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Issue #48 
December 02, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Indexes rally confirming a short-term bottom!
DOW Friday close at 13372
The DOW gave a strong sell signal on Monday but reversed itself on Tuesday and the failure to confirm the break generated a strong rally the rest of the week. The period between Thanksgiving and New Years has been productive in generating rallies in 8 of the last 10 years.
On Friday, the DOW opened with quite a bit of strength but by the end of the day much of the rally had dissipated. In addition, the weekly close did not confirm a short-term reversal of trend. Strong resistance on a weekly closing basis is found at 13358-13360 and on a daily closing basis there is decent resistance at 13379. With the close being only 12 points above that level, on a weekly closing basis, and below a decent resistance on a daily closing basis, it cannot be said that the DOW made a statement of consequence
Resistance is strong at 13500 on an intra-day basis, not only from a clearly defined high made in September, but also from the 100-day MA. The rally in the DOW on Friday could be considered a re-test of that level. In addition, the DOW hit the 20-week MA at 13465 and backed off and therefore it is possible that Friday's rally and subsequent failure may cause weakness to enter the marketplace next week. Support in the DOW will be decent at 13250-13212. These are all previous lows of consequence as well as where the 20-day MA is presently at. If the support level is broken, a drop down to the 13021-13079 would likely happen.
The one strong positive on the weekly charts is that the DOW had a classic reversal week. The DOW went below the previous week's low, above the previous week's high, and closed above the previous weeks high. The classic reversal week likely signifies the short-term trend has changed from bearish to either sideways or slightly up. It also means that strong dips will likely be aggressively bought and that the bulls have been able to stop the recent downtrend.
This coming week, at least for the first few days of the week, the DOW is likely to trade between the 13500 and 13212. Breaks above 13500 (13449 on a daily closing basis) should push the index up to the13650-13676 level on a daily closing basis and the 13691 intra-day. Breaks below 13212, on a daily closing basis, will likely generate a drop down to 12988-13042. At this time the charts are saying that the likelihood of moves above or below the levels mentioned above are extremely unlikely. In all probabilities the DOW will get itself into a trading range for at least the next week if not for the entire holiday period. It is likely, though, that the first couple of trading days of the week, the downside will be seen before the upside is again explored.
NASDAQ Friday Close at 2661
On Friday, the NASDAQ had what could be considered a negative close when compared with the strength of the DOW. The NASDAQ was not able to close above the 2676 level of strong resistance on a daily closing basis or above the 20-week MA at 2660. In addition, for 3 straight days the index closed right at the 20-day MA, currently at 2660, without being able to close above it, in spite of being able to break above it intra-day on Friday.
It is certainly evident in the NASDAQ chart that Monday will likely be indicative of what the rest of the week will bring. Any further strength will break the short term resistance at 2660-2675 as well as the MA's. A break above this level will likely generate a rally up to the next (and major) resistance level at 2707-2720. Weakness on Monday, using the 2660 daily close, will likely cause the index to go down to test the support levels (first minor support level is at 2630, then stronger at 2584, minor at 2562, and major at 2541). I do believe at the end of Monday, a clear short-term signal will be given.
S&Poors 500 Friday close at 1481
The SPX gapped up on Wednesday (1429-1433) and moved straight up without a pause, showing a bit more strength than the other two indexes. Nonetheless, it ran up against several major resistance levels on Friday and failed to make a statement, neither positive nor negative.
Friday's close at 1481 is considered a pivot point price. There is an important previous weekly close at 1479 and a previous important daily close is at 1481, as well as the 50-week MA, and therefore a break or a failure at this price will likely define the week.
Even if able to break above this price, the entire level from 1490-1504 is considered a major resistance level and not likely to broken without some strong fundamental help. In addition, at 1490 the 100-day MA is currently seen and when added to the previous importance of this level it likely becomes somewhat of a brick wall. In simple words, the SPX has a lot of work to do in order to be able to sustain or even continue this recent rally.
On the downside, there is no support until 1452 is seen and even then that support is considered minor. Strong support is not found until 1433.
The rally in the SPX certainly looks impressive but then again there was no resistance of consequence after breaking above 1433 until the 1490 level was found. The chart looks positive but extremely short-term overdone and facing major resistance. The chart seems to be begging for correction downward and re-tests of the support levels, before considering further upside. The chart in the SPX looks to be a bit clearer than with the other two indexes.
It seems now clear, based on last week's action, that the stock market is not likely to continue to see the same weakness that was brought to bear recently. Nonetheless, there has been no news of consequence that would help generate a reversal of trend, other than perhaps into a sideways trend for a few weeks. It is therefore likely that the indexes will get into a trading range scenario with both weakness and strength reflected.
Confirmation of this scenario should not be far away as I believe this coming week will likely define the trend that will seen for the holidays.
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Stock Analysis/Evaluation
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CHART Outlooks
With no clearly defined trend at the present time, mentions this week will be in stocks that have short-term scenarios as well as clearly defined support/resistance levels. At this time there will be no bias regarding bull or bear scenarios in the indexes.
SONS (Friday Close at 6.58)
SONS, after a strong drop following a negative earnings report back in July, has been in the process of building a support base from which to re-start an up-trend. During the past 4 months, and after a drop down to 5.13 (from a high of 9.00), SONS has traded back up as high as 7.59. This was a stock that had been talked about extensively about being a takeover option previously to that negative earnings report.
During the last drop in the indexes SONS got back as low as 5.88 but each low, since the drop down to 5.13, has been higher than the previous low and the most recent one, down to 5.88, tested a previously important long term support level at 5.90. In addition, the drop down to 5.88 was also re-tested with a drop down to 6.07. SONS seems to have done enough work on the support base to give reasons to be a buyer.
On Friday, SONS tested the 20-day MA and was not able to punch through. Anticipating some weakness in the indexes this coming week, it is likely that SONS will drop back down to an attractive purchase price with clearly defined support levels. Support should now be found at 6.12-6.20, then at 6.07, and major at 5.88. Resistance is the 20-day MA at 6.73, strong at 7.24, and very strong at 7.59. There is a gap that has still not been closed between 7.59 and 8.28. Should SONS be able to get above 7.59, closure of the gap becomes highly likely.
In looking at the weekly charts, a clearly defined up-trend has been in effect since August 2004. Such an up-trend bodes well for the future upside price potential of SONS. The 100-week MA is currently right around 6.10 and based on the current market conditions it is unlikely that level will be broken.
Purchases of SONS between 6.12 and 6.20, using a stop loss at 5.78 and an objective of 8.28 (closure of the gap) will offer a risk/reward ratio of 5-1.
My rating on the trade is an 8 (on a scale of 1-10 with the strongest probability rating being 10).
UIS (Friday close at 4.96)
UIS since July, has broken down from a high of 9.69 down to Friday's low of 4.55. The stock got into a very negative short-term downtrend after the major support at 7.52 of the Aug06-Feb07 rally broke. UIS has now reached major long term support.
Back in Oct 2005, UIS had a 4.38 intra-week low with a 5.02 weekly closing low, and in Aug 07 saw an intra-week low of 4.76 and a weekly closing low of 4.77. With UIS having closed at 4.96 on Friday, that means the stock has gotten into a major area of support which will likely hold up for the short-term.
Support, on a daily closing basis is strong at 4.77 and major at 4.50. The supports have been the lowest price seen since 1992. Should they break it is likely the company is in big fundamental problems. Resistance is minor at 6.00 and very strong at 6.96-7.04. On a very short term basis, a close above 5.14, will likely generate a rally up to 6.00.
Purchases of UIS at Friday's closing price of 4.96 and down to 4.80 and placing a stop loss at 4.32 and having an objective of 6.96 offers a risk/reward of almost 4-1. The support levels are so clearly defined and highly likely to hold up, that purchases of the stock have a high degree of probability.
My rating on the trade is an 8 (on a scale of 1-10 with the strongest probability rating being 10).
VPHM (Friday closing price 8.94)
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 a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
BPHX (Friday closing price 18.20)
BPHX is a stock that is somewhat mirroring the DOW. It seems highly probable that whatever the DOW does over the short-term, that BPHX will somewhat follow. Keeping in mind that it is likely that the DOW will have a drop back down to test support sometime in the next week or two, it is just as likely that BPHX will do the same. I believe that if it happens it will be a good opportunity to buy.
BPHX is a stock that had been in a strong up-trend from a breakout at 7.00 back in April to a high of 22.73 in October. The correction back down to 14.71 occurred over a period of 4 weeks. The stock has now rallied back up to 18.20 and seems to be giving signals it wants to resume its up-trend. A drop back down to re-test the recent lows is likely, before considering further upside.
Support will now be found at 16.65 (minor), at 16.20 (important), at 15.97 (important on a weekly closing basis) and at 14.71-15.00 (major). Resistance is found at Friday's high of 18.20 from the 50-day MA and then strong at 18.88-18.98. Further minor resistance will be seen at 19.49 and then at 20.00. A week ago the stock had a weekly close at 15.92 and that was exactly on the 20-week MA. This past week's bounce up has shown that MA line to be extremely important.
In order to purchase BPHX it is necessary to see a correction back down in the indexes as well as with the stock. It is expected that after such a strong break over the previous 5 weeks that BPHX will need to re-test that level with dips back down near 16.00.
Purchases of BPHX between 16.20 and 16.65 and using a stop loss at 15.80 (would mean break of the 100-day MA), and an objective of at least $20 would give a risk/reward ratio of at least 4-1.
My rating on the trade is 7 (on a scale of 1-10 with the strongest probability rating being 10).
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Updates
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| Monthly Portfolio Update
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Open Positions and stop loss changes
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Status of account as of 10/31 Profit of $7138 using 100 shares per mention (after commissions) Closed out profitable trades for November per 100 shares per mention (after commission)
C (short)$804
OVTI (short) $145 CAT (short) $374 NUAN (long) $144 MMM (short) $69 JPM (short) $50 INTC (short) $99 AOB (short) $39 HRB (short) $350 RMBS (short) $239 MSFT (short) $31 Total Profit for November, per 100 shares, after commissions $2199 Closed out losing trades for November per 100 shares of each mention (including commission)
CEGE (long) $81
PAAS (short) $1 ESLR (short) $54 JNPR (short) $55 JPM (short) $84 SVNT (short) $8 Total Loss for November, per 100 shares, including commissions $283 Open positions in profit per 100 shares per mention as of 11/30
WIND (short) $107
Open position in loss per 100 shares per mention as of 11/30CVG (short) $76 BEAS (short) $167 Total $350
RIO (short) $102
Status of trades for month of November per 100 shares on each mention (including commissions)Total $102
Profit of $2164
Status of account/portfolio as of 11/30Profit of $9302 using 100 shares traded per mention (after commissions)
WIND
The chart continues to look very negative
CVG
The stock is still in a downtrend and has not
BEAS
It is likely the stock will be in a trading
RIO
The stock reached the 20-day MA and fell back.
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1) HRB - Covered short at 18.80. Profit on the trade of $364 per 100 shares minus commission.
2) AOB - Covered short at 11.58. Profit on the trade of $45 per 100 shares minus commission.
3) JPM - Covered short at 43.00. Profit on the trade of of $64 per 100 shares minus commission.
4) CAT - Covered short at 69.82. Profit on the trade of $390 per 100 shares minus commission.
5) INTC - Covered short at 25.67. Profit on the trade of $113 per 100 shares minus commission.
6) MMM - Covered short at 43.05. Profit on the trade of $83 per 100 shares minus commission.
7) WIND - Shorted at 11.28. Stop loss lowered to 11.53. Stock closed on Friday at 10.21.
8) C - Covered short at 30.50. Profit on the trade of $820 per 100 shares minus commission.
9) RMBS - Covered short at 19.50. Profit on the trade of $239 per 100 shares (2 mentions) minus commission.
10) SVNT - Covered short at 12.92. Profit on the trade of $6 per 100 shares (2 mentions) minus commission.
11) BEAS - Averaged short at 16.655. Stop loss at 16.58. Stock closed on Friday at 15.85.
12) OVTI - Covered short at 18.75. Profit on the trade of $161 per 100 shares minus commission.
13) MSFT - Shorted at 34.30. Covered short at 33.85. Profit on the trade of $45 per 100 shares minus commission.
14) NUAN - Long at 18.41. Covered long at 20.01. Profit on the trade of $160 per 100 shares minus commission.
15) CVG - Short at 17.07. Stop loss at 16.88. Stock closed Friday at 16.31.
16) RIO - Short at 33.56. Stop loss at 36.32. Stock closed Friday at 34.58.
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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