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Issue #28 
July 15, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
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Updates |
Stock Indexes Update |
Stock Picks for Next Week | |
| Updates on held stocks
COGT looks decent on the weekly charts as previous low closes continue to be higher than previous ones. With the breakout in the indexes COGT should benefit greatly and if the previous high at 15.61 is broken then 16.18 would be the next objective. Support is now strong at 14.60-14.70 and the stop loss should be raised to 14.54.
SONS continues to test the 50-day MA and the traders seem to be intent on closing the gap between 8.21 and 8.30. It is possible that a fast break down to close the gap and an immediate reversal can occur but any close below the 50-day MA at 8.36 would be short term negative and would likely cause a drop down to the next strong level of support at 7.96. It is also evident that the buying at the 50-day MA is strong as the stock has attempted on several occasions this past week to close the gap but has, so far, been unable to do so. The first few days of the week will likely tell the tale.
ANGO touched the 20-day MA on Friday and bounced up from it and closed near the highs. It is likely that ANGO will continue to move up and if able to close above 18.45 on Friday of this coming week would be breaking above the 20-week MA and give an objective of $20. The 17.79 level continues to be important support and stops should be raised to 17.57.
NUAN closed the gap up at 17.80 but left a gap down between 17.19 and 17.25 that should now act as a magnet for the sellers. It was surprising that NUAN did not act stronger upon the major breakout of the indexes and therefore its own chart objective of 18.15 might prove to be difficult to get above at this time.
CRYP acted negatively on Thursday and Friday as it failed to move up with the indexes. Rallies up to 24.60 are certainly possible but if the stock is unable to get above the 20-day MA at that price pressure will resume to the downside. Any break below 23.10-23.23.25 will be quite negative. Stops on shorts should be lowered to 24.72.
REV was barely able to close at the previous low weekly close of 1.28 on Friday. That is not good news for REV. Though the weekly chart up-trend is intact the 1.28 close on Friday certainly opened the "door" for the stock to give up its recent up-trend. Further downside from here will generate a liquidation order on the purchase originally put in at 1.28.
PMCS broke above a 10-month weekly closing high on Friday of last week and broke above the 10-month daily closing high on Thursday. Last week's breakout was also confirmed with a higher close this week. Objective of this breakout is 10.34.
GIGM rallied with the indexes and reached the 20-week MA on Friday with the 14.06 print. Nonetheless it did close between the 13.71-13.95 area which can be considered a decent resistance level. Follow through above the 14.06 level will be considered positive for GIGM but the 14.24 continues to be a major stumbling block to further advances. Stops should continue to be at 14.30.
WOLF tested the 20-day MA with the drop down to 14.74 and closed strongly on Friday on the highs of the day. Follow through is expected and if the recent 15.75 high is taken the stock will generate a new 2-year high. Stop should now be raised to 14.65.
COGO was able to hold the 50-week MA but did not close with any strength. A move above 17.00 or below 15.90 will likely generate quite a bit of follow through. A stop at 15.82 should now be placed.
Updates on last week's mentions and stock positions
1) PMCS - Averaged long at 7.90. Stop loss order raised to 7.76. Stock closed Friday at 8.28.
2) ANGO - Averaged long at 16.72. Stop loss now at 17.54. Stock closed Friday at 18.10.
3) JDSU - Covered shorts averaged at 13.54 at 14.30. Loss on the trade of $152 per 100 shares (two mentions) plus commission.
4) COGT - Averaged long now at 14.38. Stop loss raised to 14.54. Stock closed Friday at 15.01.
5) CLDN - Covered short placed at 16.37 at 16.73. Loss on the trade of $36 per 100 shares pluc commission.
6) SONS - Averaged long at 7.99. No stop loss order at this time. Stock closed Friday at 8.38.
7) TGB - Liquidated long placed at 3.18 at 4.25. Profit on the trade was $107 per 100 shares minues commission.
8) AOB - Covered short at an average of 9.23 at 9.21. Profit on the trade of $4 per 100 shares (2 mentions) plus commission.
9) CRYP - Shorted at 24.83. Stop loss changed to 24.76.Stock closed Friday at 23.77.
10) REV - Averaged long at 1.34. No stop loss at present. Stock closed Friday at 1.28.
11) GIGM - Shorted at 13.71. Stop loss at 14.30. Stock closed Friday at 13.80.
12) COGO - Long at 16.16. Stop lowered to at 15.82. Stock closed Friday at 16.25.
13) WOLF - Long at 14.38. Stop loss now at 14.70. Stock closed Friday at 15.38.
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Chart Analysis The indexes have made a major positive statement
DOW Friday close at 13907
The DOW made a statement this past week "the indexes are going higher". In looking at the weekly charts it can be said that the DOW broke out of a flag formation where the flagpole started at 11939 and reached the top of the flag at 13691. The flag was formed trading between 13691 and 13250 for a period of 5 weeks and now a breakout above the top of the flag gives an objective of 14750 over the next 3 months.
Since there is absolutely no resistance above the market, only the flag objective can be used to determine a possible objective.
Support will now be the top of the flag at 13691. It is unlikely, though, that the DOW will be testing that level (see explanation below). In addition, most of the overbought condition was erased with the 5-week correction and trading range and therefore the index is not only technically sound but immediate and strong upside moves are likely to follow.
It is evident that the bears are now in hibernation and not likely to show any strength after this bold statement. In looking at the charts of all the DOW stocks there are 12 that have broken into new 4-year highs (no resistance above), 16 are in an up-trend and have plenty of room to the upside, and only 1 that is still in a negative trend.
It is therefore evident that this rally still has much more room to move to the upside and its likely that this coming week we will see the DOW heading above 14000 and perhaps quite a bit more.
The only possible chink-in-the-armor will be the earnings reports that are still due out over the coming weeks. From a chart perspective the DOW is on a roll to the upside and looks like a "runaway freight train".
NASDAQ Friday Close at 2707
The NASDAQ had been in a very bullish inverted pennant formation and this past week's move was a breakout from it. The "cup-and-handle" formation that has been in place since March has an objective 2964 and that now seems more probable than possible.
To reach that level the NASDAQ would have to go up an additional 9% in price. That is the same 9% that would be seen in the DOW if it goes up to the objective of 14750 that was given from the breakout of its flag formation.
The 2635 breakout level from the inverted pennant should now act as strong support. It is unlikely, though, that the breakout levels will be tested (see explanation below). It is quite possible that the NASDAQ will continue to be the leader of the indexes, especially now that this new breakout seems to be a complete "market" breakout instead of simply a "blue-chip" breakout. There are many more undervalued stocks in the NASDAQ than in the DOW.
S&Poors 500 Friday close at 1552
The SPX is the only index that has a possible resistance level in place with the intra-day high of 1555 made in the year 2000. Nonetheless if the indexes do maintain the strength going into the week it is likely that intra-day high will be erased. The SPX did close in new all-time high ground as did the DOW and therefore the up-trend also continues.
Using the same 9% rise objective seen in the other indexes that would make the SPX have an objective of 1691. Nonetheless in looking at the SPX chart the same flag formation that exists in the DOW exists in the SPX and the objective of that flag would only be 1651.
As with the other indexes the SPX should have the previous high (1541) become a support level.
It is now likely that if this breakout is for real that the order of leadership in the indexes will be reversed as the SPX was the leader during the last rally. My belief is that the NASDAQ will be the new leader and the SPX now the laggard.
Breakouts have one cardinal rule "the previous high becomes major support" and in the case of the indexes 13691 in the DOW, 2672 in the NASDAQ and 1540 in the SPX should now be supports.
In this particular case a test of support is not expected as breakouts from "flag" and "pennant" formations usually mean immediate, decisive, and aggressive follow through.
A re-test of the breakout level might even be considered negative as the type of formation the indexes broke out from usually
does not include re-tests. In simple words "if this is what it appears to be, the indexes should have a runaway type of week to the upside". Any weakness at this point would be considered negative and might point to a false breakout. Such a failure would cause the indexes to fall strongly should a false breakout be confirmed.
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Stocks CHART Outlooks
This week should be a boon for well-positioned stocks in up-trends.
SIL (Friday Close at 20.07)
SIL is at an attractive price and support level and also has a very attractive upside objective.
SIL is a silver mining company that in April of this year stated their income had swung from a negative $176 million the previous year to a plus $112 million this year. The news caused a strong move up from the double bottom at $12.00 to a recent high of 22.35.
During the last 6 weeks SIL has traded sideways between a high of 22.35 and a low of 19.25 and has built a flag formation that, if broken, projects to an objective of 29.25 and a new all-time high.
Using the daily charts SIL has shown good support at 19.70 and that is within 30 points of Friday's closing price. The 19.25-19.50 level has to be considered the major support level as it been a pivotal point in the past. On 6 different occasions over the past 4 years the stock either failed to get above or held drops when reached. The 27.00 all-time high came 7 weeks after that level was broken to the upside back in February of 2006.
SIL has built what looks to be a strong flag formation on the weekly charts and purchases between 20.00 and 19.70 and using a stop loss at 19.15 and a first objective 21.78 offers about at 3-1 risk/reward ratio. The 21.78 resistance level is not considered a strong resistance and the next objective above that level, and a much stronger resistance, will be found at 22.90. That objective would offer almost a 6-1 risk/reward ratio. Should that level be broken the 25.48 all-time high close would be the next objective and, if the flag formation objective of 29.25 is reached the risk/reward ratio would go all the way up to between 10-1 and 18-1.
There is no doubt that this area between 19.25 and 19.70 must be considered strong support and purchases have a high probability of success. The recent low at 19.25 has already been tested on the daily chart with a drop to 19.59 and a subsequent drop to 19.70. A drop back down to 19.70 is possible but not probable.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
AMTD (Friday close at 19.92)
After dropping from a high of 26.37 to a low of 13.30 AMTD traded between a high of 19.67 and a low of 14.67 for 7 months. The low of 14.67 was a successful re-test of the low and immediately thereafter AMTD staged a straight up rally that went above the 19.67 level and took the stock all the way up to a recent high of 21.71. During the past 6 weeks the rally and the subsequent sideways trading range is seen like a probable flag formation that, if broken, shows an objective of 26.20 and a re-test of the 7-year high.
On Wednesday of this past week AMTD dropped down to the 20-day MA at 19.35 and immediately bounced off of it. There is strong support at 19.60-19.67 and then again at 19.43. Resistance will be at the 50-day MA at 20.30 and then again at 20.70 as well as the high daily close since April06 at 21.15. Since AMTD has tested its support levels recently and the stock should benefit greatly from the index rally, it is highly probable that AMTD is looking to break out of its weekly flag formation and rally back up to the previous high at 26.35. Above 21.71 there is some resistance at the $23 level but above that there is nothing until the 7-year high at 26.25 is reached.
Purchases of AMTD between Friday's close at 19.92 and 19.65 (support), using a stop loss order at 19.25 (below the recent low as well as below the 20-day MA), and looking at a realistic objective of $23 as well as a possible objective of 26.35 offers a risk/reward ratio of at least 5-1 and possibly as high as 9-1.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
JDSA (Friday closing price 16.25)
JDSA dropped from a high of 32.59 to a low of 13.65 from April to June of this year. During that period of time JDSA was able to close the gap left between 14.03 and 16.42 which was a magnet. Since closing the gap JDSA was able to stage a strong one-day rally back up to 18.55 and gave notice that the low of the recent downtrend had likely been found. In addition, the drop down to 13.65 tested the 50-week MA right "on the money".
The one-day rally thereafter does look like a possible flagpole of a flag formation on the daily chart and if the top of the flag (18.55) is broken an objective of 22.60 is given.
Using the weekly charts the 20-week MA at 19.60 should act as resistance and using the daily charts the 15.38 level (current 20-day MA) as support. In addition the area between 16.16 and 16.42 has been shown to have some importance when using a previous high close as well as the sensitive 10-minute chart.
A purchase of JSDA at Friday's closing price of 16.25, using a stop loss at 15.28, and an objective of 19.60 offers a risk/reward ratio of almost 4-1. The probable objective is closure of the gap up at 21.24 as well as a possible re-test of a strong resistance level at 22.50-22.88. Such a rally will offer close to a 7-1 risk/reward ratio.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
SWKS (Friday closing price 8.33)
SWKS is a stock that for the last 1 ½ years has been trading between 8.50 and 4.03 but after the drop down to 4.03 seems to have gotten into a nice weekly up-trend and is now at the top of that 18 month trading range and looks like it wants to go higher.
Above 8.50 SWKS has no resistance of consequence until the 10.00 level is seen and the major resistance is actually at 10.80. The last move up from 5.57 to 7.49 looks like a pole of an inverted pennant formation (much like the NASDAQ is showing) and over the last two trading days it seems to have broken out of the pennant and accelerated its upward movement giving a 9.50 objective.
It is very evident that 8.38, on a weekly closing basis, is strong resistance, therefore purchasing this stock before it actually closes above 8.38 on a Friday is risky but the chart looks as powerful as the chart on the NASDAQ and, in my opinion, worth the gamble. In looking at the daily chart the breakout from the pennant formation was at 7.82-7.86 level so a stop down at 7.72 would likely be a good one. In addition it looks like SWKS is ready to break out and if that happens on Monday the stop loss could be raised to 8.06
A purchase of SWKS at Friday's closing level of 8.33 and using a stop loss at 7.72 and an objective of 9.90 would offer a risk/reward ratio of only 3-1. If the stock does break out on Monday above 8.50, as it looks like it wants to do, then the stop can be raised to 8.06 and the risk/reward ratio would increase to 6-1. This looks to be a timely trade with good probability.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
View May 05, 2007 Newsletter View May 12, 2007 Newsletter View May 20, 2007 Newsletter View May 27, 2007 Newsletter View Jun 03, 2007 Newsletter View Jun 10, 2007 Newsletter View Jun 17, 2007 Newsletter View Jul 01, 2007 Newsletter View Jul 08, 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. |
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