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Issue #304 
Dec 2, 2012 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Traders Await Fiscal Cliff Resolution. Market "Treads Water".
DOW Friday closing price - 13025
The DOW confirmed the break of the 50-week MA with a second green close above the line on Friday. In addition, the index was able to close again above the 200-day MA for the second time on Thursday (first time was a week ago) and confirmed the break of that line as well with a green close on Friday. Having accomplished a beachhead above the important MA's and closing near the highs of the week suggests that further upside will be seen this coming week if no fundamental negatives appear. By the same token, neither of these events showed conviction as the index only eked out minimal gains above the MA's leaving the door open for a reversal should any negative fundamental news appear.
The DOW had a volatile week having dropped down to 12765 on Wednesday (just below a decent intra-week support at 12778) and then rallying in the last 2 days of the week to close 260 points above the low and on the highs of the week. Volatility generally favors the bears but at this time volatility has no label as it is all based on the uncertainty regarding the Fiscal Cliff, meaning that the index can go in either direction based on what happens or doesn't happen.
On a weekly closing basis, resistance is minor at 13090 and decent again between 13232 and 13276. On a daily closing basis, there is minor resistance at 13115 and decent resistance between 13252 and 13276. On a weekly closing basis, support is minor at 12849 and at 12777 and decent at 12588. On a daily closing basis, support is decent at 12878, decent again at 12710, and decent to strong at 12542.
Once again the DOW was able to close on a strong bullish note on Friday suggesting that further upside will be seen this coming week. Nonetheless, it is important to note that the index was unable to reach the next (and minor) resistance level at 13135 in spite of the fact the index got up to 13062 on Thursday and closed in the upper half of the day's trading range suggesting follow through would be seen on Friday. No such action occurred on Friday (turned out to be an inside day) leaving the traders uncertain as to what to expect this coming week.
Resistance in the DOW is found at 13135 and then nothing on an intra-week basis until the 13275/13338 area is reached. Support in the index is found at 12970 and then nothing until minor intra-week support at 12845 is reached. Below that level, support is found at Wednesday's low at 12765.
The bias in the DOW is slightly to the upside and if no surprises are seen the probabilities favor the index moving up to the 13300 area. Nonetheless, this is a week where a lot of news is scheduled to come out (ISM Index, Factory Orders and Jobs report) as well as a week where every day there is likely to be some update regarding the talks between Democrats and Republicans on the Fiscal Cliff. Volatility is likely to be prevalent, causing unexpected movements to be the norm rather than the exception.
NASDAQ Friday closing price - 3010
The NASDAQ closed near the highs of the week and above the 3000 level suggesting further upside will be seen this coming week. On a weekly closing basis, the index has no resistance above until 3069 and unless some negative news comes out that turns the index around it is highly likely that level will be reached before new selling of consequence is seen. The index also confirmed the close above the 50-week MA that was seen the previous week and did generate a confirmed close above the 200-day MA, currently at 2986, with a close above the line on Wednesday, followed with 2 additional closes above the line on Thursday and Friday.
The NASDAQ has once again taken the leadership of the indexes to the upside with 2 weeks in a row where it has outperformed the DOW and the SPX, suggesting that this rally might have some teeth to it. With AMZN, GOOG and AAPL also rallying and with still some room on the charts to the upside before resistance is found, the probabilities favor the index rallying unless some fundamental negative comes out.
On a weekly closing basis, there is minor to decent resistance at 3069, decent at 3091 and strong at 3179. On a daily closing basis, resistance is minor at 3020 and minor again at 3044, minor to decent at 3122 and at 3149, and strong at 3183. On a weekly closing basis, support is minor at 2908 and decent to strong at 2853. On a daily closing basis, support is minor at 2988 and at 2977, minor to decent at 2961 and decent at 2910.
This NASDAQ successfully tested the runaway gap between 2928 and 2940 with a drop down to 2936 on Wednesday and a reversal day with a close above the previous day's high. The reversal was confirmed with 2 subsequent higher closes on Thursday and Friday and especially significant because all 3 daily closes were above the 200-day MA, currently at 2986. The successful retest of the runaway gap, as well as the close above the 200-day MA, means that unless some negative fundamental news comes out that the index will continue on higher until resistance of consequence is found.
The NASDAQ did find some resistance on Thursday and Friday when it was unable to get above some minor resistance between 3020/3033 (3020 on a daily closing basis). The index got up to 3017 on Thursday and 3014 on Friday but it is evident the index will need further positive news to go higher. It should be mentioned that even though the intra-day resistance at that level is minor, it is strengthened by the fact the 100-day MA is currently at 3020 and the 50-day at 3023. The 50-day MA is another line that often is indicative and with both of those MA close-by, and in the process of crossing to the downside, it does suggest there is extra meaning to what the index does at that level on Monday's close after the ISM Index report comes out.
The NASDAQ did have an inside day on Friday leaving the door open for movement in either direction on the opening on Friday. The index did close near the highs of the day so probabilities favor the upside, but a drop back down to the 200-day MA at 2986 could be seen without any negative context.
Intra-week support in the NASDAQ is found at 2961 and then at Wednesday's low at 2936. Intra-week resistance is found at 3033 and then not until 3085.
Probabilities favor the upside but this coming week will be all about reports and news regarding the Fiscal Cliff.
SPX Friday closing price - 1416
The SPX extended the short-term rally with another green weekly close on Friday. In addition, the index successfully retested the 200-day MA, currently at 1385, with a drop down to that level on Wednesday and a reversal to the upside, followed with 2 subsequent green closes suggesting that further upside, perhaps of consequence, could be seen this coming week.
On a negative note though, the SPX does have decent intra-week resistance at 1422/1426 that it was unable to break above this past week in spite of all the positive things that occurred (had a high of 1419 on Thursday). The resistance at 1422 was the previous 5-year high seen in March that did not get broken until August, meaning it is a resistance of consequence. It should also be mentioned that the 50-day MA is currently at 1422 as well, giving that area added resistance power.
On a weekly closing basis, resistance is minor at 1418, decent at 1425, and minor again at 1433. Above that level, decent to strong resistance is found between 1460 and 1465. On a daily closing basis, resistance is minor to decent at 1418/1419, minor at 1428, and decent to strong between 1460 and 1465. On a weekly closing basis, support is minor at 1406 and 1397, minor to decent at 1370, and decent at 1359. On a daily closing basis, support is minor to decent at 1399, minor at 1392, and decent between 1353 and 1358. Additional decent support is found at 1343.
The SPX has been leading the indexes on this occasion. The index did break the 200-day MA 2 weeks ago Wednesday, currently at 1383, and has now retested that line successfully, suggesting that for now it is the index that the traders are watching for clues.
Resistance in the SPX will start to be seen between 1422 and 1426 as those two levels have been previous intra-week highs of some consequence (March 30th at 1422 and August 21st at 1426). In addition, the 50-day MA is currently at 1422, giving that area added resistance strength. Nonetheless, getting up to that level this coming week is highly probable. What happens at that level will likely decide if the bounce is over or not. It should be noted that the index has been showing a string of lower highs and lower lows signifying that the index is in a short-term downtrend. That downtrend has not been yet negated as no previous high has yet been broken. The most recent previous high in this string is at 1434 which is also were a double high does exist (1434/1433).
The 200-day MA at 1385 is definitely an important support level as a break of that area will bring strong profit taking and new short positions. Nonetheless, having closed above the 1398/1400 level for the past 6 days in a row also make the 1398/1400 level an important pivot point that if broken would tip the scales to the downside. By the same token, the 1422 level is now very important to the index as a break, and especially a close above that level would likely push the index up to the recent high at 1465. Simply stated, the SPX now is in a trading range of 24 points (1398-1422) in which a break of either of those levels will likely bring direction.
The probabilities still favor the SPX moving up to the 1422/1426 level this coming week but with all the economic reports, as well as the continuing debate among the Democrats and Republicans regarding the Fiscal Cliff, the index is set to make a statement as soon as all the information is out.
The Fiscal Cliff continues to dominate the trading but this coming week the key economic reports for the month (ISM Index and Jobs report) may have an impact if out of line. The market is sensitive to fundamental news of any kind but this week even more so because the ISM Index is due to come out at 50 and that is the pivot point between growth and recession, meaning that if lower than 50 it would mean the economy is shrinking and possibly heading toward a recession. Though the Fiscal Cliff will still dominate in the minds of the traders, it will be difficult for the bulls to make a case for growth if the numbers do not support that scenario.
Technically speaking, the indexes have done enough to support some further upside with the previous year's highs as the objective. Nonetheless, the bulls had a chance to do that this past week and failed, suggesting that the bulls will need fundamental help this coming week to achieve those objectives.
There is a seasonal tendency for the market to rally during the Xmas holiday month and if everything remains "as is" for the next few weeks, the rally will likely occur. Nonetheless, the seasonal scenario has never been more fragile than it is this time around, suggesting that traders are not likely to be aggressive in following the seasonal tendency even if everything remains "as is".
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Stock Analysis/Evaluation
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CHART Outlooks
I looked at over 80 charts this weekend trying to find something that could be played based on charts and within the context of what is happening. I generally found the same thing everywhere, which is a little room to the upside, a little room to the downside and generally bad risk/reward ratios and low probability ratings. In addition, due to the fundamental uncertainty regarding the Fiscal Cliff, this is a market that could go in either direction at the drop of a pin. As such, I was not expecting to find any stocks to mention.
Nonetheless, I did find 1 stock that chart-wise has a strong reason to be sold as well as one other stock that I have been mentioning during the past 5 weeks as a good longer term short trade. Those 2 stocks are the only ones mentioned this week.
SALES
LEN Friday Closing Price - 38.68
LEN has been on a strong uptrend for the past 14 months since the stock got down to 12.14 in October of last year. Nonetheless, the rally started running into decent selling the last week of September and for the past 10 weeks the stock has been trading mostly sideways with rallies encountering decent selling.
As mentioned previously the last time a sell mention on LEN was made, the stock shows strong long-term resistance up at the $40 level that goes all the way back to 2003. For a period of 4 years the $40 level was either major resistance or major support on 4 different occasions. With the stock is a strong overbought condition, having tripled in value of the past year, and with the outlook for the future of the market cloudy to negative, it is unlikely that the stock will have any success establishing itself above $40 at this time.
LEN attempted to break the recent high at 39.33 with a rally this past week to 39.30 but once again the stock failed and turned around to close near the lows of the week and further downside is expected to be seen this coming week. Nonetheless, the 39.30 high has now created a triple top on the chart suggesting even stronger that it will be broken and a rally up above $40 will be seen. Resistance is clearly defined by the major intra-week high made in Jun03 at 40.80, as well as from 2 previous major intra-week lows at 40.35 and at 40.64 seen in Jul04 and Apr07.
To the downside, LEN will find support at 37.09 which does include the 50-day MA, currently at 37.25. Below that level, further intra-week support is found at 36.40. Due to the action seen this past week, it is likely the stock will head down to one of those 2 levels before new buying appears. By the same token, there is no reason chart-wise to believe that the stock will not go above the recent high at 39.33 and up to the $40 level sometime in the next couple of weeks.
It should be mentioned that in Jun03 after the 40.80 high was made, LEN corrected back down to 31.15 just 4 weeks later. It should also be mentioned that the stock continued upward after that correction, up to 66.86 by 2005. Nonetheless, the fundamental situation was much better in 2003/2005 than it is now, meaning that the correction this time around could be stronger than what was seen then. On a shorter term basis, LEN shows some immediate support at 33.92 from a low made a week ago Thursday. Nonetheless, below that level no support of consequence is found until the 200-day MA, currently at 30.15 is reached.
Sales of LEN between 40.00 and 40.65 and using a stop loss at 40.90 and having a 30.15 objective will offer a better than 10-1 risk/reward ratio.
My rating on the trade is a 4.25 (on a scale of 1-5 with 5 being the highest).
KMX Friday Closing Price - 36.26
KMX is a retailer of used cars that for the last 2 years has been in a sideways trading range between $25 and $35 with one minor exception on Feb11 when the stock got up to $37 and one minor exception on Oct11 when the stock got down to $23. The stock has been on a mid-term uptrend since June when the stock got down to 24.77. Last week's high was 36.54.
KMX closed near the highs of the week on Friday and further upside is expected to be seen this coming week with the all-time high at 37.02 as the objective. Nonetheless, due to the uncertainty regarding the Fiscal Cliff, the recent 2-year history of sideways trading, and the lack of aggressive participation in the market by traders, the probabilities favor the stock failing to make new all-time highs and falling back for the next 4-6 weeks.
KMX has been on a "strong" short-term uptrend since November 15th when the stock was at 32.79. Since then, the stock has generated a green close on 9 of the last 11 days as well as a higher low and higher high each and every day and now finds itself in a strong short-term overbought condition. The same is true on the weekly chart as 7 of the last 9 weeks have also been green closes. An all-time high under the present conditions is going to be difficult to achieve so a trading opportunity in shorting KMX is available where a good risk/reward ratio and a decent probability rating are shown.
To the downside, KMX does not show any support until the recent low at 32.79 is reached. Even then, that low did not have any previous history of being support suggesting that if the stock does start to head downward that it will be broken and a drop down to the next level of support at $31, which does include the 50-week MA, will be seen. It should also be mentioned that if the stock gets up near the 37.02 level and fails that a double top will be built which could generate additional selling that would take the stock down to the 2-year support level at $25 which does include the 200-week MA that has been tested successfully on 3 previous occasions since it was first broken back in Sep09.
Sales of KMX between 36.56 and 37.02 and using a stop loss at 37.35 and having a minimum objective of 31.10 will offer at least a 6-1 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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| Monthly & Yearly Portfolio Results
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Closed Trades, Open Positions and Stop Loss Changes
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Status of account for 2007: Profit of $9,758 per 100 shares after losses and commissions were subtracted. Status of account for 2012, as of 11/1 Loss of $1820 using 100 shares per mention (after commissions & losses) Closed out profitable trades for November per 100 shares per mention (after commission)
VCLK (short) $80 AMZN (short) $813 VHC (short) $718 BA (short) $245 FCX (long) $133 AMZN (long) $1554 QCOM (long) $44 Closed positions with increase in equity above last months close.
VLO (long) $95 Total Profit for November, per 100 shares and after commissions $5485 Closed out losing trades for November per 100 shares of each mention (including commission)
AMZN (short) $85
AMZN (short) $5 AMZN (short) $324 Closed positions with decrease in equity below last months close.
ELON (long) $68 Total Loss for November, per 100 shares, including commissions $1053 Open positions in profit per 100 shares per mention as of 11/30
FSLR (long) $631 RHT (long) $260 DD (long) $22 Open positions with increase in equity above last months close. NONE Total $913 Open positions in loss per 100 shares per mention as of 11/30
INTC $10 (long)
Open positions with decrease in equity below last months close.
ELON (long) $64 Total $130 Status of trades for month of November per 100 shares on each mention after losses and commission subtractions.
Profit of $5215
Status of account/portfolio for 2012, as of 11/30Profit of $3315 using 100 shares traded per mention.
DCTH negated the break of weekly close support at 1.44 that occurred 3 weeks ago with a close on Friday at 1.61. The negation suggests that the 1.01 low (1.26 on a weekly closing basis) is the low of the move and that the stock will now be trading sideways at the very least. No buy signal has yet been given in any of the charts as a daily close above 1.71 is needed for a minor buy signal to be given. The stock did get up to the 50-day MA on Friday, currently at 1.63, and the stock did back off to close near the lows of the day suggesting the first course of action for this coming week will be to the downside. Support is now again found at 1.40 but the probabilities do favor a drop back down to that level before consideration can be given to further upside. Probabilities favor the stock trading between 1.40 and 2.24 for the next few weeks or even couple of months.
FCEL continues to trade sideways with a slight negative bias. Nonetheless, the .80-.84 daily and weekly closing support has held and there is no reason to think that support will be broken. By the same token, no buying interest has been seen even though the general market has been supportive. Further sideways trading between .84 and .96 is likely to continue for now. ELON spiked up this past week and closed near the highs of the week suggesting that further upside will be seen this coming week. Nonetheless, the break of the weekly close support at 3.23 that occurred 5 weeks ago has not yet been negated so this rally must be considered as simply a short-covering. On the other side of the coin, the stock did close 1 point above the daily close breakdown point at 2.98 and if the bulls can generate a green close on Monday it would give a failure to follow through signal on the daily chart that would suggest further strength might be seen. Resistance will be found at the weekly close breakdown point at 3.23, which is further strengthened by the fact the 50-day MA is currently at that level. Nonetheless, intra-week resistance is not found until 3.43 and it is considered very minor. No retest of the lows has yet been seen but no signal has been given yet that one is forthcoming immediately. Intra-week support is found at 2.85 and at 2.50. Probabilities favor the stock running up to 3.23 and then a drop back down to 2.84. FSLR generated a breakout buy signal on the weekly chart when the stock was able to close convincingly above the high weekly close for the last 8 months at 24.77, as well as above the 50-week MA, currently at $24. The stock closed near the highs of the week and further upside is expected to be seen this coming week with the $30 level as the minimum objective. The daily chart also showed the same breakout above the high daily close for the last 8 months at 25.70, confirming the fact that this was a true breakout. Support on a daily closing basis will be found at 25.70. On an intra-week basis, support is now found at 25.23. No resistance above is found until 29.63 and even then that resistance is minor. Probabilities favor a 26.00 to 29.63 trading range this coming week. RHT generated a red close on Friday making the previous weeks' close at 49.74 into a successful retest of the resistance at $50. By the same token, the stock did get above last week's intra-week high and closed near the highs of the week suggesting that further upside intra-week will be seen. The stock has been able to stay above the 100-week MA, currently at 48.40, for the past 3 weeks in spite of being under selling pressure. If the stock is able to get above the top of the demilitarized zone at 50.30 this coming week, a rally up to the 50-week MA, currently at 53.05 is likely to be seen. Intra-week resistance of consequence is found between 51.86 and 53.42. The stock did close near the lows of the day on Friday and a drop down to 48.25 is likely to be seen at some point this week. Possible trading range for the week could be something like 48.25 to 50.61. DD confirmed the successful retest of the 200-week MA, currently at 42.25, with a second green weekly close in a row. The stock did close on the lows of the day on Friday and further downside is likely to be seen on Monday. Intra-week support is found at 42.63 that should not be broken if the recent short-term uptrend is to continue. Stock has been showing higher lows and higher highs for the last 10 days and there is no reason to believe that will not continue. The most recent high is at 43.86 and the most recent low is at 42.63. No resistance of consequence is found until the 44.77-45.49 area is reached. Probabilities favor continued upside but still within a limited basis.
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1) ELON - Averaged long at 8.71 (2 mentions). No stop loss at present. Stock closed on Friday at 2.99.
2) ELON - Liquidated at 2.77. Purchased at 2.73. Profit on the trade of $4 per 100 shares minus commissions.
3) FCEL - Averaged long at 1.34 (5 mentions). No stop loss at present. Stock closed on Friday at .86.
4) RMBS - Liquidated at 4.84. Averaged long at 4.805. Profit on the trade of $7 per 100 shares (2 mentions) minus commissions.
5) DCTH - Averaged long at 4.14 (2 mentions). No stop loss at present. Stock closed on Friday at 1.61.
6) RHT - Purchased at 47.96. Averaged long at 48.10 (2 mentions). Stop loss now at 47.67. Stock closed on Friday at 49.40.
7) DD - Purchased at 42.92. Stop loss now at 42.53. Stock closed on Friday at 43.13.
8) FSLR - Purchased at 26.48 and at 25.28. Averaged long at 24.885 (3 mentions). Stop loss now at 24.67. Stock closed on Friday at 26.99.
9) QCOM - Liquidated longs at 62.25. Purchased at 61.67. Profit on the trade of $58 per 100 shares minus commissions.
10) AMZN - Shorted at 246.69. Covered shorts at 249.79. Loss on the trade of $310 per 100 shares plus commissions.
11) DCTH - Purchased at 1.87. No stop loss at present. Stock closed on Friday at 1.61
12) INTC - Purchased at 19.66. Stop loss at 19.13. Stock closed on Friday at 19.56.
Previous Newsletters
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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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