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Issue #292 
Aug 26, 2012 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Indexes Starting to Slip but Catalysts Likely to be Seen this Week.
DOW Friday closing price - 13157
The DOW generated a classic reversal signal having made a new 4-month high, going below the previous week's low and then closing in the red. Nonetheless, the bulls were able to dodge a "technical bullet" when the index rallied on Friday to close above the previous week's low at 13112 which would have made the classic reversal into a "key" reversal that would have brought strong automatic computer selling this coming week. As it is, the reversal is a negative sign that likely signals that a top to this rally has been found but does leave the door open for the index to turn around if the fundamental news this coming week is positive.
The action in the DOW has to be considered pessimistic inasmuch as there was no negative news of consequence to stop the rally the index had been on for the last 11 weeks. The index had been successful in generating a new 55-month weekly close the week before, as well as a close on the highs of the week, and technically speaking further upside should have been seen both intra-week and on a closing basis. Nonetheless, the bulls failed to get above the previous 55-month intra-week high at 13338 when the index got up to 13330 on Tuesday and no additional buying was seen. The disappointment was immediately seen with a 3 day sell-off that stopped on Friday.
On a weekly closing basis, resistance is minor at 13275 and again at 13625, Decent resistance is found at 13907 and major at 14093. On a daily closing basis, resistance is minor at 13207, decent at 13252/13264, and strong at 13279. On a weekly closing basis, support is minor at 12922, and minor to decent at 12849. Below that level, support is minor at 12772, minor again at 12640 and decent at to perhaps strong at 12611. On a daily closing basis, support is minor to perhaps decent at 13046/13057, minor at 12927, minor to decent at 12878 and again at 12715.
The DOW gave a series of failure signals this past week having failed to follow through on the bullish flag formation it had broken the previous week, getting up to 13330 on Tuesday and not being able to get above the previous high at 13338, and then generating a reversal week with higher highs, lower lows, and a close in the red. Adding to these negative failures, the index now shows a double top on the daily closing chart with May 1st high daily close at 13279 and the previous Friday's close at 13275 that will not likely be broken without some strong fundamental help. On a positive note, the DOW did not break below a minor daily close support at 13047 and did generate a green close on the highs of the day on Friday suggesting some follow through buying will be seen on Monday leaving the door open for a reversal to the upside if the economic news this coming week is positive.
The rally and close on the highs of the day in the DOW on Friday does suggest that the index will likely to be stuck in a 300 point trading range between 13300 and 13000 until further news comes out. It should be noted that between April 23rd and May 2nd the index traded in that range for 6 days and the news and action being seen presently suggests that same trading pattern could be seen this coming week. It should be mentioned that there is always a "general" trading range area of 300 points on both sides of a major even number such as 13000 is, suggesting that 13000-13300 makes a lot of "general" sense. Trading in the upper 300 point area of the 600 point trading range (12700-13300) will keep the bias to the upside. Should the index break below 13000 and get down to 12700 but then turn around, the bias would be to the downside. The rally and close on the highs of the day on Friday suggests the DOW will have an upward bias this coming week.
The pivot point for the DOW this coming week is 13000. Resistance is 13300 and support is 12700. The rest will likely be decided by what the economic reports due out for the next 2 weeks say.
NASDAQ Friday closing price - 3069
The NASDAQ produced a general reversal week having made new 4 month highs and then closing in the red. The red weekly close does suggest that the 13-year high weekly close at 3091 has been tested successfully but then again the index only closed 7 points below last week's close at 3076 and that is not with sufficient authority to make a statement the traders will pay strong attention to. It should also be mentioned that the index only closed slightly below the midpoint of the week's trading range in spite of it being a reversal week and did have a positive reversal "day" on Friday as well as closing on the highs of the day and that kind of a close does not offer high probabilities that follow through to the downside, below 3042, will be seen this coming week.
The NASDAQ continues to lead the indexes to the upside and that suggests that the mentality of the traders still favors higher prices. On a negative note, though, the index was not able to get back up to the previous 13-year high made in April in spite of the fact that the other indexes did get up to those levels and in the case of the SPX actually broke above that high, meaning that even though the index has been once again leading the indexes upward it still has not been as positive as it was at the beginning of the year.
On a weekly closing basis, resistance is decent to strong at 3091. Above that level there is no resistance shown on the weekly chart for the last 10 years. On a daily closing basis, resistance is minor at 3076 and decent to strong at 3119/3122. On a weekly closing basis, support is minor at 2908 and minor to decent at 2778. On a daily closing basis, support is minor at 3053, minor to decent between 2976 and 2991, minor to decent again at 2961, and then decent at 2909.
The NASDAQ had a positive reversal day on Friday (lower lows and a close above the previous day's high) and closed on the highs of the day suggesting that follow through to the upside will be seen on Monday. By the same token, there is quite a bit of resistance close by at 3076, at 3085, and at 3100 (the high for last week) and therefore it is likely that the traders will find out immediately if the positive daily reversal seen on Friday or the negative reversal seen on the weekly chart will be of more impact.
Based on the action seen on Friday, the NASDAQ will likely get up to 3085 on Monday. The 3085 level was the high seen in May and represented the successful retest of the 13-year high at 3134 seen in April. The 3085 high was broken on Tuesday but did not get any follow through buying suggesting it will once again be considered minor to decent resistance this week.
Based on the negative weekly reversal it is unlikely 3085 will be broken but if it is broken the bulls will get their "second wind". The week's high at 3100 would be the next resistance but unlikely to hold up as there was no previous resistance at that level, suggesting that if 3085 is broken the bulls will likely attempt to get up to the 3134 level this coming week. As such, 3085 has to be considered an important pivot point.
The NASDAQ will play an important part this week in the trader's mind inasmuch as the index has a clearly defined nearby support at 3042 and nearby resistance at 3085 and whichever gets broke will likely cause the index to move an additional 40-50 points in that direction.
The probabilities slightly favor the downside insofar as the weekly chart takes precedence over the daily chart. By the same token, much should be decided early in the week as the index is likely to test the resistance level first before any thought of the support level comes to mind.
SPX Friday closing price - 1411
The action seen in the SPX this past week did more to confuse traders than to clarify matters. The index made a new 51-month weekly closing high the previous week closing above 1408 suggesting follow through would be seen this past week with 1440 (1425 on a weekly closing basis) as the objective. Nonetheless, the index only got up to 1426 intra-week and began to falter ending up with a negative classic reversal week with the higher highs, lower lows and close in the red on Friday. By the same token, the index was able to keep the weekly close breakout intact with a second close above 1408, suggesting that the negative reversal week was not so negative.
The SPX is in a very special situation inasmuch as new 51-week highs have been made (strong positive) but the highs from May08 at 1440 have not yet been broken even though they have been clearly broken in the other indexes (strong negative). The inability of the bulls to punch through that level suggests that the financial problems that caused the big drop over the past 4 years are still in effect.
On a weekly closing basis, resistance is decent to strong at 1425. Above that level, no resistance of consequence is found until the 1500 area is reached. On a daily closing basis, resistance is strong at 1419. On a weekly closing basis, support is very minor at 1354, minor at 1335 and decent 1278/1279. On a daily closing basis, support is minor at 1402, minor but indicative at 1363/1366, minor to decent at 1358, minor to decent again at 1343 and at 1334.
The SPX also shows some clear and close-by resistance and support levels that will help the traders make some chart decisions. The index did close on the highs of the day on Friday and should see some immediate follow through to the upside on Monday. Nonetheless, the 1415 level (4 points above Friday's close) should offer decent resistance this week. On a daily closing basis, the index now shows a strong and confirmed double top at 1418/1419 that should not be broken unless some strongly positive fundamental change comes out. To the downside, the index closed at 1402 on Friday. There wasn't any previous daily close support at that level but 1400 is a psychological support and now with the close at 1402 on Thursday and the green close on Friday, that support level takes on more meaning. Below that, the index does show some minor daily close support at 1392, but thereafter no support is found until 1363/1366.
With the SPX having a strong daily close resistance at 1418/1419 and an indicative support at 1402 and again at 1392, it is evident that any move in any direction of more than 7 points from Friday's close will have some meaning.
In looking at the weekly chart, the index still has a decent possibility of moving up to the 1440 level. The fact the index did not get there this past week in spite that there were no strong negative reports and that the index made a new 51-month intra-week high does suggest that the traders have more confidence in the downside than the upside. Nonetheless, it also means that any good news that does come out this week will probably push the traders to take the index up to 1440 before new technical selling is seen.
It does seem that the overall picture leans to the downside and that the only thing in question is exactly from what high it occurs at.
It seems by the selloff seen this past week that the traders have "itchy" fingers believing that the end result of this rally will be a decent to strong correction. Nonetheless, no catalyst has yet been found and the bears have not been willing to commit to selling aggressively until such a catalyst comes out. The rally on Friday was once again a notice by the bulls that they are not yet finished buying dips and that they will not give in until such a time that something negatively concrete is seen. As such, questions remain unanswered awaiting further news.
This coming week several economic reports of some consequence are scheduled, with housing data and consumer confidence coming out on Tuesday, the second estimate of GDP on Wednesday and on Friday the Chicago PMI and Michigan Sentiment. None of the reports are likely to be catalytic but if a trend is seen they will likely have an impact. In addition, on Friday the central banks are meeting and one of the things that is still being talked about is further stimulus by the Fed. That expectation of further stimulus may be "baked into the cake" already and if nothing is confirmed on Friday the market could take a nose dive. Nonetheless, some volatility is expected to be seen this week just based on rumors and changing expectations throughout the week.
The indexes did have a negative week stopping the 6-week uptrend they had been on. By the same token, not enough was done to the downside to stimulate new and aggressive chart selling so traders will view this week as a "break or make" kind of week. It is likely that no firms decisions will be made until Friday when all the information is known. It should also be mentioned that August is known to be a positive month but September is not. With the end of the month being Friday, it is possible the indexes will stay strong this week but begin a descent the following week.
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Stock Analysis/Evaluation
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CHART Outlooks
The market gave signs that further upside will be difficult to accomplish without new and positive fundamental news. Topping out action is being seen but not enough yet to say the market is heading lower.
Sales continue to be the preferred way to go but questions still abound and short trades do not yet offer high probability ratings. The sell mentions this week have low probability ratings but have decent entry points that offer good risk/reward ratios. Further mentions will be made on the message board is things get clearer as the week progresses.
SALES
NTGR Friday Closing Price - 37.49
NTGR continues to be a viable short but the desired entry point will be changed for this week as well as the probability rating. The stock was unable to follow through on the previous week's close on the highs of the week suggesting that selling of consequence is being seen at the 39.48 level, reducing the possibility of the bulls attempting to close the gap up at 41.20. The stock did end up having an inside week with a 36.92 low but did rally on Friday to close on the highs of the day suggesting that at least rally to test the 38.48 level will be seen this coming week.
Resistance will now be considered decent in RHT at 39.50 but if the indexes are able to mount a decent rally this week the previous outlook suggesting the stock will get up to 41.20 will again re-surface. Nonetheless, based on the action this past week the 39.50 level has taken on added strength and can be used as a good stop loss giving the trade a decent probability number.
NTGR shows an all-time high at 45.31 seen in July of last year but it does need to be mentioned that the stock has traded 94% of the time during the past 5 years below $40 and 60% of the time below $30. During the last 2 years the stock has traded 74% of the time between $30 and $40 suggesting that this rally is likely to meet with strong selling as it nears the $40 level as there are no fundamental reasons at this time to think the stock will have any success above the $40 level.
Resistance is decent in NTGR at 38.47 but it is likely to be reached suggesting that it is the desired entry point to this trade. Decent support is found 36.00 but if broken no support is found until 33.50. Possible, if not probable, downside objective is the $30 level.
Once again I must mention that if stopped out of this trade a new short should be attempted up at the gap area at 41.20 using a 43.54 stop loss.
Sales of NTGR between 38.40 and 38.50 and using a stop loss at 39.57 and an objective of 30.00 will offer a 7-1 risk/reward ratio.
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
JBL Friday Closing Price - 23.27
JBL has been on a strong uptrend for the last 6 weeks and on an uptrend for the last 12 weeks since the stock got down to 17.67, which had been a new 7-month low. The stock broke through decent weekly close resistance 3 weeks ago when it closed above 22.57 and has confirmed that breakout with two weekly closes in a row above that level the last 2 weeks.
Nonetheless, JBL last week got up close to a gap that was left the first week in April between 24.14 and 23.96 with a rally up to 23.95, followed with a selloff to close near the lows of the week, though still generating a green close. It is evident that selling of consequence was found at the gap area and having generated a 24% rally over the last 6 weeks the stock now finds itself overbought, at a level of important resistance, and with no support underneath until the $20 level is reached, suggesting that if no further positives are found that at the very minimum a correction is likely to occur.
JBL has been on a 41-month uptrend that started at 3.10 but the stock is still in a long-term downtrend from a high made in Mar03 at 43.70. The probabilities that the long-term downtrend have ended are high but there has been so signal that an uptrend, other than short-term, is now in place and therefore it must be assumed that the stock is trading sideways. With that thought in mind, the stock has shown over the past 13-years that the $20 level has been a pivot point and if the stock has found a short-term top, the probabilities of a move down to at least the $20 level are high.
They key to this trade is the gap up at 24.14. Should that gap be filled, rallies up to at least 25.80 are likely to be seen. Nonetheless, the action seen this past week does suggest that a sell position on a small rally can be attempted at this time with a small risk and a decent probability of success.
Sales of JBL between 23.44 and 23.71 and using a 24.14 stop loss and a 20.00 objective will offer a 5-1 risk/reward ratio.
My rating on the trade is a 2.75 (on a scale of 1-5 with 5 being the highest).
RHT Friday Closing Price - 57.77
RHT started an uptrend on Nov08 from a low of 7.50 that took the stock up to a high of 49.00 on Dec10, at which point the stock got into a strong correction that resulted in a break of short-term support at 38.47 and a drop down to the 31.77 level. The stock then recovered and started a new uptrend from that low to a high of 62.75 seen in April. The stock then corrected to a low 49.45 where new buying was seen resulting in a rally 2 weeks ago to 59.49 and a close on the highs of the week. The stock failed to follow through last week and generated a red close making the previous week's close at 59.42 into a successful retest of the 12-year high close at 60.95.
RHT had the same situation occur when it made the rally high at 49.00 (weekly close at 48.27), fell back, and re-rallied up to 48.37 (weekly closing high at 47.59) and then fell back again, ultimately resulting in the drop down to 31.77. Simply stated, the successful retest and red weekly close on Friday could be a sign that the stock is ready to start another correction with the ultimate goal of breaking the 49.45 low before reconsidering whether to rally again.
RHT closed near the highs of the day on Friday and it is expected that the stock will start the week higher and attempt to get above the high seen a week ago Friday at 59.49. Nonetheless, if the stock has in fact retested the high successfully it should not get above 59.49 and the rally will fail.
Resistance in RHT is found between 58.12 and 58.63 but a rally up to those levels is probable but should be used to short the stock looking for a correction of consequence to begin.
Minor to decent short-term support is found at 55.03 but then nothing until the 200-day MA, currently at 52.10, is reached. Further support of minor consequence is found at 51.02/51.08 and then the strong support at 49.45/49.53. Based on the assumption the stock will do the same thing it did the last time the stock retested the high successfully, the stock could easily drop down to the $45 level before strong buying is seen again.
This trade is based totally on the red weekly close seen on Friday and therefore will not have a high probability rating as there are not enough reasons to feel certain than in fact the stock is heading lower.
Sales of RHT between 58.11 and 58.62 and using a stop loss at 59.69 and having an objective of 45.00 will offer a 9-1 risk/reward ratio. Nonetheless, if the stock is not yet ready to break support but in fact has found a short-term top, a drop down to the 200-day MA at 52.10 can be expected, giving the trade at least a 4-1 risk/reward ratio.
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| DCTH had an uneventful inside week in which nothing was decided. The weekly close on Friday was at the $2 mark which is considered a pivot point. Having closed at that level there are no clues on what the stock will do this coming week. Intra-week support is decent at 1.80 and to the upside resistance is found at 2.13. Whichever one of those levels are broken is likely to stimulate further movement in that direction and perhaps of some consequence. FCEL had another uneventful inside week trading between the 1.00 and 1.11 trading range (low was .99 and high was 1.05). The stock now shows 11 weeks in a row of sideways trading with the stock fluctuating between 1.00 and 1.13. Traders are awaiting new information before committing to any direction. It can be said the stock is still "officially" under selling pressure as it finds itself below the 50-week and 200-day MA's, both at 1.13. No clue was given this past week as traders wait for some catalyst to occur. ELON gave a buy signal on the weekly chart breaking and closing above the high weekly close for the past 14 weeks at 3.52. The stock closed in the upper half of the week's trading range and further upside is expected to be seen this coming week with the 200-day MA, currently at 4.35, as the possible objective. The stock closed on Friday at the 100-day MA, currently at 3.62, and that level is considered a pivot point inasmuch as the daily close resistance for the last 14-weeks has been at 3.62 (stock closed at 3.61 on Friday). Monday's close in red or green could be indicative of what the stock will do for the week. Support is found at 3.38. Resistance is considered minor at the week's high at 3.86. With no previous resistance at that level the traders are not likely to pay much attention to that price. Some psychological resistance will be found at 4.00, especially since an important previous low is found there. Nonetheless, since it is low resistance it is considered minor. Possible trading range for the week, based on last week's trading range as well as support/resistance, is 3.40 to 4.00. AMZN continued its 8-month weekly close uptrend with yet another 10-month high weekly close at 245.71 on Friday. Nonetheless, the stock has not yet broken the all-time high weekly close at 246.71 that was made last October even though that level was seen and slightly broken intra-week on Friday. The stock did close near the highs of the week and further upside is expected to be seen. Nonetheless, the stock saw selling coming in on Friday at the previous high causing the stock to fall back at the end of the day and close a little over $1 from the highs of the day. If the stock sells off on Monday and goes below Friday's low at 241.36, an ominous double top will be built. The probabilities do not favor that scenario happening but it is evident there is strong chart selling at Friday's high at 246.82. Above 246.82 there is no resistance other than psychologically at 250.00. If the stock is able to get above Friday's high follow through technical buying is likely to be seen. INTC continued to see weakness but did stop when the 8-month low at 24.68 was reached with a drop on Friday to 24.70. The stock did close in the red on Friday but in the upper half of the day's trading range suggesting some buying will be seen on Monday. Minor resistance is found at 25.20, at 25.50 and a bit stronger at 25.78. Nonetheless, no decent resistance is found until the 200-day MA, currently at 26.25, is reached. Friday's trading range (24.70 to 25.07) is likely to be short term indicative as a break of either area is likely to bring about a $1 move in whatever direction is broken. Probabilities for the week suggest the stock will be moving higher. Nonetheless, the overall picture suggests a bearish result will ultimately occur. WMT had a reversal week making a new 4-week intra-week low but then closing in the green. The stock did get down to the always important 50-day MA, currently at 71.65, but failed to break the line on a daily closing basis, suggesting some upward action will be seen this coming week. The gap between 73.82 and 72.75 has not yet been tested in the proper manner and therefore a rally up to at least 72.75 is expected to be seen this coming week. Further resistance is found at 73.10 and again at 73.23 but if broken, the gap will likely be closed. If that happens, minor resistance will be found at 74.52. Probabilities do favor the stock moving upward this week but a drop back down to the 50-day MA could be seen early in the week and should be used to take some profits on the trade with the idea of re-selling the stock on a rally between 72.75 and 73.10. DD had an uneventful week but did go above last week's high but not above the high made 2 weeks ago at 51.12, suggesting the high seen last week could end up being a successful retest of that level. The stock continues to close above the 100-week MA, currently at 49.85, keeping the stock with a slightly bullish undertone. Nonetheless, the stock did close in the lower end of the week's trading range suggesting that the MA will at least be tested this coming week. The stock has been trading sideways for the last 3 weeks between 49.85 and 51.12. A break of that range will likely bring about some additional movement of consequence. Nonetheless, it should be mentioned that on the daily chart the stock does show support all the way down to 49.50 so that level would need to be broken on a daily closing basis to make an impact to the downside. Probabilities favor further sideways action. DXD generated a bounce this past week with a rally back up to the psychological $50 level. Nonetheless, the stock was unable to punch through and did fall back to close on the lows of the day on Friday and suggesting that the all-time low made at 48.00 will likely be tested this week. If the low holds up and the stock is able to get above and close above $50, it will mean a bottom is in place. WFC continues to trade in a narrow trading range without any direction. Stock is treading water right now with resistance at 34.79 and support at 33.48 and again at 32.84. Chart suggests the stock will trade between 34.79 and 32.70 for the next few weeks with no direction being seen at this time. OPEN did start to show some weakness this past week having made a new 2-week low on Thursday. No follow through was seen on Friday but the stock did close in the red making the previous week's close at 44.57 into another successful retest of the 6-month high weekly close at 45.02. The stock did close near the lows of the week and further downside is expected to be seen this coming week. On a positive note, the stock held itself above the 50-week MA, currently at 42.61 and while it continues to do that the traders will stay as buyers of dips. A close below that line next Friday, though, would be considered a negative. Some minor intra-week support is found at 41.62 and again between 41.00 and 40.90 where the 200 and 50 day MA's are located. Further support is found at 38.27 where the gap left after the earnings report is found. Resistance remains between 45.00 and 46.00. Probabilities favor a sideways trading stock for the next week and then a move back down to the $40 or even $38 level.
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1) ELON - Averaged long at 8.71 (2 mentions). No stop loss at present. Stock closed on Friday at 3.61.
2) ELON - Purchased at 2.73. No stop loss at present. Stock closed on Friday at 3.61.
3) FCEL - Averaged long at 1.34 (5 mentions). No stop loss at present. Stock closed on Friday at 1.00.
4) AMZN - Shorted at 246.69. Averaged short at 244.19 (2 mentions). Stop loss at 246.92. Stock closed on Friday at 245.74.
5) DCTH - Averaged long at 4.14 (2 mentions). No stop loss at present. Stock closed on Friday at 2.00.
6) DXD - Purchased at 51.74. No stop loss at present. Stock closed on Friday at 49.16.
7) WFC - Shorted at 34.24. Stop loss at 35.35. Stock closed on Friday at 34.04.
8) XOM - Liquidated at 87.17. Purchased at 88.27. Loss on the trade of $110 per 100 shares plus commissions.
9) WMT - Shorted at 73.19. Stop loss now at 74.62. Stock closed on Friday at 72.11.
12) DD - Averaged short at 49.51 (2 mentions). No stop loss at present. Stock closed on Friday at 50.35.
13) DCTH - Purchased at 1.87. No stop loss at present. Stock closed on Friday at 2.00
14) INTC - Averaged short at 26.115 (2 mentions). No stop loss at present. Stock closed on Friday at 24.91.
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Encyclopedia of Chart Patterns. A must have for chart aficionados! |
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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