|
|
|
|
|
|
Issue #19 
May 13, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
|
Updates |
Stock Indexes Update |
Stock Picks for Next Week | |
| Index Comments from CNBC.com Market Outlook
Stocks finished the week up, with the Dow Jones Industrial Average posting a triple-digit gain just one day after posting its first triple-digit loss since March 13. Money managers expect the market will have pullbacks in the near-term, but many say the overall trend remains bullish.
"Obviously no market goes straight up and we will have another correction at some point," Timothy Ghriskey, chief investment officer at Solaris Asset Management told CNBC.com. "The big underpinning for this market is M&A and the amount of liquidity in the financial markets. That's a very powerful driver."
"I wouldn't be surprised to see more pullbacks," said Richard Cripps, managing director of portfolio strategy for Stifel, Nicolaus Capital Markets. "May is a month that, historically, if you are more of a seller than a buyer, that's a good thing. We're getting the shadows for some kind of corrective pullback, but it hasn't been strong enough to overcome the momentum that's out there."
"The overall path of least resistance has been higher and even with the economic data coming out next week, it feels like we want to go up," said Bill Nichols, senior managing director of equity trading at Bear Stearns. "The available pie, if you look at the market overall, is shrinking because of stock repurchases and M&A. There's less supply around and it looks like we're going higher.
1) JDSU - Covered the short position sold at 16.80 at 13.58 for a profit of $322 per 100 shares minus commission.
2) ANGO - Averaged long at 16.48 with stop loss at 15.66. Stock closed Friday at 16.53.
3) JDSU - Shorted JDSU at 13.87 with a stop loss at 14.14 stop close only. Stock closed Friday at 13.82.
4) COGT - Added at 14.69 and now averaged out at 14.14. Stop loss raised to 13.71. Stock closed Friday at 14.19.
5) WIND - Averaged short at 10.03. Stop loss order lowered to 10.10. Stock closed Friday at 9.83.
6) SONS - Averaged long at 7.99. Stop loss order now at 7.62. Stock closed Friday at 8.03.
7) TGB - Averaged long at 3.06. Stop-loss order at 2.80. Stock closed Friday at 3.13.
8) MDTL - Purchased MDTL at 13.01. Stop loss order now at 12.07. Stock closed Friday at 13.01.
9) COGO - Sold COGO at 18.23 and covered at 17.45 for a profit of $78 per 100 shares minus commission.
10) COGO - Sold COGO at 18.40 and covered at 17.58 for a profit of $82 per 100 shares minus commission.
11) COGO - Sold COGO at 18.29 with a stop at 18.62. Stock closed Friday at 18.03.
12) REV - Purchased REV at 1.30 with a stop at 1.22. Stock closed Friday at 1.31.
|
Chart Analysis Was that a correction or a hiccup?
DOW Friday close at 13330
The DOW finally had its first minor correction after having rallied almost 950 points straight up. On Thursday the DOW dropped almost 160 points, due to a bad retail sales report, but managed to go up 120 on Friday on a neutral PPI report and ended the week another 70 points higher than last week's close
The volatility seen on Thursday and Friday could signify topping out action but with the strength of the trend it might be just a hiccup.
The drop this past week might not even be considered a correction as the amount was minimal.
Using the 60-minute chart in the DOW that chart shows a small flag formation which would have an objective of a rally up to 13387 (20 points higher than the previous high at 13369).
If this is topping out action or the beginning of a corrective phase it will likely lead to a re-test of the 13000 level. For the past month the DOW has basically gone straight up and a corrective phase would be healthy for the long term.
Support is seen at the recent low of 13210 and then again at 13060. 13060 is also where the 20-day MA will be in the early part of the week. Psychological support is likely between 12970 and 13030. Major support is down at the breakout level of 12795.
The 20-day MA is presently right around 12900 so a drop to that level is very possible within a strong up-trend. The 50-day MA is down at 12550 so even a drop to that level (almost 700 points) would still be within the context of an up-trend.
At these levels and after a huge upward run of close to 940 points the DOW is only likely to inch upward but can drop precipitously if the buyers decide to take profits or the sellers decide to enter the market.
NASDAQ Friday Close at 2562
Though the DOW was able to rally 70 points above last weeks close the NASDAQ actually closed 10 points lower than last weeks close. Nonetheless the drop down to the 2533 level seems to be a successful test of the breakout level at 2524-2531 and the "cup and handle" formation continues to be in place.
The NASDAQ did test the 20-day MA successfully and managed a correction of 47 points from the previous high. During the last 6 weeks corrections in the NASDAQ have been averaging 40 points and rallies about 80 points. Keeping that in mind it would be expected that the NASDAQ will have an objective of 2613 before the next correction occurs.
Strong support will now be Thursdays low at 2533 and the 20-day MA around 2540. 50-day MA and major support is at 2448.
S&Poors 500 Friday close at 1505
There was a picture perfect bounce off of the 20 day MA in the SPX on Thursday and Friday. On the weekly chart the SPX does not show any correction occurring as of yet.
There will be resistance at 1509-1510 and then at 1527 (the all-time high close). The support will now be strong at 1491 with the week's low and 20 day MA crossing there. Below that the support will be 1455 which was the previous weekly high close prior to the most recent up move. In addition the 20-week MA is currently at 1444 and climbing fast.
Using the weekly chart the SPX has moved straight up from 1363 to 1510 with absolutely no correction. It is probable that within a week or two the SPX will get into a corrective phase and drop back down to 1455. Whether it rallies up to the 1527 level (previous all-time high weekly close) or 1555 (previous all-time intra-day high) before a correction occurs cannot be foreseen right now. So far there has not been any signal of a top.
Such a level as the all-time high is likely to be difficult to breach without strong fundamental news or without going through a process of backing and filling over a period of weeks. As such it is safe to assume that the SPX will be closely looked at by investors and traders alike and that it may foretell the correction phase.
Based on Thursday's drop and Friday's recovery in the indexes, it is probable that the first two days of the week will tell the tale. With the CPI and housing data due out this week the picture should get clearer.
Nonetheless keep in mind that volatility is starting to come back into the indexes and volatility is often the precursor of a corrective phase.
|
Stocks CHART Outlooks
Last week it was once again seen that many stocks reacted to the move in the indexes. Because of that reason a close eye on the indexes should be kept.
UTSI (Friday Close at 7.03)
Using the long-term weekly charts UTSI seems to be in the process of building a rounded bottom (one of the strongest formations in charting). During the past 2 years, after the initial drop from $42 to $12, UTSI has gotten into a rounded bottom scenario with the first "shoulder" at 6.70, the "head" at 5.19, and now the potential right "shoulder" somewhere between 6.58-6.89.
10 of the last 11 weeks UTSI has closed lower than the previous week. It is now in an oversold condition and reaching long-term support levels associated with a possible rounded bottom. After reaching the 6.89 level on Thursday it bounced up and closed at 7.03 on Friday. This close was above the lowest weekly close in UTSI June06 at 6.95.
There is strong support at 6.58 intra-day and quite a bit of weekly closing support around the $7 level. From Apr06 to Jun06 there were 4 weeks in a row that UTSI closed between 6.95 and 7.12 and with the lowest close in the past year being 6.95 it is highly probable UTSI will stop the downtrend around this price.
There is decent resistance at 7.47-7.52 both from the 20-day MA as well as the most recent high. There will also be resistance around the 7.85 level from some previous important lows as well as the 50-day MA.
I would expect choppy trading in UTSI over the next couple of weeks with the 6.95 level being a pivot point. Ultimately, though, I would expect UTSI to build a strong base around these price levels and generate a strong rally to the upside with an initial objective somewhere between 8.60 to 9.32.
Purchases of UTSI can be made between below 7.00 with a 6.46 stop loss order. Risk/reward ratio on the trade is 4-1.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
INTC (Friday close at 22.28)
INTC finally managed to close this past week above both the previous high closes on the daily and weekly chart. Wednesday's close at 22.47 was above the previous high close at 22.33 and Friday's close of 22.28 was above the previous weekly high close at 22.13. Though neither close has been confirmed it seems that INTC is trying to break out.
With the indexes looking like they want to continue to the upside they may just give INTC the needed boost to confirm the breakouts and rally. Since there is no visual resistance until $25 is seen the risk/reward ratio makes this a trade one to be considered strongly.
The 20-day MA is currently right around 21.85. The weekly chart shows some past visual support between 21.89 to 21.94 therefore a purchase at Friday's closing price of 22.28, placing a stop at 21.75 and with a minimum objective of 25.00 makes this trade almost a 6-1 risk/reward ratio.
INTC has not "confirmed" any of its breakouts so this trade does not have a great rating but the action of the stock over the last three weeks as well the ability to break above the major resistance levels increases the likelihood of continuation of the recent trend.
It can also be said that last weeks action may have been a breakout above a mini flag formation on the weekly charts and if so, it makes this trade a must-do.
My rating on the trade is a 6 (on a scale of 1-10 with the strongest probability rating being 10).
MWA (Friday close at 15.76)
MWA has been, since its inception in June of last year, an almost perfect trading range stock with consistent rallies and drops of about $2-$3. Four weeks ago I mentioned buying this stock at 13.60 (traded as low as 13.40 thereafter) looking for a rally to the high 15's. Well the rally did occur and the trade would have been successful. Now MWA seems to be ready to go in the opposite direction.
In addition, during the past three weekly rallies, MWA found strong resistance between 16.04-16.31. It looks probable it will find the same resistance this time.
MWA has left a gap between 14.65 and 14.75 which should work as a magnet and the overall trend for the last 11 months has been very slightly bearish. This stock has so far been perfect as a trading range vehicle and has reached the high end of its well-defined trading range. There is no reason to believe that on this occasion it will be different.
Sales of MWA on any rally above 16.00 should be instituted with a stop loss order at 16.50 and an objective of at least 14.00 with a good possibility of 13.60. Risk/reward ratio is at least 4-1.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
TOA (Friday closing price 3.92)
TOA made waves this week by rallying in the face of a negative earnings report. The belief is that the report was not as negative as anticipated and a rally up to the 20-day MA was the effect. TOA is a stock that has come down from 10.87 to 3.32 over the last 10 weeks and down from 31.29 over the past 2 years. At the 3.32 level TOA seems to have found a bottom and this last drop down to 3.51 can be considered a successful re-test of that low.
In rallying, TOA left a gap between 3.72 and 3.75. It is my belief that gap will be filled but with the positive news, the successful re-test of the lows, and a severely oversold stock it seems probable to assume that TOA will be able to sustain more of a rally out of this low price.
Purchases of TOA between 3.72 and Friday's closing price at 3.92, using a stop-loss order at 3.45 and an objective of 6.70 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).
View Mar 11, 2007 Newsletter View Mar 18, 2007 Newsletter View Mar 25, 2007 Newsletter View Apr 01, 2007 Newsletter View Apr 08, 2007 Newsletter View Apr 15, 2007 Newsletter View Apr 22, 2007 Newsletter View Apr 29, 2007 Newsletter View May 05, 2007 Newsletter |
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. |
|
|
|