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Issue #49 
December 09, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Waiting on the Feds!
DOW Friday close at 13626
The DOW enjoyed a strong week as the buyers were aggressive in purchasing stocks. The chart got strongly short-term bullish on Thursday when the 13467-13500 level of resistance as well as a short-term flag formation was broken and follow-through strength was anticipated for Friday. It all looked quite rosy for the bulls.
Nonetheless, the anticipated follow-through strength was not evident on Friday and the DOW was barely able to close in the green. The action on Friday should be worrisome to the bulls. One thing that was evident is that the important weekly close resistance at 13668 was tested (was the high of the day) and the index failed to get above or close above that level. This action brought in a huge question mark for next week.
The momentum the bulls were able to generate throughout the week dissipated on Friday and now the DOW will have to wait until the results of FOMC meeting on Tuesday become known in order to try the upside again.
Several potential problems to the continued strength of the DOW were uncovered Friday. First of all, it can be said that most of the bullish news that could be anticipated is now "in the market" and the DOW has not been able to break important resistance levels yet. The action Friday likely means that only if the best-case scenario comes to pass (a .50 point interest rate cut) will the DOW have the possibility of continuing the rally. Even if the Feds cut the interest that amount, today's action has shown that the resistance level at 13691 will likely loom large again next week. Today's action, though not indicative of future action, has opened many questions that were not being asked on Thursday.
Resistance will continue to be 13691 but it was also shown on Friday that the resistance at 13670 is also in play. The 13670 level was the intra-day high seen just before the break of the DOW all the way down to 12743. It is not an established or major resistance level, but if unable to get above it on Monday will likely become pivotal after that. Support will now be found at 13407-13447, as well as at 13500 where the 100-day MA currently is seen.
Monday will likely be a relatively quiet day while the investors wait for the results of the FOMC meeting on Tuesday. The 13600 level will be the pivot point and should it get broken (probable), the DOW will likely get down to the 50-day MA at 13554. Possible trading range on Monday, based on Friday's action and range, is 13620-13554.
Whatever comes out on Tuesday will likely shape the rest of the month.
NASDAQ Friday Close at 2706
The NASDAQ, like the DOW, also had a strong week, especially after gapping up on Tuesday and breaking above a pesky resistance level at 2660-2675. Nonetheless on Friday the index got into a strong area of resistance between 2707 to 2725 and ended up closing just at or below a major weekly resistance level at 2707. In essence, it can be said that the NASDAQ was not able to make any kind of decisive positive statement regarding its short-term future.
Even though the index rallied throughtout the week, there are quite a few negatives to point to. To begin with, the intra-day high on Friday (2712) did not even get close to the 2725 major intra-day resistance that was set in July. After the strength shown the past few days that will be seen as a negative. In addition, the weekly close seen Friday at 2706 can be viewed as a failed re-test of that important resistance level set July 9th.
Like the DOW, the NASDAQ will likely wait until Tuesday's results of the FOMC meeting to determine its short-term future. As it stands right now, it can be said that the sellers still have more strength than the buyers and that providing proof that the downtrend has dissipated still lies squarely on the shoulders of the bulls.
Resistance in the NASDAQ continues to be 2725 (2720 on a daily closing basis). The 50-day MA is also right at 2725, giving the resistance level of the area added strength. The closest support is down at 2653 (20-day MA). There is no other evident support level in between.
I do need to remind everyone that the NASDAQ has left two gaps open and this is not an index that generally does that. The first gap is between 2636 and 2647 and the second gap is at 2586 and 2607. The likelihood of those gaps being filled, especially after today's failure to obtain a weekly close above 2707, looms large. Nonetheless, much will depend on the FOMC meeting on Tuesday and how the marketplace views those results.
S&Poors 500 Friday close at 1505
The SPX, the same as the other indexes, had a strong up week but finds itself for the first time in over a year, being a lagging indicator and not a leading one. The SPX is not presently near any major resistance level of consequence which could generate further upside action.
On the downside, though, the SPX could give a strong clue as to the direction of the indexes. The 1490 level has been, and will continue to be, a major support area and a break below that level will likely generate a deflating action like that of a balloon bursting. Not only are there 5 previous major lows at that price but the 100-day MA is located at that price as well. In this respect, as an indicator of downward movement, the SPX may be carefully watched but as an indicator of upward movement, the index does not have any levels close by that could generate aggressive action to the upside.
One thing that you might want to look at. Should the SPX break below 1500-1503, it will likely get down to 1490. In that respect the SPX might be closely watched on Monday. Any kind of weakness on Monday could generate a drop of about 13 points in the index and spur selling of the other indexes as well.
The only level of resistance I can see in the SPX is up at 1521. That resistance level is somewhat minor in nature, though, as the strong resistance does not come into play until 1532-1539 is seen. At this time, getting up to that level does not seem very likely.
It seems that the short-term trend of the indexes comes down to what the Fed does on Tuesday. Until then it is likely the indexes will be simply "treading water". Nonetheless, I do believe that Friday's action gave the sellers added ammunition and it's not likely they will dump it even if the Fed follows up as anticipated.
I am now leaning to the belief that the indexes will not continue their upward climb even if the Fed lowers the interest rate by 1/2%. I believe it is likely that the marketplace will get into a sideways-to-down action for the next few weeks. I think Friday's action had teeth behind it. I believe we saw a small glimpse on Friday of what will happen after Tuesday report. My opinion.
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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.
SNDA (Friday Close at 38.43)
SNDA is a stock that I believe is in a trading range between $30 and $40 and two weeks ago reached the $40 level again and failed to follow-through. The stock then retreated all the way back to 35.26 and on Friday, it rallied back up to 39.40 but gave up most of its gain to close in the lower half of the trading range. The rally can be considered a failed re-test if the stock is unable to rally higher on Monday.
Though SNDA does not always rally in conjunction with the indexes, this past rally from 30.64 up to 39.96 mirrored the index rally. With the possibility that the indexes may have seen their temporary top this past week, SNDA seems to be a good stock to short. This is due to its own clearly defined support/resistance levels as well as a chart that seems to state the stock is presently in a trading range format.
There is clear resistance, on a daily closing basis, at 39.00, 39.50, and major at 39.98. All of these resistances seem to point to a temporary top of great consequence and it does not seem probable that the resistances will break without some major fundamental change or a clearly defined strong rally in the indexes. Support, on a daily closing basis, is decent at 35.50. It stems from two previous closes as well as from the 20-week MA. Below that, there is minor support at 34.48 and then nothing until the 33.00 level. Major support is down at 31.05.
Sales of SNDA between 38.80 and 39.20 and using a stop loss at 40.10 and a first objective of 35.50 will give a 3-1 risk/reward ratio. The main objective of the short will be 32.95 and using this number the risk/reward ratio will climb to almost 6-1.
My rating on the trade is an 6.5 (on a scale of 1-10 with the strongest probability rating being 10).
INAP (Friday close at 10.35)
INAP is a stock, much like UIS, which has been battered down recently after breaking below a major support level at 13.00. The stock has now reached a strong level of long term support. The stock came down from 17.07 down to 9.50 over a period of 3 weeks (a drop of 45% in value). Nonetheless the 10.00 level, on a weekly closing basis, represents major support going all the way back to July 2006 and should be respected as a level from which a bounce is likely to occur.
On a weekly closing basis, two Friday's ago INAP closed at 9.95 and this past Friday the stock was able to close at 10.35. The close on Friday gives the support level added importance and increases the probabilities of a bounce. There is minor resistance at 11.40 but that resistance is from 2004 and not likely to be of important. Major resistance will be the breakdown level at 13.30. A re-test of that level, after such a strong decline, is probable. Previous lows are never as strong a resistance as previous highs and if that is taken into consideration the strong resistance will be seen at 14.10.
Purchases of INAP between 10.00 and 10.20 and using a stop loss at 9.40 and an objective of 13.30 will offer a 4-1 risk/reward ratio.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
SCSS (Friday closing price 10.45)
SCSS is yet another stock that has been battered recently but has gotten down to a major area of support ($9-$10) on the long term charts. This is a stock that was at a high of 27.56 just 18 months ago and that has dropped over $7.50 in the last 3 months alone.
Back in 2003 SCSS saw an intra-week low of 8.76 and a weekly closing low of 9.34. In 2004, that level was again re-tested with an intra-week low of 9.83 and a weekly closing low of 10.35. These two closing lows signify the major support area going back 4 years.
Three weeks ago SCSS had a weekly closing low at 10.35 and last week the stock dropped down to an intra-week low of 9.92 but closed on Friday at 10.45. It is evident that this long-term and major support level is now beginning to show its importance once again.
Unfortunately, no signal has yet been given that the stock has stopped falling and therefore drops down to as low as 8.76 intra-week and 9.34 on a weekly closing basis are still possible. Nonetheless, this entire area seems to be begging to be bought as it offers a great risk/reward ratio as well as a high probability rating.
Short-term resistance is minor at 10.97, 11.25, and 11.66. Decent resistance is found at 13.73 from a previous high back in 2004 as well as the 20-week MA, which currently resides there. Strong resistance as well as a large congestion area exists between 14.25 - 15.00 and must be considered a possible objective if the stock is purchased. A rally above 10.97 would be needed to give a signal that the stock has found a bottom. Waiting for that signal to be generated may reduce the risk/reward ratio so purchases of the stock will have to be done, at this time, without a signal that the trend is changing.
Purchases of SCSS between 10.10 and 10.25 and placing a stop close only at 9.25 and using an objective of 15.00 will offer a risk/reward ratio of almost 5-1. Minimum objective is 13.73.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
SVNT (Friday closing price 15.15)
SVNT is a stock that for the past 10 months has been in a very evident trading range between 15.35 and 11.50 on a weekly closing basis. In checking for any recent news or anticipation of news to be released soon there doesn't seem to be anything of consequence that could generate movement above or below the trading range levels. With the probability of the indexes being in the same kind of trading range and presently at the top of that trading range, SVNT looks to be a sell at these levels.
There is major resistance, on a weekly closing basis, at 15.20 and 15.35, on a daily closing basis at 15.44, 15.35, and 15.27, and on an intra-day basis at 15.75. There is some minor support at 13.37 but on a weekly closing basis support does not begin until 12.48 is reached. There is a gap that was left in the SVNT chart between 12.40-12.58 and that will be a likely target should the stock fail to make new highs.
With the likelihood that the indexes are getting into a trading range for the rest of the month and SVNT having been in a trading range for the last 10 months, and now at the top of that trading range, it is likely that no "new" trend will be developed over the next couple of weeks without fresh fundamental news.
Sales of SVNT between 15.09-15.25 and using a stop loss at 15.85 and an objective of 11.73 offers a risk/reward ratio on this trade of 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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| Updates on held stocks
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Open Positions and stop loss changes
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UIS rallied on Friday up to the most recent high as well as the 20-day MA located between 5.20-5.24. The stock continues to show signs it is trying to stop the downtrend and build a support base at this long-term support level. It is likely, though, that a re-test of the 4.85 level is needed before a concentrated move to the upside occurs. No signal has yet been given that the downtrend may be over but should UIS be able to get above and close above Friday's high at 5.22, by at least 6-7 ticks, the first signal that the downtrend is over would be generated. The 4.99 level, on a daily closing basis, should now be considered support. There is no resistance above 5.30 until 5.95-6.00. Should the stock close above that level anytime next week, a rally up to 6.00 is likely. Any close below 4.77 would be quite bearish. SONS charts seems to be pointing to a strong decisive statement occurring sometime over the next week or two. The MA's all seem to be converging between 6.40 and 6.75 and the price action during the last week signals that something will be decided for the longer term soon. SONS was successful this past week in stopping the selling onslaught that dogged it the past two weeks, as well as winning a couple of minor skirmishes to the upside. A daily close above 6.42 would give the bulls some additional ammo, and a close above 6.58 would likely send the sellers fleeing. Any close below 5.90 would weaken the chart. The ranges are now clearly defined and all that is needed is to wait to see where the strength truly lies. The long-term chart still leans toward an up-trend coming. BPHX had a wild and wooly week by reaching both strong support and resistance all in one day. It left the bulls and the bears scratching their heads as to what is to follow. The daily chart, though, is showing that the upside it still the most probable short-term action. Very strong support on a daily closing basis is seen at 16.98. Any close below that level will be negative. Resistance, on a daily closing basis, will be found at 18.78 and 18.94. It is likely that BPHX will have one more week of simply "backing and filling" without any concentrated direction. BEAS continues to look weak. A close above 16.36 on Friday would have been positive, it closed at 16.30. Even though an intra-day rally got up as high at 16.48 the weekly close stayed below the 16.36 level thus continuing the chart pressure to the downside. The stock was able to get above and close above (barely) both the 20 and 50 day MA. Any follow-through on Monday will be positive. Stops should continue to be at 16.58. Any failure here would likely be quite bearish short-term.
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1) UIS - Purchased at 4.87. Stop loss at 4.32. Stock closed on Friday at 5.15.
2) SONS - Purchased at 6.06. Stop loss at 5.78. Stock closed on Friday at 6.35.
3) BPHX - Purchased at 16.65. Stop loss at 15.80. Stock closed on Friday at 17.55.
4) WIND - Covered short at 9.67. Profit on the trade of $161 per 100 shares minus commission.
5) BEAS - Averaged short at 16.655. Stop loss at 16.58. Stock closed on Friday at 16.30.
6) CVG - Covered short at 16.48. Profit on the trade of $59 per 100 shares minus commission.
7) RIO - Covered short at 35.59. Loss on the trade of $203 per 100 shares minus commission.
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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