Issue #265 ![]() February 19, 2012 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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Traders Await News From Europe Regarding Greek Loan!
DOW Friday closing price - 12947
The DOW confirmed last week's retest of the breakout weekly closing level at 12810 (closed last week at 12800) with a green close and a new 34-month weekly closing high. The index continues its impressive 12-week run that started at 11231 and that reached the 13000 demilitarized zone on Friday, moving up close to 16% in that period of time. The bulls will now be targeting the resistance area at 13132 (13058 on a weekly closing basis) where the index first corrected up to in 2008 after the initial drop from 14198 to 11634, which signaled the beginning of the last recession. The area of resistance should be difficult to overcome due to the overbought condition that exists, the seasonal tendency to correct at this time of the year, as well as the strength and meaning of this resistance level.
In addition, the DOW has been giving minor signs of topping out action that have been erased only through timely reports of positive resolution to the Greek default crisis. With that crisis likely to be resolved this coming week, there is going to be little left, in the way of positive news, to drive the index higher.
On a weekly closing basis, resistance is decent at 13058. Above that level, there is minor resistance at 13695, minor to decent at 13907 and major at 14093. On a daily closing basis, there is no recent nearby resistance as the index would be making a new 12-month high. On a weekly closing basis, support is minor 12800, minor again at 12217 and at 11934. On a daily closing basis, support is minor between 12780 and 12800, minor to decent at 12632, minor at 12584 and again at 12480. Below that, there is minor to perhaps decent support between 12355 and 12359.
The DOW did close on the highs of the day/week on Friday and further upside is expected at the beginning of the week. The index did break out from a 9-day flag-type/consolidation formation that offers an upside objective of 13138, which does fit in well with the 13132 intra-week resistance level from Apr08. As such, that level is likely to be the target the bulls will shoot for this coming week. A rally up to that level will add an additional 193 points (1.5%) to the index, from the close on Friday. Reaching that level, though, is not a "gimme" as most of the good news regarding the Greek loan has been factored into the market and Monday's actual loan committment decision by the IMF could generate an old adage about "buying the anticipation and selling the news".
The DOW, having reached 12967 on Friday, has fulfilled the minimum requirement the chart suggested would be seen when the October high at 12876 (12810 on daily and weekly closing basis) was broken. The 13000 level is a psychological magnet and having reached the bottom of the demilitarized zone is enough to fulfill the objective, suggesting that the traders will now key more on the news than on the technical aspects of the chart. In addition, one of Friday's "drivers of the index" was option expiration week and that too is now over. As such, the traders are more likely to key on what does "not" happen than on what happens. It is highly unlikely that aggressive buying will be seen at this time, so traders are more worried about a correction than about further upside, especially now when the biggest issue affecting the market over the past 3 months (the Greek default) is likely to be totally resolved by the start of trading on Tuesday.
To the downside and using the weekly charts the DOW has moved straight up since November from the 11232 level. Such an aggressive move up without any pause of consequence implies that if a correction starts that there is no level nearby the bulls can depend on to stop the index from falling. In going all the way back to 2007 and the several occasions the index got up near or to the 13000 level and subsequently experienced a correction thereafter, support was found between 11634 and 11936. Using the more recent weekly charts, very minor support is found at 12524 and then nothing until 11862. If the index does start a correction from these levels, a drop over the next 6 weeks down to 11936 level would be the least expected.
On a more sensitive basis, and using the daily and weekly closing charts, the previous close at 12800/12810 is likely to be an important pivot point for the traders as a close below that level would give a failure signal suggesting that a correction has begun. The DOW closed on Friday at the midpoint between the strong resistance at 13058 and the pivot point at 12800/12810 and is likely to react this coming week and reach one level or the other depending on the news coming out of Europe regarding the Greek loan. That 300 point trading range is now what the traders will be looking at to determine direction for the next 2 months. A close above or below those 2 levels will likely cause the index do move an additional 7% in either direction.
Probabilities favor a downside result.
NASDAQ Friday closing price - 2951
The NASDAQ continued to make new 11-year highs having gotten up this week to 2962 and near the psychological resistance area at 3000. The index did close near the highs of the week and follow through to the upside is expected, especially since the 3000 level is a magnet and it is unlikely that having gotten this far that the traders won't push the index higher just to accomplish that feat.
The NASDAQ is acting tired though, as it has rallied 442 points (15%) in the past 2 months without a glimpse of a correction or even a breather where the overbought condition could dissipate and reaching a major psychological level as 3000 is considered to be, it is unlikely the bulls will continue to buy thereafter without a level of support being built nearby first.
On a weekly closing basis, there is no resistance found over the past 10 years other than the psychological resistance at 3000. From the year 2000, there is weekly close resistance at 3204. On a daily closing basis, there is only very minor resistance at 2959. No other resistance is found over the past 12 months. On a weekly closing basis, support is minor to decent between 2605 and 2616. On a daily closing basis, support is minor at 2915 and a 2905. Below that there is minor support 2873, minor again at 2805 and once again minor at 2763. Decent support is found at 2737.
The NASDAQ has been the "driver" to the upside during the past 3 years. The index has led the way when the market has been in an uptrend and up until Thursday that continued to be true. Nonetheless, the index did have a red day on Friday in spite of the fact the other indexes had decent green days and that could be a sign that the bulls are starting to liquidate their long positions anticipating that the index is about to have a correction downward.
The NASDAQ has no support of any consequence nearby. Like the DOW, the index does have a previous daily and weekly closing high at 2873 that is likely to act as minor support as well as a pivot point. Nonetheless, a close below that level would give a failure signal and likely thrust the index down to the 2740 level on the daily chart or even down to the 2680 level on the weekly chart before support of any consequence is found.
Friday's action in the NASDAQ has to be considered indicative, especially since there was no reason fundamentally for the index to be the weak sister on that day. Nonetheless, it is the index where most of the high flying and popular stocks are located and those are definitely going to be the ones where profit taking will begin, trying to beat the rush.
Probabilities do favor further upside this coming week due to the proximity to 3000 and the close near the highs of the week. Nonetheless, it is likely that the other 2 indexes will continue to outperform the NASDAQ this coming week. If that happens, it will be a strong sign that it is time to get out of the longs and consider shorts.
SPX Friday closing price - 1361
The SPX was able to break above the pesky daily and weekly close resistance at 1345 and move up to test the last year's high at 1370 with a rally this past week to 1363. The index continues to underperform the other indexes but this coming week some of the shackles that have been holding the bulls back may be gone when the Greeks get the loans they need to prevent a default. As such, the SPX may be the most important index to watch, not only because it still has recent resistance levels above but also because fundamentally more will be known about how the financial industry will react when one of the biggest anchors affecting the index over the past 3 months is lifted.
From a chart point of view this coming week is also very important to the SPX as the index closed on Friday at 1361, just 2 points below the high weekly close seen in 2011 at 1363 and therefore a red close next Friday would create a major double top while a green close at 1363 would create a breakout of some consequence. As such, all eyes will be on this index this coming week.
On a weekly closing basis, resistance is strong at 1363. Above that level, resistance is decent at 1395 and strong again at 1425. On a daily closing basis, resistance is strong at 1363. On a weekly closing basis, support is minor at 1342, decent at 1268, minor at 1257, and decent again between 1216 and 1219. On a daily closing basis, support is minor between 1342 and 1343, minor to decent at 1305/1306, very minor at 1289 and the nothing until decent support is found between 1249 and 1256.
The SPX is now at a "moment of truth" starting with the fact that one of the biggest negative catalysts for the past 3 months (the Greek default) will likely be resolved before the market opens on Tuesday. The Greek default crisis, in and of itself, has been the biggest fear circulating in the financial market for some time and has been a strong reason the world has been cautious about anticipating further recovery, especially in Europe. With that item resolved, the traders will finally be able to evaluate the overall financial situation without "daily" fear of default in their minds. The fact that the SPX is also at a chart level of great importance belies the fact that this coming week will likely be an important pivot point, both fundamentally and technically, for the next couple of months if not for the year.
To the downside and on the weekly closing chart, the SPX shows no support of consequence until the 1268 level is reached. That means that if the resolution this week is to the downside that the index could easily drop 8% in value before it finds significant chart buying coming in. The 1343/1345 level must be considered a pivot point on a daily and weekly closing basis, much like 12810 is to the DOW and 2873 is to the NASDAQ. This level is not as important as in the other 2 indexes because it does not represent last year's highy, nonetheless the 1343/1345 level has proven to be important to the traders during the last 12 months suggesting it will be seen as a pivot point at this time.
On a shorter-term basis and using the daily closing chart, there is some minor to decent support in the SPX at 1305, but that same level has no importance on the weekly chart and won't likely stop the index for more than a couple of days if the index is correcting.
To the upside the 1363 level on a daily closing basis (1370 intra-week) is likely "it". A break and close above those 2 levels would likely thrust the index up to the 1400 level before any selling appear again.
Probabilities favor the index moving up intra-week, perhaps as high as 1370 to 1375, but then selling off at the end of the week to close probably at 1343/1345.
The "moment of truth" has finally arrived. The Greek default situation will likely be resolved in one way or another by the opening of the market on Tuesday. The fears of a Euro collapse will be greatly ameliorated, at least for a couple of months, if the Greeks get their loans. How much of that resolution has been already factored into the market is hard to tell, but the fact the situation will be resolved will allow traders to make decisions without the "every day" fear of negative news coming out. On the opposite side it will "take away" the ability of the bulls to use positive statements from Europe as a reason to rally the market. One way or the other, the action this coming week is likely to be indicative of the deep down belief of what the market will do this year.
This coming week is also going to be a strongly technical week as there are no economic reports of consequence due out and with the Greek situation likely resolved by Tuesday morning, the trading will turn totally technical. The indexes are all close to levels of strong technical meaning which suggests that decisions will be made rather than simply pushing them back another week. Simply stated, this coming week is one where traders will be putting close attention to and participating. Volatility should increase and if it does it is likely to favor the bears.
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Stock Analysis/Evaluation
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CHART Outlooks
There will be no mentions in this week's newsletter. I looked at about 80 stocks this weekend and right across the board the charts did not give any probability numbers that were high and the ones that did give some probability numbers were to the upside. Nonetheless, in each one of those cases the stock found itself in an overbought condition, extended to the upside, and without close by support that can be depended on. As such, purchasing those stocks would be defined as "chasing the stock" and at this moment I do not believe such action is warranted. In addition, the risk/reward ratios are poor on those stocks.
I would have looked at more stocks than the 80 I mentioned above but the reality is that the market is not set up right now to do anything of consequence until the Greek situation gets resolved. As such, looking at other stocks probably would have resulted in the same conclusion.
To the downside, thinking about shorting into this rally (which makes the most sense), I found a couple of disturbing things that are not likely to get cleared up until the evaluation by the traders is done regarding what the loan to Greece will do. First of all I found that those stocks that have decent resistance levels above, or reason to think the stock will go down in price also have decent support levels close-by below making the trade offer a bad risk/reward ratio. Secondly, none of the charts gave me a probability number that I could feel confident in. This last statement, of course, is based on the fact that the traders themselves do not know what kind of an effect will be seen once the Greek loan is finalized.
Simply stated, this is the perfect week to sit back and wait for things to develop where probability numbers can be more easily determined. Anytime that one piece of news (such as the Greek loan) creates a situation where the traders are unsure of what the market will do "after a positive resolution", is a time for caution to be exercised, rather than try to anticipate what the reaction will be.
As such, no mentions will be made in the newsletter this week. Nonetheless, there is a high probability that in the first day or two of trading this week that some clarification will be seen and at that time the mentions will be made on the message board.
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Updates
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Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
DCTH had an inside week in which nothing was accomplished on the chart. Nonetheless, the stock failed to follow through on last week's close near the lows of the week as well as on the close below the 200-day MA, currently at 4.08, putting the stock back into a positive bias. A daily close below 4.08 would weaken the chart and bring into play the 3.79, 3.37, and perhaps even 3.07 levels. A close above 4.49 would likely cause the stock to move up to the 5.00 level. Traders are looking for fundamental direction to decide the next direction. FCEL continued its recent strong rally to the upside closing above a decent daily close resistance at 1.29 as well as above the 50-week MA, currently at the same price. Nonetheless, the stock did generate a reversal day on Friday with a new 5-month high but a close in the red suggesting the first course of action on Monday will be a test of support. On an intra-week basis, support will be found at the 200-day MA, currently at 1.16, but on a daily closing basis support should be decent between 1.24 and 1.26 and minor at 1.19. Next resistance level of consequence is at 1.49 (1.46 on a daily closing basis). Probabilities favor an early week drop down to 1.24/1.26 and a late week rally up to the 1.46/1.49 level. ELON followed through to the downside (as expected) off of last week's close on the lows of the week. The stock did find some support at the previous Mch09 lows (both weekly close and intra-week) at 5.30 with a drop down to 5.33. Nonetheless, the stock was able to generate a reversal week closing in the green and near the highs of the week suggesting that the downside retests needed may be concluded. By the same token, the 5.19 level on a daily closing basis was the breakout level and drops down to that price are still possible. The stock needs to generate a rally above last week's high at 5.68, as well as a green close next Friday, to fulfill this successful retest scenario. Some minor resistance will be found at 6.09, a bit stronger at 6.34 and again between 6.85 and 6.90. Nonetheless, decent resistance is not found until the 50-week and 200-day MA's are reached, both currently between 7.50 and 7.25 respectively. On a very short-term basis, the 5.68 level can be considered an important pivot point. HD continues to rally upward making yet another 11-year high with a rally up to 46.72 and closing on the highs of the week suggesting that further upside will be seen this coming week. No previous resistance is found until the $50 level and if the market continues to go upward there is nothing to stop the stock from reaching that level. The stock is severely overbought with no support built until the $38-$40 level is reached. Should selling be found a fast correction down to those levels should be seen. Nonetheless, at this time there are no signs the stock rally is ready to abate. VHC had an uneventful week on the weekly chart but on the daily chart the stock once again tested the 200-day MA, currently at 23.70, with a close on Thursday at 23.58 and a green close above the line on Friday. On a negative note, though, the stock broke below and closed below the 50-day MA, currently at 24.60, for the last 3 days of the week and that is something the stock has not done since October 25th, suggesting that further weakness is likely to be seen. The stock did close right at the 50-day MA on Friday and therefore Monday could be all about a red or green close. The stock did negate Wednesday's break below the previous intra-week low at 22.97 (got down to 22.67) and that is what generated 2 green closes on Thursday and Friday. Minor to decent intra-week resistance is found at 25.12 and if broken it is likely the stock will once again test the $27 level. A red close on Monday would give the bears the edge. A break below 22.67 is now needed to stimulate further downside. Probabilities are about even and it may depend on what the indexes do this week. AMT had a key reversal this past week making a new all-time high but closing below the previous week's close suggesting further downside will be seen this coming week. On a weekly closing basis, minor support is found at 61.51 and a bit stronger at 60.01. On the daily closing chart, the support at 61.51 is considered decent, especially since the stock is in a major uptrend and the 50-day MA is currently at that price. Based on the close on Friday, drops down to that level are likely to be seen this coming week. The 50-day MA represents a line that should not be broken, at least not on a daily closing basis, since the fundamentals of the company are very strong and the uptrend, which has been on since August, should continue. No negative fundamental news has come out. Expect some weakness at the beginning of the week and a green close next Friday. OSK confirmed the successful retest of the 200-week MA 2 weeks ago, currently at 25.85, with a second red close in a row. No support of consequence is found on the weekly chart until the $20 level is reached. Nonetheless, there is some minor to perhaps decent support on the weekly closing chart at 24.51 from 2004 and if the stock is able to close in the green next Friday above that level it will be a positive sign. The stock did generate this past week a successful retest of the 200-day MA, currently at 23.10, that helped the stock rally a bit from the negative news received this week regarding cut backs in defense spending affecting the company directly. Resistance on the daily chart is decent between 25.00 and 25.40 that should not get broken if the stock is to head lower. Important support is found between 23.11 and 23.22. A break below that level of support will likely cause the stock to drop down to the $20 at least. GS generated a mini reversal to close near the highs of the week suggesting that further upside will be seen this coming week. Resistance is decent at 118.07 and again at the 50-week MA, currently at 121.00. The stock broke below and closed below the 200-day MA early in the week but negated the break on Thursday and confirmed the reversal on Friday with a second close above the line on Friday. On a daily closing basis, the stock shows what could be a key daily close resistance at 116.22. A close above that level on Monday will likely cause the stock to test, and likely break, the decent daily close resistance at 117.53 and generate a rally up to and slightly above the $120 level. As such, Monday's action and close is likely to be important for the stock, Probabilities are now back in favor of further upside. The stop loss at 117.67 should be kept in place. LVS generated a negative reversal on Friday having made a new 15-month high but closing in the red and on the lows of the day. Further downside is expected to be seen on Monday with 51.93 or even 50.88 as the downside Using the weekly chart, though, the stock was able to make a new 41-month weekly closing high suggesting that further upside is likely to be seen with 55.47 to 56.30 as the possible objective. Based on the ability of the bulls to negate a possible double top built 3 weeks ago at 51.98/51.93, consideration should be given to covering short positions between 50.88 and 51.98. The probabilities now favor the bulls. MRK generated a green weekly close on Friday after the stock successfully tested the 50-day MA with Thursday's drop to 37.80. In addition, the bears were unable to break the important intra-week support at 31.70, suggesting the bulls will now have a small edge for this week's trading. Resistance is decent at 39.01 and that level was tested on Friday with a rally up to 38.88. The stock did gap up between 38.15 and 38.32 on Friday, and if another gap is seen on Monday, especially above 39.01, it will be a strong reason to cover the shorts. Nonetheless, the stock did sell off on Friday to close slightly in the lower half of the day's trading range and it is possible, perhaps even likely, that the bears will work toward closing the gap next week. Any rally above 39.01 would be considered a positive, while a break below 37.70 a negative. Probabilities slightly favor the upside this week. CAT has run into something like a brick wall over the past 4 weeks generating a high each week between 114.00 and 114.65 but no higher. The all-time high is at 116.25 and as stated in the mention there are chart reasons garnered from a previous important high that suggest the all-time high will not be broken. Nonetheless, the stock now shows multiple highs on the intra-week chart (9 to be exact) that suggest that level will get broken and an attempt to break above 116.25 will be seen this coming week. What happens on the break above 114.65, which is now highly likely, will tell the story. The reasons given for the short mention have not changed. RHT continued its recent uptrend with an intra-day break above a previous weekly high resistance of some consequence at 49.00 (got up to 49.45). Nonetheless, the break above 49.00 occurred on Monday and the stock was unable to generate any kind of significant follow through the rest of the week in spite of the fact the stock got above 49.00 every single day of the week. The stock did generate a small reversal signal on Friday having made the new 8-week high on that day but then reversing to close in the red. The stock did close on the lows of the day and some follow through to the downside is likely to be seen on Monday with the probabilities being high of the stock falling down to somewhere between 47.23 and 47.98. A break below 47.23 would likely take the stock down to 46.15 and a break of that support would likely change the mentality of the traders from up to down. Nonetheless, having broken above 49.00 does suggest the stock will head higher with a 51.35 to 52.00 objective. Monday could be a pivotal day.
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1) ELON - Averaged long at 8.34 (5 mentions). No stop loss at present. Stock closed on Friday at 5.58.
2) VHC - Shorted at 27.19. Stop loss now at 25.52. Stock closed on Friday at 24.61.
3) FCEL - Averaged long at 1.34 (5 mentions). No stop loss at present. Stock closed on Friday at 1.34.
4) HD - Averaged short at 38.63 (3 mentions). No stop loss at present. Stock closed on Friday at 46.71.
5) DCTH - Averaged long at 4.14 (2 mentions). Stop loss now at 3.53. Stock closed on Friday at 4.23.
6) AMT - Purchased at 62.36. No stop loss at present. Stock closed on Friday at 62.50.
7) MRK - Shorted at 38.88. Stop loss at 39.11. Stock closed on Friday at 38.56.
8) OSK - Shorted at 25.69. Stop loss at 26.44. Stock closed on Friday at 24.48.
9) DDM - Liquidated at 66.44. Shorted at 65.40. Loss on the trade of $104 per 100 shares plus commissions.
10) LVS - Averaged short at 50.725 (2 mentions). No stop loss at present. Stock closed on Friday at 52.79.
11) HDY - Purchased at 2.25. Averaged long at 2.50. Liquidated at 1.41. Loss on the trade of $218 per 100 shares plus commissions.
12) CAT - Shorted at 113.07 and again at 114.18. Averaged short at 113.625 (2 mentions). Stop loss at 116.35. Stock closed on Friday at 113.95.
13) RHT - Shorted at 48.58. Stop loss now at 49.55. Stock closed on Friday at 48.61).
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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