, is seen until that level is reached. It seems probable that the 1433 level will continue to be pivotal this coming week.
There is little resistance in the SPX above 1440, so a close above 1440 on Monday would open the door to a rally up to the 1479-1481 level as there is no resistance until that price is reached. That makes Monday a clearly pivotal day in the SPX. Support is decent at 1411-1416. A close below 1411 would likely send the SPX down to 1371-1388.
The chart continues to look quite bearish but it is evident that on a short-term basis much will be decided on Monday. Keep in mind that all the numbers I have mentioned above are on a daily or weekly closing basis. Intra-day moves are not particularly important. Using the 10-minute intra-day chart I can see decent resistance at 1445 and then again at 1452. Those levels will likely play an important role on Monday.
It is difficult to factor in last week's trading, as the participation in the marketplace was low and likely not totally indicative. Nonetheless Monday should give us a strong glimpse of what the market will do for the entire week and perhaps even for the month. A return to the weakness shown recently as well as the confirmed break of the 13000 level in the DOW should be the overriding factor and pressure should continue. If it does, the week could turn out to be strongly down.
If the bulls are able to generate even a minimum closing day rally on Monday, it is possible the sellers will back off for a short time and the indexes may survive until the next piece of news arrives. Monday will likely be the "key" for the week.
One note of caution. In the last 10 years the DOW has shown a tendency to rally between Thanksgiving and the first week of the New Year. Rallies, generally speaking, have not been major (a couple of 100 points) but it has been a trend. Only two of the last 10 years had a drop in price during that period of time. Of course, it must be said, that during those 10 years DOW was normally in a sideways or up-trend. The one year the index was in a downtrend that holiday period resulted in a drop in price.
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Stock Analysis/Evaluation
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CHART Outlooks
This week should be decided on Monday or Tuesday at the latest. Based on the direction the indexes take during those two days, stocks should be entered as either a short position or going to the sidelines. I do not believe there are many stocks that can be looked upon as a purchase at this juncture. Either short or on the sidelines will be my position.
RIO (Friday Close at 32.56)
RIO is a stock that rallied from a low of 17.00 to a high of 38.29 over a period of 10 weeks starting August 16th (the low of the August index collapse). Starting Oct 2 and until now RIO has been in a basic trading range between $36 and $31. On two occasions it broke above the top of the range and had a rally up to 38.29 where now a double tops exists.
More recently RIO has been trading on the low side of the range and has broken below both the 20 and 50 day MA's. The 100-day MA as well as the 20-week MA are currently right at 29.10. As long as the stock maintains itself below the 50-day MA it will continue to be under pressure.
Resistance seems to be very clearly defined at 33.98, as that is where the 50-day MA currently resides. In addition, RIO once before pivoted at 33.98 so it seems that level will once again be an important level to look at. The weekly chart shows a break of the previous weekly low at 33.26 and therefore it can be considered the first sell signal the stock has given since its strong run-up. Support is currently at 31.52 and stronger at 31.00. A break below 31.00 shows no support other than the 20-week MA and 100-day MA at 29.10. There is one additional downside magnet in the form of three gaps that have been left unclosed. The first gap is at 20.73-21.25, the second gap at 27.10-27.49, and the third gap at 30.60-31.79. The first two gaps might be considered a breakaway gap followed by a runaway gap and those might not be closed. That still leaves the third gap as a strong magnet and likely to be closed.
Sales of RIO between 33.56 and 33.93 and using a stop at 34.10 and an objective of 29.10 will offer a risk/reward ratio of over 8-1.
My rating on the trade is a 6 (on a scale of 1-10 with the strongest probability rating being 10).
MSFT (Friday close at 34.11)
MSFT is a stock that back in October had a major run up that included a breakaway gap and a runaway gap. As such, the stock should have not only maintained its strength and followed through aggressively but should never have broken below the 20-day MA as it did 7 days after reaching its peak at 37.49. During the last 9 trading days MSFT seems to have built an inverted flag formation that if broken (a move below 33.38) projects down to the $31 level and closure of both of the gaps.
Resistance will now be found at 34.97 (most recent high) and location of the 20-day MA (which is in the process of turning lower). Support is at Friday's low of 33.71 and the low of the corrective phase from the highs at 33.38.
The most attractive thing about this trade is the clearly defined resistance at 34.97, which allows for a low risk trade, as well as the inverted flag formation that now looks to be in place. The breakout that occurred in October was very bullish and therefore if the breakout fails (something that now has a strong possibility of happening), it could react just as negatively to the downside.
Sales of MSFT between 34.30 and 34.50 and placing a stop loss at 35.10 and an objective of 31.30 will offer a risk/reward ratio of 4-1.
My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).
VPHM (Friday closing price 8.34)
VPHM rallied from April 2005 to November 2005 from 1.67 up to 24.86. During the last two years VPHM has slowly given most of that rally back and is now at a level (7.07) that if broken would likely revert the stock back to its starting rally price.
VPHM three weeks ago dropped 50% in value with a drop from $15 down to $7.50. During the past three weeks the stock has attempted to negate the drop and has had rallies up to a high of 10.30. Nonetheless each rally had a lower high and a lower low than the previous one and just this last week the stock dropped back down near its July 2006 low of 7.07.
A double bottom at 7.07 is now in place and a small mini rally seems to be in effect that might generate enough of a move up to get back up near the 9.80-10.30 where the major resistance is found as well as a dropping 100-day MA.
The chart looks quite negative as it is clearly evident that an inverted flag formation on the weekly chart exists. Even though a rally might be occurring at this time, it seems highly unlikely that VPHM will be able to get above the 10.30 level. Even if such a rally were to occur, the inverted flag formation on the weekly charts still be in effect and a break of the inverted flag formation at 7.07 would project down to the 1.67 level from whence the original rally started over 2 years ago.
Sales of VPHM between 9.70 and 10.30 and using a stop loss order at 10.40 and an objective of 1.67 would offer a risk/reward ratio of over 12-1. The trade is still attractive even if only a re-test of the 7.07 level were to occur, the risk/reward ratio would still be 4-1.
My rating on the trade is an 8 (on a scale of 1-10 with the strongest probability rating being 10).
CVG (Friday closing price 17.05)
CVG, back in July, took a huge tumble when it dropped from 24.85 down to 14.67 in a matter of two weeks. Since then, the stock has traded sideways with a high point of 19.17 made back in October 29th, and has gotten back into a downtrend that resulted in another break of important support at 16.98 two weeks ago. It seems likely that another strong downtrend has begun.
Friday's close at 17.05 is a re-test of the support that is now considered resistance. In addition, there is strong resistance from the 50-day MA at 17.42, the 20-day MA at 17.61, and major resistance at 18.00 from many previous closes at that level as well as the 20-week MA. On a daily and weekly closing basis the 15.48-15.65 level must be considered strong support.
CVG seems to be back into a downtrend that threatens the supports, and should the 15.49 closing basis level be broken there is no support of consequence until the mid 12's are reached. The intra-day - intra-week low at 14.67 should also offer some support.
It is possible that CVG will get into a small mini rally for the next few weeks, should the DOW be successful this week in rallying. Should that happen it is likely as well that rallies will have a tough time getting above the 18.00 level because of all the previous resistance at that price.
Sales of CVG at Friday's closing price of 17.05, placing a stop loss order at 18.10, and an objective of 12.53 will offer a risk reward ratio of 4-1. Should the DOW be unable to generate a rally on Monday or Tuesday it is likely the stop loss will be able to be lowered on Wednesday and the risk/reward ratio become much better.
My rating on the trade is 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
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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 broke below the 100-day MA (19.07) this past week but did not confirm the break on Friday, leaving the stock to wait and see what this coming week brings. A rally up to the 50-day MA and also previous resistance at 20.24 is possible, if the stock maintains itself above 19.00 on Monday. Minor resistance also exists at 19.69. Any close below 19.00 will likely bring a re-test of the 18.00 level. The 18.00 level is now critical support. A close below that level will likely generate a move down to 16.79. A close above 20.44 is needed to regenerate the upside. Chart continues to look weak. HRB continues to show strong support in the high 18's but has not been able to generate any movement of consequence to the upside. 19.63-19.79 continues to be strong resistance and as long as the stock stays below that level on a daily closing basis, it will be under pressure. Any daily close below 18.74 or a weekly close under 19.00 will be quite negative. Chart continues to look weak but has been able to hold these levels now for a couple of weeks. This week will likely be a decisive one. MMM has strong resistance between 82.93 and 83.21. Resistance is from the 20-day MA as well as a couple of important previous lows. Any close above 83.21 must be considered short-term bullish. The 50-day MA, on an intra-day basis is at 83.51 so that level must be seen as strong intra-day resistance. The only support seen in the low 79's is the gap it left open back in April 26th. The failure to close the gap is the reason for the recent rally. MMM's direction will likely be decided on Monday when the indexes decide what they want to do for the short-term. C got close to an important support level (30.25), both from a previous major low in May 2003 as well as from a psychological even number support. The stock got as low as 30.50. Resistance should be strong at 32.90 on a daily closing basis. A gap was left open between 33.45 and 33.17 and could be a target if the stock rallies. There is no evident stop-loss area, other than 36.14 on a stop-close only. Watch the indexes and if they are able to close substantially higher on Monday you may want to consider taking profits on short positions. If the indexes close lower C should continue to be under pressure CAT has broken all weekly MA's and continues to be under strong selling pressure. Resistance should now be strong at 70.00 and decent at 69.05 on a daily closing basis. There is some decent support, on a weekly closing basis at 67.52, but on an intra-week basis there is none until you get down to 64.41. Strong support is found at 63.00. There is minor support on a daily closing basis down at 66.19-66.35. Chart continues to look very weak. JPM got down near a major support level at 40.00 (dropped to 40.28) but was able to stage a mini-rally on Friday. Strong resistance is now found at 42.30 and stronger at 43.02. Chart shows that the likelihood of a weekly close near 40.00 is high. Nonetheless, if the stock does drop down to that level again, it might be wise to consider taking profits unless the indexes are breaking down. The 40.00 will be very important for JPM. Breaks below $40 would likely generate a move down to the $34 level. INTC tried to break down this past week but managed to right itself up and close above the important support level at 25.00. The trading parameters in INTC are now very clear. Strong resistance will now be found between 25.15 and 25.50 and rallies should be stopped somewhere along that area. A break above 25.50, on a daily closing basis, will be reason to liquidate shorts. Any close below 24.85 will likely generate further downside and a drop down to the 24.00 level. The stock now finds itself below all MA's on the daily chart and is right on the line for a break of the 20-week MA. Should that happen, the 50-week MA at 23.00 would be a target. WIND is below all MA's, both on the daily and weekly charts, and continues to look weak. The 10.30 level, on a daily closing basis, is now strong resistance. Important support will be found at 9.60. AOB was able to close right on a weekly support level at 11.32. Resistance on a daily closing basis is 11.53 and support at 10.76. The 100-day MA is currently at 10.33 but no other support is seen at that price. Below 10.76 there is nothing until 9.94. Major resistance continues to be the 12.00 level on a daily closing basis as well as from the 50-day MA. Chart continues to look bearish. SVNT was able to barely hold itself above a minor support at 11.85 but looked weak doing so. There is another minor support at 11.49 and then stronger at 10.92. Major resistance is now 13.22. The 20-week MA looks like it will cross below the 50-week MA this coming week and that should give a push to further downside. On a weekly closing basis the support from 11.21 to 11.63 is strong but the break below the MA's will likely push the stock down unless the indexes rally. A close below 10.92 on a daily closing basis and below 11.21 on a weekly closing basis will be quite bearish, as there is no support of consequence under those levels. A break in the indexes could easily generate a break of support and drops in SVNT below $10 or even much lower. BEAS broke below the 50-day MA this past week and Friday's rally simply was a re-test of that break. The gap down at 14.10 continues to be a major target and looks likely to be reached. The 100-day MA and 20-week MA are also presently at that price, so a drop close to 14.00 will be reason to consider taking profits on the short position. Should the indexes be under strong pressure and BEAS break below 13.73 you may want to consider waiting for further drops. At this moment, though, taking profits at 14.10 looks like the way to go. OVTI broke below the 20-week MA at 20.00 and then re-tested it successfully. Nonetheless the stock traded between the 20 and 50 week MA (currently at 19.00) without deciding anything. Earning report is due out on Thursday and the consensus is quite bullish on it. A break below the 19.00 level will likely generate a move down to 18.00. If that level does not hold the 16.30 level would be the next objective. Resistance should now be strong at 20.00 on a daily closing basis. The 20-day MA is getting ready to break below the 50-day MA and if the earnings report is not bullish enough to generate upside movement the stock will likely drop down to my intra-day objective at 15.73.
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1) HRB - Short from 22.44. Stop loss at 20.76. Stock closed on Friday at 19.36.
2) AOB - Shorted at 12.03. Stop loss at 12.38. Stock closes on Friday at 11.35
3) JPM - Shorted at 43.64. Stop loss at 46.12. Stock closed Friday at 41.95.
4) CAT - Shorted at 73.72. Stop loss at 72.10. Stock closed on Friday at 68.63.
5) INTC - Shorted at 26.80. Stop loss at 26.62. Stock closed on Friday at 25.07.
6) MMM - Shorted at 83.88. No stop loss at this time. Stock closed on Friday at 82.75.
7) WIND - Shorted at 11.28. Stop loss at 11.60. Stock closed on Friday at 10.11.
8) C - Shorted at 38.70. Stop loss at 37.60. Stock closed Friday at 31.70.
9) RMBS - Averaged short at 20.695 Stop loss lowered to 18.90 stop close only. Stock closed on Friday at 18.53.
10) SVNT - Shorted at 12.83. Added 2nd short at 13.13. Averaged at 12.98. Stop loss at 13.50. Stock closed on Friday at 12.18.
11) BEAS - Averaged short at 16.655. Stop loss lowered to 16.58. Stock closed on Friday at 15.47.
12) OVTI - Shorted at 20.36. Stop loss lowered to 20.58. Stock closed on Friday at 19.49.
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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