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Issue #69 
April 27, 2008 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Upward momentum renewed!
DOW Friday close at 12891
The DOW, after having tested the previous breakout level at 12743 repeatedly during the week, was able to confirm last week's breakout with another close above the 12743 level. In addition, the index had a minor resistance level at 12848, on both the daily and weekly chart, that was also a "bone of contention this week". By closing above that level on Friday, it was one more confirmation that the index is likely heading higher for the short-term.
On both an intra-day as well as on a weekly closing basis, it is likely the DOW will see 13000 this coming week, but that level is a decent resistance as there are two previous weekly closes at 12981 and 13079. In addition, even levels such as 12000, 13000. 14000 will always offer strong psychological support and resistance. Due to the economic conditions presently in place, it is unlikely that the DOW will be able to rally very much above the 13000 level, without some additional fundamental news or changes.
Intra-week incursions and even daily closes above 13000 are probable, should the stock get up to that level, but the resistance seen on the weekly chart between 12981 and 13110 is likely to stop the index from establishing a beachhead of consequence above that 13000-13079. Nonetheless, it must be said that the resistances mentioned above are all from previous low closes and that type of resistance is not always the strongest.
Resistance will also be found at 13079 from the 200-day MA and at 13113 from the 50-week MA. Both of these MA's, in addition to the previous weekly low closes at 12981 and 13079, present a might resistance area. It is important to note, though, that the chart does not actually show any previous "highs" of consequence, on a daily closing basis, until the 13307 level is seen. Above 13307, on a daily closing basis, there is 13379 and then 13349. The same levels present resistance intra-day between 13367 and 13500. Support, should the stock get up to 13000 next week, will be very strong at 12848 and major at 12743.
The DOW seems to have broken out of a flag formation that projects, on an intra-day basis, a rapid move up to the 13281 level next week. Whether the DOW is able to get there or not will be indicative of just how strong this breakout is. It is possible that after the FOMC meeting results on Wednesday, the indexes may run up to that high level and even perhaps up to the first daily closing high resistance at 13307. Nonetheless, it is likely those intra-day rallies will be met with very strong selling and the weekly close likely to end up below the 50-week MA at 13113.
I don't believe the fundamental picture will presently support the DOW staying above 13000 for long. It is likely, though, that for the next week or two the index will be trading between 12743/12848 and 12981/13079, on a weekly closing basis with potential rallies up to the 13300 level on an intra-day or intra-week basis. Nonetheless, after a week or two, I believe the index will start showing weakness and a trend down toward the 12100 level will begin.
Based on the close on Friday as well as the expectations of good news from the Fed on Wednesday, I believe the indexes will be heading higher the first few days of the week. Nonetheless, caution must still be used as there are over 1200 companies reporting earnings this week. That could throw a "monkey wrench" into the rally. In addition, after the fed report on Wednesday the indexes will likely be on their own with the possibility of "miracle saves" diminished greatly. The action after the Fed report on Wednesday could signal the outlook for the next couple of months.
NASDAQ Friday Close at 2422
The NASDAQ was able to break and close above the 2413 resistance level as well as above the 100-day MA at 24.05, on both a daily and weekly basis. In looking at the chart, there is virtually no resistance of any consequence until the index gets up to the 2500 level. Such a clear path for a rally of about 80 points from Friday's close is something that the traders will likely drool over.
Resistance will begin to be found at 12489 (minor) and then up at 2505/2515 (major). There is some resistance at 2451, from a strong previous low close at that price, but as I mentioned above, low closes do not offer the same kind of resistance that high closes offer, especially on a daily closing basis (not weekly). Resistance is very strong up at the 2505-2515 level based on several high and low weekly closes going all the way back to January 2007. On a weekly closing basis, there have been 4 times in the last 18 months that the index pivoted around 2505-2515 and that level is likely to act as a brick wall, especially when you add the 200-day and 50-week MA's which are both currently at 2528. Support should now be found at 2405 from the 100-day MA, 2413 (previous high daily and weekly high close), as well as at 2377 (the most recent previous daily low close).
The NASDAQ was held back on Friday (because of the negative earnings report by MSFT) but after a day of early morning pressure, the ability of the index to rally and close above the previous breakout high, likely means strong follow through on Monday. As with all the other indexes, it is likely the NASDAQ will remain strong until after Wednesday FOMC meeting report. Rallies up to the 2500 level are possible this week.
S&Poors 500 Friday close at 1398
As I have said often in the past, the SPX has often been the chart leader and/or authenticator of the indexes. It was not until this Friday that the SPX was able to break above the strong resistance at 1395 with a close at 1398. Such a break of resistance likely means the expected rally that the other indexes have already foretold is now becoming a reality. Nonetheless, this index has one additional evident hurdle, at 1407, to overcome before it can all be confirmed.
Though the SPX was finally able to close above the 1395 level, the index still has the 100-week MA at 1407 to overcome. The 1407 level is quite important as back in August and November of last year the index has two major low closes at that price. Though previous low closes will never be as important as high closes, the addition of the 100-week MA at 1408 makes that level additionally strong.
Strong resistance is found at 1407 and then little to no resistance until 1433/1441, where the resistance becomes major. Between 1433 and 1441 you will find the 50-week MA as well as the 200-day MA. In addition, between those 2 levels, there are also 3 weekly closes and 3 daily closes, seen during the last 2 years that make the area difficult to overcome. Support is now going to be strong at 1376/1379 and again at 1390/1395.
Though the SPX still has a major hurdle to overcome at 1407, it seems probable that with the strength seen late Friday, the expectation of the Fed lowering rates further at the FOMC meeting on Wednesday, and the strong breakout the other indexes showed this past week that it will be able to rally and head toward 1433/1441, over the next week or two.
It will be important, though, to see how the SPX handles the 1407 level as it could give a clue to the actual strength the indexes may or may not have.
Due to chart formations as well as the recent strength shown, it is likely the indexes will continue to go higher for the next couple of weeks. Nonetheless, due to deep-rooted economic problems that have not gone away, upside rallies will be limited.
In addition, a drop in the Fed rate on April 30th will likely be the last for many months to come and therefore no further temporary "miracle" cures will be available. It has been said by many analysts that the action of the Fed will not bear fruit for at least 6-9 months and therefore the indexes will have to fend for themselves without a possible crutch by the Fed. Starting next month, the indexes will likely trade off of economic and earnings reports. Since there are still a mountain of problems to be resolved and many not-yet known, it is likely a sideways trading range with decent peaks and valleys (generated after positive or negative reports as well as "perception" on how the Fed action of the past is doing) will occur.
I do believe that for the next week or two, the recent strength will hold the indexes up around the 13000 level, with possible intra-day incursions into higher territory. Nonetheless, I do not believe the strength will stay around for long and the indexes will then trend lower thereafter.
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Stock Analysis/Evaluation
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CHART Outlooks
With the breakout on Friday of all indexes above previous resistance levels of consequence, as well as the positive anticipation of Fed support on Wednesday, it is likely the first few days of the week will be up. Several stocks seem to be at levels that are not only purchaseable but could offer a fast profit with a small risk. Mentions this week will try to take advantage of this situation.
NT (Friday Close at 8.36)
NT had been in a strong downtrend since February 2007 from a high of 31.79 to a recent low of 5.73. The trend had been consistently lower and with only one exception, a bear market rally in November of last year, the chart had not given any reason to consider being a buyer until recently. After the 5.73 low was seen in March 20th of this year, NT has been building what looks like a bottom formation and on Friday the stock broke out above the 50-day MA for the first time in 4 months and gave a buy signal.
With the strength shown in the indexes at this time, it seems likely that NT is in the process of having a bear market rally or the beginning of a sideways trading phase.
NT, during the past few weeks, has tested the 5.73 level and shown the ability to hold previous lows and go above previous highs on two occasions and with a breakout above the 50-day MA for the first time in 5 months, seems to be heading higher for the short-term.
Support in NT, on a daily closing basis, is now found at 6.42 and 6.85 as well as at the breakout line of the 50-day MA at 7.85. Additional support will now be found at the 20-day MA at 7.40. Resistance is at a small gap area from 10.28-10.97 as well as the 20-week and 100-day MA's presently located at 10.80-10.93. Above that level there is no resistance of consequence, on the weekly charts, until the $16 is seen. Major resistance is up at the $20 level.
With the fact the stock has dropped over 82% in value over a period of 1 year, and 71% in value over the past 5 months, it is now probable the stock has now found a bottom, having a short-covering rally, and trying to establish the parameters of its sideways trading range. NT gapped up on Friday between 8.04-8.17 and that is not a gap that is likely to be left open, nonetheless closing the gap would also be a re-test of the breakout above the 50-day MA and a good opportunity to buy. If the re-test is successful, a rally up to fill the gap at 10.97 and test the 100-day MA is very likely.
Purchases of NT at 8.06 and using a stop loss at 7.32 and an objective of 10.97 would give 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).
RMBS (Friday close at 22.78)
RMBS is a stock that on March 26th rallied aggressively from 18.66 to a high of 26.30 based on the release of news that the company had won a lawsuit regarding a memory chip they produce. Such a rally was not only impressive but accomplished getting above a 34-month area of resistance, between 21.80 and 23.10 (on a weekly closing basis) that had held the stock down during that period of time.
After that initial rally, which saw a high of 26.41, RMBS paused and began to re-trace, likely to re-test the breakout as well as build a new area of support from which to launch the next rally upward. Over the past 4-weeks the stock has been trading in a sideways fashion between $25 and $22 and has been able to build what looks like a good support level from which to launch a new rally. With the strength in the indexes as well as a clearly defined support level, it is likely the bulls will attempt to break above the recent high at 26.41 and go on to the next resistance level above.
On both the daily and weekly charts a flag formation seems to be in effect with the flagpole being the rally from 18.66-26.41 and the flag the trading range from 26.41 down to 21.96 (recent low). A breakout above the top of the flag at 26.41 would offer an objective of 29.67.
Support, on a daily closing basis, is very strong at 22.26 (21.92 intra-day) and again at 22.75 (right at Friday's close). On a weekly closing basis, support is at 22.51. Resistance, on a weekly closing basis, is strong at 24.10 and then again at 26.45. Above that there is no weekly resistance until 34.04 is seen. On a daily closing basis, resistance will be found at 23.73, 24.49 and major at 25.73. Above that, nothing until 27.50-28.75 is seen.
With the indexes showing strength and RMBS having re-tested the breakout level at 21.80 successfully, it seems very likely the stock is now heading higher to test, at the very least, the recent high at 26.41. Probabilities of a break of that resistance level and rallies as high at 29.85 are good.
Purchases of RMBS at Friday closing price of 22.78 and using a stop loss at 21.70 and an objective of 29.85 will offer a risk/reward ratio of 7-1. Even if RMBS is only able to test the recent high at 26.41, the risk/reward ratio will still be about 3.5-1.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
ZOLT (Friday closing price 27.30)
ZOLT is a stock that offers a very fast boom or bust situation with a good risk/reward ratio. In December of last year ZOLT began a downtrend of some consequence from a high of 45.17 to a low of 20.36 (seen on March 17th). In the process, a gap was left between 31.17 and 28.29 that has withstood successfully two tests to close it. Over the past 4 weeks, the ZOLT has re-tested the 20.36 low successfully with a drop down to 21.83 and now finds itself trying to close the gap once more.
On the daily closing charts over the past 4 weeks, ZOLT had built a resistance level between 26.90-27.18 that loomed ominous. Nonetheless, that daily closing high was broken on Thursday with a close at 27.40 and confirmed on Friday with a close at 27.30. In addition, the weekly chart shows a strong resistance at 27.25 as well. A break by such a small amount above the previous closing highs on the daily and weekly charts is not something that can be relied on, but it is evident that the stock is trying to go higher. With the indexes likely to head higher, the possibilities of ZOLT closing the gap up at 31.17 have climbed substantially.
Resistance on the weekly chart above 27.25 is quite decent between 31.39 and 31.96. In addition, the 100-week MA is currently at 32.07 and the 20-week MA is at 31.07, making the entire level between $31 and $32 very difficult to get above. Some minor support is found between 25.94 and 26.26.
I mentioned up above, that this stock offers a fast boom or bust scenario. If the stock closes in the red or goes below Friday's low of 26.67, the stock will need to be liquidated, but if the stock starts to run on Monday, I would expect the gap up at 31.97 to be closed by Wednesday.
Purchases of ZOLT at Friday's closing price of 27.30 and using a stop loss at 26.57 and an objective of 31.97 would offer a 6-1 risk/reward ratio.
My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).
STP (Friday closing price 44.90)
STP is yet another stock that at the beginning of the year was trading at $90 and within 10 weeks found itself having dropped close to 70% in value to a low of 28.19. After having reached its low, the stock rallied, over a period of just 11 trading days, all the way back up to the 51.75 and in the process seems to have built what could be considered a flag formation of consequence.
The rally from 28.19 to 51.75, over a period of two weeks, can be considered the flagpole, and the range over the past 3 weeks, between 51.75 and 42.50, would be seen as the flag.
STP is not a stock with a lot of history as it started trading back in Dec05. For the first year after its unveiling, the stock traded between $22.50 and $41 and for the second year between 32.50 and 43.00. In Oct07 to Dec07, STP took off and rallied from $40 to $90 in just 9 weeks. The subsequent downtrend down to 28.19 broke a 1-year support level at 32.50 that had been built from Dec06-Sep07. If the break of support had been from fundamental problems (not just a falling stock market), the stock would not have recovered easily. Nonetheless, over the past few weeks not only has the break of support been reversed but the stock has been able to get above the previous strong resistance at $43 and re-tested that level in the process as well. This is a strong sign this stock is looking to go higher, and perhaps substantially higher, especially now that the indexes seem to be strong.
Support, on a weekly closing basis, is very strong at 44.39-44.68 and on a daily closing basis, the previous high daily close at 43.35, before the rally up to the $90 level, is considered major support. Resistance is strong at 49.02-49.18, on a daily closing basis, and then strong again at 54.62-55.08, from the 20-week MA as well as the 100-day MA. Some resistance will also be found at the 200-day MA currently located at 50.00.
It seems evident that the recent daily close at 43.39, followed by a close on Friday in the green at 44.90, was a successful re-test of the previous breakout level. There is presently a triple top up at the 49.02-49.18 that should be taken out shortly. Triple tops rarely hold. Whether the 200-day MA at 50.00 holds up or not is a question I cannot answer at this time, but a close above that line will probably generate rallies up to the $54-$55 level. The reversal pattern shown in this stock, on the weekly chart, does give STP strong possibilities of going substantially higher should the stock take out its resistance levels. This is a high rated trade.
Purchases of STP at Friday's closing price of 44.90 or better and placing a stop loss at 43.25 and a minimum objective of 50.00 will offer a 3-1 risk/reward ratio. A rally up to the $54-$55 level will offer a 6-1 risk/reward ratio.
My rating on the trade is an 8 (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 Stock
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Open Positions and stop loss changes
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| NUAN rallied this past week up to its major resistance level, on a weekly closing basis, at 21.01 with a close at 20.92. That close might just be the high weekly close for this entire rally as any higher weekly closes might mean the stock has gotten back into an up-trend. The probabilities of that happening are not high. The intra-day low on Thursday at 20.11 was a strong indication the stock is starting to see strong selling coming in at these levels. It is possible that NUAN might see the 22.00 level intra-day, sometime this week, but that is certainly a level I would want to be a seller at. It is hard to imagine that with the ills presently being seen in the economy, that this stock would be able to make new all-time closing highs. A weekly close above 21.50 or a daily close above 22.48 would be accomplished that. I don't see it. ELON had a very tough week with the sellers in control and trying to break the support level the stock has at 12.61. After repeated attempts they failed and now with the indexes likely to continue higher, it is likely that the stock will be testing the resistance level up at $15 this coming week. It is now evident that the 50-day MA at 12.97, on a daily closing basis, was successfully tested with a close at 13.13 on Friday, though a close next Friday above 13.27 will also be needed to confirm a successful re-test of the 100-week MA. It is likely that ELON will be heading this week up to the 14.02-14.24 level, on a daily closing basis, to test that resistance and if able to close above that level would have its aim on 15.10 for next Friday. That is the major resistance area on a weekly closing basis as well as an important daily closing area as well. The stock should see upward movement the first few days of this week. A daily close below 12.97 would now be considered negative. SVNT had a very successful week by closing on Friday above a previous area of weekly resistance of some consequence at 21.29. It is now likely that the stock will see at least 22.01 on Monday, where there is some intra-day resistance of consequence as well as a strong daily closing resistance at 21.97. Nonetheless, the sling-shot effect of Friday's rally from a low of 20.15 to a close on the highs of the day, likely means the stock will blow past the 22.01 intra-day high and get up to at least the 22.50-23.00 level. A daily close above 21.97 will be a strong positive that will thrust the stock to test the daily closing high resistance up at 23.60/23.70 as well as perhaps the double top at 24.16. A close above 24.16 would be an all-time high and would likely generate much further upside. Support, on a daily closing basis is now down at 21.00. Nonetheless, with the momentum on its side, I would not be very happy to see the stock close in the red until after the 21.97 level is broken, on a daily closing basis. OVTI did have a higher weekly close than last week at 15.79 and that is a signal that it may have found the low of this recent move down. No buy signal has been given as yet as a close above 16.60 is needed for that. Nonetheless, with the indexes looking to go higher this coming week, it is likely that the stock will show some strength and rally. Breaking above the 16.75 level intra-day would also likely be a buy signal and rallies up to the 17.30-17.50, on a daily closing basis, would likely occur. The 200-day MA at 17.83 and the most recent weekly high close at 17.94, loom as a major levels of resistance. If broken, though, rallies up to the $20 level would occur. Any daily close below 15.79 would be a reason to liquidate as that now is considered major support. RIO had a perfect re-test of the breakout level this week with a drop down to the 36.50-36.67 level which was the previous weekly high from which the stock broke out of. In addition, the close on Friday at 37.92 was the same as last week's close at 37.93 and means the weekly up-trend is uninterrupted and likely to continue higher. The re-test on the daily chart was also of consequence as Thursday's close was at 37.33 and by closing higher on Friday also confirmed that the re-test of the previous daily closing high at 37.75 was successful as well. All in all, the action on Friday was extremely positive and should help the stock rally aggressively this coming week. I do have a possible objective of $43 but since this is new all-time high area, the upside objective could be higher. A close below 37.33 any day this week could be seen as a signal the stock may be starting to have problems. VLO had a positive week with an intra-week low of 50.08 thus re-testing the breakout area successfully. In addition, Friday's close at 51.85 was above Thursday's close of 51.38, this means that the downside may be over. Nonetheless, the stock failed to close above last week's close at 52.55 and also failed to close above the 51.97-52.12 level of daily close resistance of some consequence. This likely means the stock is waiting for the earnings report to come out this week to decide which way to go. In simple words, the stock is looking good but needs confirmation in order to go forward anymore. A daily close above 53.50 could actually open the door for a rally up to the 57.50 level where the 100-day MA is currently located. There is some previous weekly close resistance up at 55.85 but it is minor in nature. A daily close below 51.38 could be a negative and cause a drop back down to the 50.08 level. FTEK had a positive week with a rally above the 200-day MA at 24.00, which was then re-tested on several occasions during the week successfully. In addition, a previous intra-day high at 25.48 was also surpassed on Tuesday though no confirmation of the break was given. On the daily chart, there are/were two daily closes of consequence at 24.43 and 25.13, of which the first one at 24.43 has been successfully confirmed though the second one at 25.13 has not yet been broken, on a daily closing basis. Nonetheless, the weekly chart was not able to confirm the strength as the close on Friday was only 10 ticks above the resistance level at 24.41 and a close by that small a margin does not constitute a break. In addition, the 50-week MA is currently at 24.86 and that line was not broken either. Nonetheless, with the indexes looking strong it is probable that the stock will be able to accomplish a breakout this week. It is important that daily closes above 23.90 are maintained and that the stock continues to close higher on a weekly basis, until such a time it is able to break above the 50-week MA at 24.84. If the stock is able to close above 25.13 any day next week, the first objective is likely to be 26.72. IR seems to be trying to generate an upside rally up to the $47-$48 level. Nonetheless, the stock seems to be very sensitive to what the indexes are doing and this past week, with the indexes having roller coaster days, the stock gave up much of its early week gains. With Monday's close at 45.93 which was then confirmed as a successful re-test of the double top up at 46.58, the stock got into a 4 day downtrend which may have ended with Thursday's low close at 42.89. Friday's close was right at the 50 and 100-day MA's and it is likely the stock will take direction, this coming week, from whatever the indexes do. Rallies up to the 45.00 level are very likely if the indexes go up. Possibilities are also strong that if the stock rallies that the 45.93 and 46.58 levels may be at risk of being broken as they are of little importance to the weekly chart. A close below 42.50 would be quite negative and would generate a sell signal. ININ successfully tested the 200-week MA with two weekly closes at 11.34 and 11.38 and a higher close this week at 12.76. On the weekly chart there is only a minor resistance at 13.39 that could pose a problem and on the daily chart it must be noted that the 50-day MA is currently at 13.03. It is possible that either of these levels may stop the rally as no buy signal has yet to be given (a daily close above 14.09 is necessary). On the weekly charts, other than the minor resistance at 13.39, there is no resistance of consequence until 15.07 is seen. Strong support will now be found at 12.10 on a daily closing basis. The chart does favor continuation of the rally up to the 15.00 level, though a drop down to 12.10 is probable before that happens. There is an earnings report due out on April 30th and that is something that every person will need to make a decision personally whether you want to stay in for or not.
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1) IR - Purchased at 43.56. Stop loss at 42.40 stop close only. Stock closed on Friday at 43.10.
2) VLO - Purchased at 50.61. Stop loss at 49.96. Stock close on Friday at 51.85.
3) FTEK - Purchased at 24.08. Stop loss at 22.81 stop close only. Stock close on Friday at 24.51.
4) OVTI - Averaged long at 15.85 (2 mentions). Stop loss raided to 15.69 stop close only. Stock closed on Friday at 16.32.
5) RIO - Purchased at 36.87. Stop loss at 35.31. Stock closed on Friday at 37.92.
6) ININ - Purchased at 11.24. Stop loss at 11.20. Stock close on Friday at 12.76.
7) SVNT - Purchased at 20.20. Averaged in at 19.84 (3 mentions). Stop loss at 19.61. Stock closed on Friday at 21.53.
8) INTC - Liquidated at 22.55. Loss on the trade of $15 per 100 shares plus commissions.
9) ELON - Purchased at 13.84. Averaged in 13.975 (2 mentions). Stop loss at 12.46. Stock closed on Friday at 13.27.
10) HOKU - Purchased at 8.92. Liquidated at 8.18. Loss on the trade of $74 per 100 shares plus commissions.
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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