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Issue #319 
Mar 24, 2013 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Traders Await Further Economic News due out this Week.
DOW Friday closing price - 14512
The DOW generated a reversal this past week making a new all-time intra-week high but then closing in the red. Unfortunately for the bears the red close was in the upper half of the week's trading range and then only by 2 points, meaning that it might just have been a pause rather than a reversal and that the rally will continue. With quite a few important economic reports due out this coming week, as well as resolution of the banking crisis in Cypress, it is likely direction for the index will be decided fundamentally rather than chart-wise.
On the intra-week chart, the DOW did build a double top at 14539/14546 as well as a double low at 14382/14383 this past week and a break of either of those levels is likely to generate follow through. The index did close on the high of the day on Friday and follow through to the upside is likely to be seen on Monday, suggesting the double top is the most likely to get broken first.
On a weekly closing basis, there is no resistance above. On a daily closing basis, resistance is minor at 14539. On a weekly closing basis, support is minor at 14093 and again at 13981. Below that, there is no support until minor support is found at 12938. Decent to strong support is now found at 12588. On a daily closing basis, support is very minor at 14452 and at 14421, minor between 13970 and 14030, minor to decent between 13860/13880 and decent at 13784.
The DOW is now likely in the same kind of a pause like the one seen 7 weeks ago in which the index traded sideways the first couple of weeks in a 170 point trading range which then expanded on each side into a 300 point trading range before breaking out 3 weeks ago and generating this latest rally. The pause being seen is eerily similar to the previous one that lasted 5 weeks and at this moment the traders must be expecting the trading pattern and end result will be the same. If that scenario occurs, the index will break the recent highs (double top) this coming week but not by much and trade sideways with a very slight supportive tinge the rest of the week.
The traders in the DOW are facing quite a few economic reports of some consequence this week with Durable Goods coming out on Tuesday and 3rd estimate of GDP on Thursday. The reports are already expected to be much better than last month's reports and therefore if any surprises are seen they are likely to be to the downside.
As far as the charts are concerned, if the DOW breaks below the double low at 14382/14383 there is no established support until the 50-day MA is reached, currently at 14030. Possible "general" support will be found at 14300 but it is not something the bulls can depend on, especially since the index continues to be in an overbought condition and any break of support could generate a decent profit taking binge. If the index breaks to the upside, the probabilities do not favor a strong rally as economic conditions will keep a limiting lid on all rallies from here on in.
Chart-wise, probabilities favor the DOW trading in a narrow trading range with a slight upward bias. Fundamentally, though, this coming week will have enough economic news that charts will likely take a back seat.
NASDAQ Friday closing price - 3245
The NASDAQ generated a red weekly close on Friday confirming that the previous week's high at 3260 was in fact a successful retest of the 1-year up-trending channel that has been mentioned in other newsletters. The successful test of the line now makes the channel a 3-point channel increasing its validity and strength. By the same token, the index did close near the highs of the week and further upside is expected to be seen this coming week with either a successful retest of the 3260 high (establishing on the chart a top) or another retest of the channel (now currently at 3265) which would simply delay the top formation by at least 1 week.
The NASDAQ was supported this past week by a strong rally in AAPL, the #1 stock in the index. Nonetheless, the stock has reached an area of resistance between the 50-day MA, currently at 460.00, and a previous high of some consequence at 465.73, suggesting that further upside of consequence is not likely to be seen (stock got up to 462.10 this past week).
On a weekly closing basis, minor resistance is found at 3249. Above that level, there no resistance until minor resistance is found again at 3451 and at 3483. On a daily closing basis, there is minor resistance at 3254 and minor to perhaps decent at 3258. On a weekly closing basis, support is minor 3183/3193 and minor again at 3163. Below that, resistance is minor to decent at 3000 and decent at 2960. On a daily closing basis, support is minor at 3229 and minor to perhaps decent at 3222. Below that there is minor support between 3183 and 3200, minor to decent at 3131 and decent to strong at 3116.
The NASDAQ did give a confirmed but small sell signal on the daily chart this past week, having closed on Tuesday below a previous low daily close at 3242, rallying on Wednesday to generate a successful retest of the 3258 high daily close with a close at 3254 and then generating another red lower low daily close on Thursday with a close at 3222. With the fact that the index stopped at the channel line at 3260, the sell signals, though small, do suggest the index has found a top, at least on a daily closing basis.
It should be noted that the NASDAQ did test the 3200 level of support successfully this past week with a drop to 3205 on Tuesday. The drop was expected to be seen as the index does show a second runaway gap between 3182 and 3200 that was likely to be tested but should not be closed if the index is to head higher, above the now established channel line.
The successful retest of the 3200 level and close near the highs of the week does give the bulls all the chart ammunition they need to generate further upside as other than the channel mentioned there is no resistance until the 3480/3500 level is reached. As such, this coming week could end up being a very important chart week for the index. A break above the channel, now at 3265, would be considered a strong positive, while a failure here and a break below 3200/3205 would suggest a top is formed and a correction of consequence will occur. With the index now trading in a clearly defined 60-65 point trading range and a decent amount of important economic reports due out, the probabilities do favor some resolution being seen this coming week.
Based on the action in the NASDAQ seen this past week and the well-defined channel, as well as the overbought condition, the probabilities slightly favor the bears.
SPX Friday closing price - 1557
The SPX generated a red close on Friday making last week's close at 1560 a successful retest of the all-time high weekly close at 1561. Unfortunately, the red close by only 3 points in conjunction with the index closing near the highs of the week does leave the door wide open for the bulls to negate the red close and make a new all-time high weekly close next Friday if the economic reports due out this week continue to be positive.
The SPX, like with the other indexes, did give a small confirmed sell signal on the daily chart this week having broken 2 previous low daily closes at 1552 and 1548 with closes this past week at 1548 and at 1545. In addition, the stock now shows a successful retest of the 1563 daily close with a close on Wednesday at 1558. Unfortunately, none of these sell signals are strongly convincing as they are all in a small 15 point trading range which can be easily overturned with more positive economic news.
On a weekly closing basis, resistance is major at 1561. On a daily closing basis, minor resistance is found at 1558 and at 1563. Above that level, no resistance is found for the last 12 months. On a weekly closing basis, support is minor at 1515, and minor to perhaps decent between 1500 and 1503. Below that, resistance is decent at 1440 and decent to perhaps strong at 1402. On a daily closing basis, support is minor at 1548 and at 1545. Below that, very minor support is found at 1530 and minor to perhaps decent between 1495 and 1502. Decent support is found at 1487.
The SPX, like the DOW, also shows the index had a pause/sideways trading period 7 weeks ago. Nonetheless, unlike the DOW the sideways trading period 7 weeks ago had a definite positive bias whereas the sideways trading period seen this past week had a negative bias, suggesting things may have changed. On the other side of the coin, more selling resistance had to be expected to be seen at the all-time high at 1561 than at the 1501/1530 area where the index was trading at 7 weeks ago. Nonetheless, it does mean the bulls will need more fundamental help this time than before to take the index higher.
To the downside, the SPX did generate a spike 1538 low on Tuesday that was tested successfully on Thursday with a 1543 low and a green close. The 1538/1543 support area is going to be very important this coming week as a break of that level would suggest the all-time high level will not be broken and that the 1495/1500 level of support would be tested.
The probabilities do favor the SPX heading higher as the DOW has already made new all-time highs. In addition, the index does show a bullish flag formation that does offer a 1616 objective should the 1563 high get broken. Nonetheless, this is a week that is likely to be dependent on fundamental news with the charts taking a back seat.
The indexes have paused at chart levels that are important and pivotal. The momentum to the upside seen recently has stopped as the traders await further economic news before deciding what to do. The Cypress situation, though not of major importance, will likely be decided by Monday and could set a precedent that could end up deciding the fate of the Euro. In addition, there are quite a few economic reports due out this week that could further support the upside or give reasons why profit taking should be seen.
Durable Goods, 20-city Case/Schiller index, Consumer Confidence, and New Home sales are due out on Tuesday, 3rd estimate of GDP, Chicago PMI, and weekly Initial Claims on Thursday, and Personal Income and Spending on Friday. It should be mentioned that with the exception of Consumer Confidence and New Home Sales, each report is expected to come out better than last month's with Durable Goods leading the way with expectations of it coming out at +5.0% versus last month's -4.9%. The higher expectations do suggest that the bulls are more at risk of a receiving a negative surprise than the bears of receiving a positive surprise.
It is also important to note that the SPX and the NASDAQ are at chart levels of important resistance and the bulls will need positive help to break them. As such, the probabilities for this week slightly favor the bears.
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Stock Analysis/Evaluation
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CHART Outlooks
The market is facing an important economic fundamental week in which decisions regarding the recent euphoric up-trend are likely to be made, based on the reports due out this coming week. The probabilities favor a correction in the market since upside objective have been reached but the market has been far from normal and the traders are still showing strong skepticism and a reluctance to sell. As such, shorting any stocks has to be done with good individual reasons for doing it, and even then with close stop loss orders.
There are 2 mentions this week with one of them being chart oriented. It is a stock that even within the concept of higher prices will still offer a good risk/reward ratio to the downside with decent probability numbers. The other stock is purchase but mostly dependent on fundamental issues which do seem to favor the stock heading higher, at least for the next 4-5 weeks.
As stated before, if the economic reports scheduled for this week have any kind of catalytic effect on the market, further mentions will be made on the message board.
PURCHASES
AVEO Friday Closing Price - 7.50
AVEO is not a stock that I have been following but in reading a comment on DCTH today, the stock was mentioned in a very positive light and upon looking at the chart the stock does show an appealing chart formation that could be positive. The company is not yet profitable and has been bleeding cash during the past couple of years, which in turn has kept the stock low in price, having dropped from a high of 21.55 seen in Jul11 to the recent low 5 months ago at 5.80. Nonetheless, like DCTH, the company is going to have a committee meeting on May 2nd from which a recommendation can be given to the FDA to approve the drug (Tivozanib for treatment of renal cancer) or not. A victory over the FDA would likely help to validate the method of the drug in a rather big market, and would add to the pop in share price likely upon an approval being issued.
AVEO tested the 5.80 low successfully 3 weeks ago with a drop down to 6.35 and 2 green weekly closes thereafter. In addition, the stock closed above the 50-day MA, currently at 7.43, for the first time in the last 6 weeks on Thursday and confirmed the break of the line on Friday with a second close above the line. It should also be noted that since October 19th of last year the 7.50 level has been an important pivot point having seen that level be the high or low on more than 10 occasions during that period of time. With the stock closing at 7.50 on Friday and the committee meeting for FDA approval just 5 weeks away, the probabilities favor the stock moving higher.
To the upside, AVEO shows minor intra-week resistance between 7.73 and 7.91 but the probabilities favor that level breaking since the stock now shows a triple high in that area. Additional minor to perhaps decent resistance is found between 8.17 and 8.24. Decent resistance and a level that if broken would signal a trend change is at 8.94, which is also where the 200-day MA will be at in a few days. A break above that level would likely thrust the stock up to the 11.00 level where gap resistance is found.
To the downside, AVEO shows minor support at 7.24 and then nothing until decent support is found at the successful retest of the lows at 6.35. Nonetheless, it should also be mentioned that the stock is presently showing a bullish flag formation with the flagpole being the run up from 6.35 to 7.73/7.80. A break above Friday's high of 7.80 would offer an 8.69 objective.
AVEO is more of a fundamental play based on FDA approval of a drug in a big market than a chart play. Nonetheless, the stock has now built a credible bottom formation from which chartists can buy with some degree of confidence. In addition, like DCTH, the stock has been through all the clinical trials successfully and is at the last stage of approval and should it get the nod, the stock could easily go back up to the $13 level if not all the way up to the all-time high at $21.
It is not expected that AVEO will be moving up strongly until after the May 2nd committee meeting but the chart does suggest there will be an upward bias on expectations the approval will occur, likely targeting the $10 level which is an important psychological pivot point resistance/support.
Purchases of AVEO at Friday's close at 7.50 and using a sensitive stop loss below the flag formation at 7.14 and having a short-term target of at least the 200-day MA, currently at 9.00, will offer a 4-1 risk/reward ratio.
My rating on the trade is 2.75 (on a scale of 1-5 with 5 being the highest).
SALES
WFC Friday Closing Price - 37.20
Over the past 10 years, WFC has proven to be more of a range bound stock than a trending stock, at least on a longer term basis, as the stock has seen at least 3 periods over the last 10 years where after a 16-18 month run up in price the stock has gone sideways for period of anywhere from 1-2 years in trading ranges of anywhere from $5 to $10.
For the last 17 months WFC has been in an up-trend that has taken the stock from a low of 22.58 to a high seen 2 weeks ago at 38.20. Nonetheless, the stock did show signs this past week that a top may have been reached inasmuch as the stock reached a decent to strong level of resistance from Sep07 at the $38 level with a rally up to 38.20, followed with a close on the highs of the week suggesting further upside would be seen last week. The follow through expected did not occur and the stock had an inside week and a red close, strongly suggesting that there is decent selling at that price.
WFC has been extremely sensitive to overbought oscillators like RSI when they get above 80 as 5 of the last 6 times when the RSI has gotten above 80, the stock has had a strong correction starting either the week of the oscillator got above 80 or a week or two later at most. It should be mentioned that the RSI hit 81 the previous week after the stock closed on the highs of the week at 38.20 and last week the stock failed to follow through to the upside generating a red close and on the lows of the week, suggesting further downside will be seen this coming week. That action, especially with the $38 resistance level being seen and the indexes reaching their upside objectives, does suggest the stock will be heading lower from here.
It should be mentioned that on the last 3 WFC high weekly closes seen in Apr10, Feb11, and Sep12, the stock closed on or near the highs of the week and did not follow through finishing the following week with a red close and near the lows of the week. On those 3 occasions, the stock went on to correct $11, $12, and $5 respectively. Having seen the same thing happen the past 2 weeks, and especially at a strong resistance level from 2007, the probabilities seem to favor a correction starting. It should be mentioned that the correction from the 37.99 high seen in Sep07, generated a downtrend that did not get reversed for 10 months and did see a low of 20.46.
To the upside, the high seen 2 weeks ago at 38.20 must be considered a decent resistance level now with the red close this past week. If in fact the stock has found a top, the 38.20 level should not be broken, or if broken not by more that 5-10 points.
To the downside, WFC does not show any support on the weekly chart until the 50-week MA, currently at 34.10 is reached. Even then, the stronger support based on previous intra-week lows does not show up until the 32.66 to 33.01 area is reached. The strongest support and unlikely to get broken, is down between 29.60 and 30.00. Reaching that level is a decent possibility if the indexes do get into a correction phase. Keeping in mind that the 3 most recent corrections showed $11, $12, and $5, it can be assumed that even in this strong bullish market that a drop down to the $33 could be seen.
Sales of WFC between 37.33 and 37.93 and using a stop loss at 38.35 and having an objective of 33.00 will offer a 4-1 risk/reward ratio.
My rating on the trade is a 3.25 (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 inside week but a green close suggesting the 1.60 level is being supported at this time. It was expected the stock would head lower this past week after a negative reversal and close on the lows of the week at 1.63 the previous Friday. Nonetheless, the selling did not materialize and the bulls were able to generate enough buying to prevent follow through to the downside from being seen. Unfortunately, the buying was not sufficient to generate a close above the 50-week MA, currently at 1.75, leaving the traders awaiting further news before going forward. On a negative note, the stock should have been moving higher as the June date for approval from the FDA nears but that has not been the case and that has to be of concern to the bulls. This is a comment from Seeking Alpha on a March 22nd comment: "A Committee meeting date for Delcath Systems (DCTH) is scheduled for May 2nd. This committee vote will be very important for their surgical procedure Melblez. It is supposed to help fight cancer. I do believe that the run-up has already begun, as there has through the last month been a pop in DCTH's share price. However, it might not yet be over. Word of caution though is that I would make sure that I am out before this committee date, as I do not anticipate it going very well for DCTH". Such a comment does suggest that some caution should be used in trading the stock at this time. A rally above last week's high at 1.81 in conjunction with a close above 1.75 would be considered a positive. A break and close below 1.60 does suggest the 1.40 level will be reached. FCEL broke the weekly close support at 1.00 on Friday and now finds itself once again under the same kind of selling pressure that has been seen during the past year. The stock has an open gap between .92 and 93.5 that now has a high probability of being closed. The stock does have important daily and weekly closing support at 91.5 (.89 cent intra-week) that now needs to hold in order to keep the stock in a sideways trading mode. Resistance is now decent at 1.00 on both the daily and weekly closing charts. A close above 1.00 would be a decent positive. Probabilities favor the stock closing the gap and trading between .92 and 1.00 for the week. ELON had an uneventful week having closed 2 points above last week's close at the 2.50 pivot point. On the daily closing chart, support is now important at 2.44 and resistance at 2.64. A break above or below either one of those levels is likely to generate further movement in that direction, perhaps of consequence. The stock seems to be on a bottom building scenario and therefore the probabilities favor the upside as a close below 2.44 would put the stock at risk or re-starting the downtrend and based on what the market has done it is unlikely that will happen. SIRI had an uneventful week on the weekly chart but on the daily chart the stock did generate a successful retest of the 12-week daily closing low at 3.03 with a close on Tuesday at 3.06 followed by 3 green closes. Nonetheless, the stock has still not shown enough buying to close above the 50-day MA, currently at 3.14, which in turn would probably bring about new buying and a test of the double top on the daily closing chart at 3.23/3.24. The stock is presently trading in limbo as the traders await further news. The probabilities slightly favor the upside but only mildly. LEN made a new 68-month intra-week high but the bulls were unable to generate a new 68-month weekly closing high when the stock sold off the last 2 days of the week to close in the lower half of the week's trading range and below the previous high weekly close at 43.07. The stock did close near the lows of the day on Friday and further downside is likely to be seen this coming week with the 50-day MA, currently at 40.80, as the objective. Nonetheless, the stock was able to stay above the established pivot point at 42.00 with a close on Friday at 42.12, suggesting the bulls still have the upper hand. A rally above Friday's high at 42.59 would now be a positive. Resistance is found at 43.22 and if broken again would suggest further upside will be seen. A drop back down to the $40 demilitarized zone would weaken the chart slightly. A close below 39.27 would offer a strong failure to follow through signal that could suggest that further downside would be seen. The Existing Home Sales report on Tuesday is likely to have some effect on the stock. AXP had an uneventful inside week but did keep the uptrend intact having generated a green weekly close by 13 points. The stock closed near the highs of the day/week on Friday and further upside is not only expected to be seen this coming week but the up-trend is likely to continue. The stock is into new all-time highs and unless the stock generates a weekly close below 65.06, the up-trend will go with at least the $70 level as the next objective. An intra-week break below 64.70 will begin to put doubts in the minds of the traders. Probabilities favor the upside and unless the indexes can start heading lower at the beginning of the week, the stock remains a must liquidate trade. QCOM generated a reversal week having made a new 6-week low and a green close. The stock closed near the highs of the week and further upside above last week's high at 66.12 is expected to be seen. The double top at 68.87/68.50 needs to be tested and it is likely this coming week that will happen with a rally up to 67.44 being probable. The stock did close for the 2nd time in the last 3 weeks above the 50-day MA, currently at 65.60 and a rally above Friday's high at 66.05 will likely take the stock up an additional $1.40 cents. Stops should be placed at 66.15 but the stock should then be re-sold on a rally to 67.44. A break below 65.36 would re-weaken the chart and possibly prevent the stock from reaching its upside objective. Probabilities favor the bulls, at least for this week. CIT generated a red weekly close making the previous week's close at 44.58 into a successful test of the decent weekly close resistance at 44.74. Intra-week drops down to the 42.00/42.38 are now likely to be seen. The stock did generate a possible breakaway gap on Monday between 44.50 and 44.39 and if a second gap is seen it would be strongly negative as it would likely be considered a runaway gap. A drop below Monday's low at 43.37 would likely cause the stock to drop down to at least the 50-day MA, currently at 42.30, the daily chart does suggest further downside is the most probable but the weekly chart continues to be bullish, meaning that mixed signals are being given. With this being a financial stock, what the SPX does this week will likely impact what the stock does as well. KMX did not follow through on last week's close on the highs of the week and generated a red close and on the lows of the week suggesting further downside will be seen this coming week. The $40 demilitarized zone is support with the 50-day MA, currently at 39.55, adding strength to that level. Any daily close below 39.70 would be considered a failure to follow through signal suggesting further downside would be seen. The stock is likely to get down to the $40 level this coming week and likely on Monday and what it does there will be important. XOM had another uneventful week having generated a weekly close (the 5th in a row) in a very narrow weekly closing trading range between 89.97 and 89.43 (closed at 89.29). The stock has been trading between 87.70 and 90.19 for the past 5 weeks and any action "within" that range is meaningless. Nonetheless, the stock generated a green close on Friday making Thursday's close at 89.16 into a successful test of the 200-day MA, currently at that price. The stock closed on the highs of the week suggesting the first course of action on Monday will be to the upside with the $90 as the objective. A break above 90.19 would be considered a positive. With all the scheduled economic reports due out this week, there is a good chance that a breakout or breakdown will occur. NFLX had another uneventful week having closed only $3 below the previous week's close but still above a weekly close support of some consequence at 179.88. The stock closed near the lows of the week suggesting the first course of action will be to the downside. The stock has built a chart formation with multiple lows between 174.80 and 179.75 that is strongly leaning toward a downward break with the 50-day MA, currently at 166.00 as the first objective. Decent resistance is found at 192.31 and strong resistance at 197.62. A rally above 192.31 would suggest new multi-year highs would be made. TRW generated a strong down move this past week having spiked down and closing on the lows of the week, suggesting further downside will be seen. Intra-week support is found at 53.15, 51.38 and at 48.24. Minimum downside objective should be the 100-day MA, currently at 54.25. Stop loss orders should now be at 59.86 but in reality the stock should not go above Friday's high at 57.73 unless a downside objective is reached and short-covering occurs. In looking at the weekly chart, no support is found until the $50 level and if the stock is able to close below the 100-day MA on Monday, the $50 level would become the main objective.
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1) ELON - Averaged long at 8.71 (2 mentions). No stop loss at present. Stock closed on Friday at 2.50.
2) XOM - Shorted at 90.08. Stop loss at 90.47. Stock closed on Friday at 89.29.
3) FCEL - Averaged long at 1.34 (5 mentions). No stop loss at present. Stock closed on Friday at .96.
4) CIT - Shorted at 44.09 and 43.87. Averaged short at 43.713 (3 mentions). Stop loss now at 44.88. Stock closed on Friday at 43.76.
5) DCTH - Averaged long at 3.383 (3 mentions). No stop loss at present. Stock closed on Friday at 1.69.
6) QCOM - Shorted at 65.87. Averaged short at 66.435 (2 mentions). Stop loss now at 66.15. Stock closed on Friday at 65.92.
7) NFLX - Shorted at 183.23. Covers shorts at 180.63. Profit on the trade of $230 per 100 shares minus commissions.
8) LEN - Purchased at 43.00. Liquidated at 42.54. Loss on the trade of $46 per 100 shares plus commissions.
9) DDM - Averaged short at 83.985 (2 mentions). No stop loss at present. Stock closed on Friday at 87.19.
10) LEN - Averaged short at 41.365 (2 mentions). Stop loss now at 44.00. Stock closed on Friday at 42.12.
11) AXP - Averaged short at 61.055 (2 mentions). No stop loss at present. Stock closed on Friday at 66.22.
12) KMX - Shorted at 39.71. Stop loss now at 42.04. Stock closed on Friday at 40.35.
13) SIRI - Purchased at 3.08. Averaged long at 3.055. Stop loss at 2.82. Stock closed on Friday at 3.10.
14) TRW - Shorted at 59.14. Stop loss at at 59.86. Stock closed on Friday at 55.51.
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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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