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Issue #32 
August 12, 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
SONS has found support at the low made (5.90) after the negative earnings report came out. The level has been tested and has so far held. Resistance will be strong at 7.00. If SONS is able to break the 7.00 level it will find strong resistance at 8.00. It is likely that it will trade this week between 6.30 and 7.00.
NUAN broke out and closed on new weekly and daily highs. It is now likely to attempt to reach the $20 level. The 18.26-18.36 should now offer support.
PMCS closed the gap between 7.70 and 7.79 on Friday and is now poised to rally. Support is strong at 7.50 and resistance will be found at 8.25. Stock has a gap between 8.50 and 8.54 that should be a magnet. Positions can now be added if desired
INTV has minor support at 7.90 and strong support at 7.73-7.76. 20-week MA is at 7.60. Some resistance will be found at 8.50 and major resistance at 9.00. Weekly chart continues to look bullish.
Updates on last week's mentions and stock positions
1) PMCS - Averaged long at 7.90. Stop loss order lowered to 7.41. Stock closed Friday at 7.75.
2) SNDA - Purchased at 22.56 and liquidated at 25.32. Profit on the trade of $276 per 100 shares minus commission.
3) ANGO - Purchased at 17.43. Liquidated position at 19.41. Profit on the trade of $198 per 100 shares minus commission.
4) SNDA - Averaged short at 28.295. Covered shorts at 24.16. Profit on the trade of $827 per 100 shares (2 mentions) minus commission.
5) COGT - Liquidated long purchased at 12.99 at 14.89. Profit on the trade of $190 per 100 shares minus commission.
6) SONS - Averaged long at 7.51. No stop loss at this time. Stock closed Friday at 6.38.
8) INTV - Purchased at 7.33. Stop now at 7.23. Stock closed Friday at 8.00.
9) RMBS - Purchased at 13.11 and liquidated at 14.89. Profit on the trade of $178 per 100 shares minus commission.
10) COMS - Liquidated at 3.54. Averaged long at 4.225. Loss on the trade of $137 per 100 shares (2 mentions) plus commissions.
11) IMAX - Purchased at 4.75. Liquidated at 4.41. Loss on the trade of $34 per 100 shares minus commissions.
12) FCEL - Liquidated at 9.80. Averaged long at 7.665. Profit on the trade of $427 per 100 shares (2 mentions) minus commissions.
13) WOLF - Long at 14.38. Liquidated at 14.83. Profit on the trade of $45 per 100 shares minus commission.
14) SIL - Purchased at 15.58. Liquidated at 17.74. Profit on the trade of $214 per 100 shares minus commission.
15) CRYP - Purchased at 19.50. Liquidated at 22.66. Profit on the trade of $316 per 100 shares minus commission.
16) MDTL - Purchased at 11.90. Liquidated at 10.72. Loss on the trade of $118 per 100 shares plus commission.
Previous Newsletters
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Chart Analysis DOW trapped in an elevator ride!
DOW Friday close at 13240
The DOW was in a wild elevator ride that spanned a 650 point trading range which started Monday on a down note, Wednesday on an up note, and then down again on Friday finally settling the week by closing 60 points above last week's close. Such action belies the fact the marketplace does not have direction right now down and by having rallied over 3200 points in the last year now finds itself with swings of 1-2% becoming the norm.
It is clearly evident the up-trend the DOW has enjoyed for the last year is now officially over. The process of digesting all the information regarding the sub-prime market as well as the Fed's possible forthcoming moves to counteract the effects of this serious problem is now happening. During this period of time the market will act jittery, in a volatile manner, and generally in a down mode.
The close on Friday was not as negative as it could have been as the supports in the DOW were once again broken but confirmation of the break was not given. The DOW was able to close higher than last weeks close. On the other hand the close was not necessarily positive either as it was the second weekly close in a row below the previous support at 13250. The break of support has now been confirmed and the likelihood of the immediate downtrend has increased.
In looking at the daily chart I do not see any close-by resistance other than 13500. Using the 10-minute intra-day chart I do see some resistance at 13300 and 13350 but this must be considered minor.
The 13250 level, on a closing basis, must now be considered a major pivot point. As long as closes below that level continue it is likely that the DOW will be continue to be under strong selling pressure. Based on Friday's late rally it is likely that there will be some buying on Monday but rallies will continue to be sold aggressively until there is a positive definition of the recent problems and/or a close above 13250.
Even if the DOW is able to close above 13250 the negativity of the market is not likely to go away entirely and, at best, a sideways market will ensue.
The inverted flag formation continues to be in effect and a break below Friday's low of 13058 would suggest a move down below 12800.
Since the 20-week MA has now been broken it is possible that the 50-week MA is now an objective. The 50-week MA is currently at 12577.
NASDAQ Friday Close at 2544
The NASDAQ is the only index that is still closing above important previous supports and has not yet shown the kind of weakness that has been seen in the other indexes. Nonetheless there is one major negative that is about to happen and that is a cross of the 20-day MA under the 50-day MA. Such a cross suggests further weakness is yet to come.
On a positive note, Friday's low (2503) was above Monday's low (2492) and can be seen as a successful re-test of support if the index is able to get above Friday's high of 2570 and not go below Friday's low on Monday. That action would likely reduce the immediate selling pressure and stimulate a rally back up to the 2600 level.
The 2570 level is also where the 20-week MA is currently at as well as two previous resistance levels seen on the way up to the 2711 high. Based on these chart points I believe the 2570 level is a major pivot point for the NASDAQ at this time and should be used to decide in what direction the index will move the rest of the week.
At the present time I do believe the NASDAQ is the index to look at for clear direction. Above 2570 the index is likely to rally or at least go sideways whereas the 2500 level is the breakdown level. Getting above 2570 would not necessarily relieve all the selling pressure but would likely give the index a respite for a couple of weeks. Getting below 2500 could generate much more aggressive selling.
S&Poors 500 Friday close at 1454
The SPX was also able to hold itself up above Monday's low and show the possibility of a successful re-test of the low. A rally above Friday's high of 1462 while staying above Friday's low of 1430 would create that successful re-test scenario.
The SPX does have one additional chart feature that neither of the other two indexes has yet to accomplish. The SPX touched and held both the 20 and 50 week MA's this past week, the 20-week MA on the upside and the 50-week MA on the downside.
This particular chart situation now sets itself up for a clear direction for the next few weeks should either of these two MA's get broken. The 20-week MA is currently right around 1493 and the 50-week MA is currently at 1430. Within that range there are no clearly defined support or resistance levels and therefore trading will continue to be volatile and wide-ranging.
As I have mentioned often before, the SPX has been the chart leader in so far as the indexes are concerned and by having hit both MA's this past week it once again showed that the charts continue to pivot around this index. With the close on Friday right about in the middle of this trading range it gives no clear direction as to what the indexes will do on Monday.
Overall the indexes are weak and the probabilities favor continuation of the recent weakness but…….if on Monday the indexes reduce their volatility and trading range and simply trade within the parameters outlined above, the market will likely calm down and the immediate selling pressure will abate The indexes would then wait for more concrete news to come out before deciding what to do.
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Stocks CHART Outlooks
CHART Outlooks
With Friday's action there is uncertainty regarding the immediate direction of the market. This week it was seen that many stocks moved on their own chart formations and it is anticipated that the coming week this trend will continue.
WOLF (Friday Close at 14.05)
WOLF is a stock that in July of 2005 gapped down aggressively from 19.97 down to 15.50. In October 2005 it found its low at 8.00 and has since been in a consistent up-trend. During these past 2 years there has been a clearly defined trend-line connecting the major correction lows perfectly (see chart at www.theoasisclub.net/wolf.html) and on this last break down to 12.68 that trend-line was once again touched.
During this same period of time there have been three occasions where the 200-day MA was broken but in every single case WOLF reacted upwards within a short period of time, went above that MA line, and the up-trend resumed.
Two weeks ago, after reaching the 12.68 low, WOLF popped up decidedly after hitting the trend-line and a few days later after a bullish earnings report it rallied aggressively and broke above the 200-day MA once more.
WOLF popped up to the 15.00 level where it found some resistance as well as a pressure from the breaking indexes and it has now come back down to major support found between 13.80 and 14.00. As you can see on the chart (www.theoasisclub.net/wolf.html) both the 20 and 50 day MA's are currently right around 13.80 in addition to several previous lows and highs at that same price. This whole area should act as strong support. One additional point of interest is what looks to be a bullish flag formation on the chart which if broken (a move above 15.00) would project to 16.12.
One more interesting note. The previous rally up to 15.85 was right into the low of the gap area at 15.50 built in July of 2005. Gap areas always act as strong resistances and was probably the reason the stock fell back so strongly. With WOLF having tested the major trend-line successfully and gotten a positive earnings report it is now highly likely it will go back up to test the gap area and get deeper into it or even close it.
Purchases of WOLF between Friday's closing price of 14.05 and down to 13.80 and placing a stop loss order at 13.34 and a short-term objective of 15.85 will offer approximately a 3-1 risk/reward ratio. If holding longer term and looking for a closure of the gap at 19.97 the risk/reward ratio would soar to 10-1.
My rating on the trade is an 8 (on a scale of 1-10 with the strongest probability rating being 10).
RMBS (Friday close at 14.15)
RMBS is a stock that has broken down from a recent high of 23.95 in Feb 8th to a recent low of 12.61 last Monday. In looking at the weekly chart and going back to Sep 04, a major weekly low is found at 12.37 and therefore the drop down to 12.61 may have fulfilled the chart pattern. The 12.37 low in 2004 was followed by a 14-week rally up to 27.85.
After reaching the 12.61 level RMBS sustained a strong rally up to 15.50 this past week. This is a likely signal that a bottom or mid-term support area has been found. Dips therefore become buying opportunities.
RMBS has had two recent gaps. One between 15.60 and 14.88 which has not yet been filled (stock rallied up to 15.50) as well as a gap between 13.90 and 14.11 which was filled on Friday's session. The rally up to 15.50 ran straight into the 20-day MA and is the likely reason the gap was not filled. That gap remains a magnet and is likely to be filled if the support levels hold up.
RMBS is a volatile stock with wide ranges and therefore difficult to pick exact entry points. Nonetheless there is evident major support at 12.37 and 12.61 and some minor but also evident support at 13.37. A drop down to 13.37 is highly probable. Resistance will be found at the 20-day MA currently around 15.40 and then again at 16.00 and then major at 18.84 where the 20 and 50 week MA currently reside.
Purchases of RMBS between 13.50 and 13.37 and placing a stop loss order at 12.27 and an objective of 18.84 will offer a 5-1 risk/reward ratio.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
INAP (Friday closing price 15.84)
INAP, over the past 4 years has traded as high at 25.80 and as low at 3.70 and after the most recent rally took it up to 20.80 finds itself in an evident and confirmed mid-term downtrend which projects to lower levels.
INAP is a stock that broke below the 200-day MA back in May and during the last few weeks has been trading between the 12.90 and 16.00 level. The long-term chart looks bearish and with the indexes being under pressure and likely to continue downward INAP seems like a good short play that offers very good risk/reward ratios as the immediate resistance is clearly evident.
INAP has decent resistance between 15.92-16.00. In addition, the 50-day MA is currently starting to turn downward and is presently found at 16.52. A week ago the 20-day MA crossed below the 50-day MA and generated a short term sell signal. It is unlikely that at this time and under the current bearish market conditions that INAP will be able to mount a consistent rally.
The closest support is down at 13.20 and if INAP fails to get above the 16.00 it is likely to drop down to that level in one fell swoop. Even if the 16.00 level is cleared (doubtful) it is highly probable the 50-day MA will stop any further advances above 16.50. The support at 12.88-13.16 is very strong but if broken there is no support until the $10 level is seen.
Sales of INAP at Friday's closing price of 15.84 and up to 15.98 can be made and a stop loss order placed at 16.60. Objective on the downside is a minimum of 13.16 with a good probability of breaking that level, continuing the mid-term downtrend and reaching the $10 level. Risk/reward ratio is 5-1 with a 13.00 objective and 12-1 with a $10 objective.
My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).
The above three mentioned stocks are likely to give entry points on Monday but there are quite a few other stocks that bear watching and purchasing should their entry point levels be reached.
ANGO (Friday closing price 19.51)
Purchase price 18.42 - Objective 20.80. Stop loss at 17.90 - Risk/reward ratio of 4-1.
SNDA (Friday closing price 25.40)
Purchase price 24.16 - Objective 27.50. Stop loss at 23.60 - Risk/reward ratio of 5-1.
CEGE (Friday closing price 4.07)
Purchase price 3.84 - Objective 5.40 and 6.70. Stop loss at 3.50 - Risk/reward ratio of 4-1 and 7-1.
FCEL (Friday closing price 8.90)
Purchase price 8.30 - Objective 9.90 and 12.00. Stop loss at 7.90 - Risk/reward ratio of 4-1 and 9-1.
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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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