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Issue #356 
December 22, 2013 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls Given Ammunition, Xmas Rally in Process!
DOW Friday closing price - 16221
The DOW had an impressive week having generated a 532 point rally to close at new all-time highs and on the highs of the week, suggesting that further gains will be seen next week. The index had the smallest and shortest correction (471 points and 2 weeks) leading to new highs that has been seen since 2007, likely meaning that the uptrend is accelerating but also likely meaning that the bears increasingly are stepping aside and common sense suggests that a rally cannot be maintained for long when the risk factor increases exponentially.
The DOW has no resistance above except the "general" resistance found 16300 (300 points above a major level, such as 16000 is). It can be argued that there is resistance in the "vicinity" of 16250 as that is the area where a channel line is drawn using the past 2 all-time highs seen in the year 2000 at 11750 and in 2007 at 14198. Nonetheless, there are no economic reports of consequence scheduled for the next 3 weeks and with the chart resistance points being speculative it is difficult to imagine that the few bears remaining, and during the Xmas holiday period that offers even less participation by traders, can stop the bulls from treading heavily over them.
On a weekly closing basis, there is no resistance above. On a daily closing basis, there is no resistance above. On a weekly closing basis, support is minor 15755, minor again at 15072 and decent to perhaps strong at 14799/14810. On a daily closing basis, very minor support is found at 16097, minor at 15821 and decent at 15739.
The DOW accomplished 90% of the rally on 1 day this past week after the Fed announcement that the tapering of the Stimulus program was beginning. The announcement could have been taken as a negative but after the initial move down of 115 points lasting less than 5 minutes the bulls were able to turn the index turned around and generate a rally of 364 points within 2 hours that caught the bears by surprise and needing to short cover in a panicked way. The rally was then further supported on Friday when the GDP report came out better than expected, supporting the idea that the economy is well on its way to health.
To the upside, the DOW has no resistance above except general resistance at 16300 (300 points above a major level) and speculative resistance "around" 16250 (2-point channel line on the monthly chart using the 2000 and 2007 highs). Nonetheless, the bears cannot depend on those resistance levels holding up due to the fact that momentum is strong, holiday period trading is occurring where less participation is seen, lack of fundamental ammunition with which to make a case for the downside, and mostly because those levels are general and speculative and difficult to have faith on.
To the downside, the DOW shows minor but likely indicative support at 16097 (previous all-time high daily close), as well as at Thursday's low at 16120 that represents the most recent after-the-news intra-week low (seen Thursday). Further but mostly general support is found at the 16000 demilitarized zone (15970-16030), minor support is found at 15865, minor to decent at 15793 and important decent support at 15703. Any support levels broken at this time would be seen as a failure to follow through, especially since the bulls have the bears on-the-run and without any fundamental reason to stop and fight back.
Past history has shown that trading in the DOW in the last 2 weeks of the year has been mostly up though usually limited. Last week had impacting information that brought about a strong reaction but it is not expected that reaction will continue for the next couple of weeks with the strength that was seen. The bulls need to maintain the index above the breakout levels but don't need to make "more of a statement" than what was made last week, just maintain it. As such, expected the DOW to trade higher but not likely much above 16300-16330. To the downside, it is likely that the 16097 level will act a support, suggesting the index could stay within a 200 point trading range for the rest of the year.
Traders in the DOW will now start looking to January and its economic reports as well as to the beginning of the next Debt Ceiling debate.
NASDAQ Friday closing price - 4104
The NASDAQ had a positive reversal week this past week having made a new 4-week low and then closing above the previous week's high and making a new 13-year intra-week and weekly closing high in the process. The index was able to clearly break above the 4062 minor weekly closing resistance seen 3 weeks ago as well as the weekly close resistance seen in December 1999 at 4069, likely meaning that further upside will be seen with either the intra-week high seen the first week of January 2000 at 4192 or the intra-week high seen in July 2000 at 4289 (4249 weekly close).
The NASDAQ was once again the leader of the indexes to the upside this past week and with 4 of its 6 main stocks (AMZN, BIDU, NFLX, GOOG) making new all-time weekly closing highs this past week as well, it is safe to assume that the uptrend will continue until the next resistance levels in the index are reached. Nonetheless, it must be stated that the resistance levels mentioned above are of great consequence and strength, also suggesting that further upside above those levels is not likely to happen anytime soon.
On a weekly closing basis, decent to perhaps strong resistance is found between 4234 and 4246. On a daily closing basis, there is no resistance above for the past 12 months. On a weekly closing basis, support is minor but indicative at 4000, very minor at 3919 and at 3791, and decent at 3589. On a daily closing basis, support is minor at 4068, minor to perhaps decent at 3993, and minor at 3985. Below that level, support is decent at 3857.
The NASDAQ has now accomplished making the 4000 level into an important support/pivot point having tested that level successfully over the past few weeks and now resuming the uptrend. It is unlikely that the 4000 level will be broken to the downside before further upside, likely to be the 4300 level intra-week, is seen. Nonetheless, the 4300 level represents the first truly strong resistance area found since 2800 was broken in February 2012, meaning that the probabilities of going above that level any time soon are minimal at best. The probabilities now favor the index trading within the "general" support/resistance levels between 3700 and 4300 for at least the next 3-6 months if not longer. By the same token, the probabilities do favor the upside of that trading range being seen first.
To the upside, the NASDAQ shows minor resistance at 4192, decent resistance at 4259 and decent to strong resistance between 4289 and 4303. To the downside, the index shows support at the 4000 demilitarized zone (3970-4030) which is also supported by 50-day MA that is currently at 3970. Further support is found at 3911 and at 3855, which if broken would likely cause the index to drop down to the 200-week MA, currently at 3620 but moving up fast. It should be mentioned that the 50-day MA has been tested successfully 4 times during the past year and only broken the 2 times when the index dropped down to the 100-day MA. With the fundamentals and momentum being strong at this time, it is unlikely that the line will be tested or more unlikely to be broken until some selling of importance is seen.
The NASDAQ has open air above for at least another 88 points (to 4192) and with the index being the strong one on Friday and matching 1-on-1 with the DOW, it is certainly possible that both indexes will rally the same amount again this week with the DOW reaching 16300 as the index reaches 4192. By the same token, general selling interest and likely of consequence will start to make itself known as those levels are reached.
The NASDAQ is likely to continue to lead the indexes this week.
SPX Friday closing price - 1818
The SPX has now clearly surpassed the general 15% rally-above-the-previous-all-time-high formula by closing above 1805 and getting intra-week above 1812. In addition, the bullish flag formation that offered the same objective has now also been surpassed, meaning that the bears have no formulaic chart level right now they can gather around to defend. As such, further upside is clearly on the horizon with probably the objectives of the other indexes being the determining factor as to how high the SPX can go.
By the same token, the previous 2 all-time highs in the SPX were 1553 and 1576, likely suggesting that the mid to 2/3rds point of the 1800-1900 trading range is likely to draw some selling interest. With the DOW likely to find some selling 80-110 points higher, it could be surmised that the SPX will draw some selling 20-30 points higher, which would put it in the general vicinity of the 1850-1875 area.
On a weekly closing basis, there is resistance above. On a daily closing basis, there is no resistance above. On a weekly closing basis, there is minor to perhaps decent support at 1775, minor support at 1690 and minor again at 1667. On a daily closing basis, support is very minor at 1808, minor at 1885 and 1881, and minor to perhaps decent at 1775. Below that level, there is minor but indicative support at 1747.
The SPX, as with the NASDAQ, generated a positive reversal week having made a new 5-week low and then making and closing in a new all-time high, suggesting a resumption of the uptrend. After 5-weeks of sideways trading between 1768 and 1813 (45 point trading range), the index should now see a rally of the same amount, up to 1858 before any selling of consequence is seen.
It should be mentioned that the low on Wednesday after the FOMC announcement was made was exactly at the 50-day MA, currently then at 1767 now at 1776, and having held that line the bulls simply got "back on the horse and rode into the sunset", thus keeping the SPX uptrend intact. It should also be mentioned that the differential between the 50 and 100 day MA, which have been the 2 lines of importance throughout the year, is now at the widest berth of the year, likely meaning that acceleration of the uptrend is occurring, which in turn likely means this could be the last rally inasmuch as acceleration after a long period of uptrend suggests exhaustion is ready to occur.
The SPX is once again into new all-time highs and now without a clear upside objective to shoot for. With no objective to the upside, the traders are likely to be watching failures rather than successes, meaning that if the index now starts trading below 1800 and/or closing below the previous high daily close at 1808, that the traders will take notice. A close below the 50-day MA would now be a clear sign that the upside is over, at least for the short term. The probabilities do not favor a negative scenario but traders will be sensitive to weakness now that the uptrend has resumed.
The market continues to receive positive news regarding recovery and growth. Even the tapering of the Fed Stimulus program announced this past week suggests that things are better as the Fed would not be tapering if that was not the case. In addition, the Fed sweetened the pot by stating for the first time that low interest rates are likely to remain past 2014 and into 2015 even if the unemployment drops below the target of 6.5%, meaning the bulls will continue to have "their cake and eat it too".
The only cause for concern now is the fact that most "everyone" seems to be in agreement that further upside is likely to be seen. Throughout the ages whenever there has been a high percentage of traders on the same side of the fence, it is usually is the time to go the other way. By the same token until support levels break, momentum and greed will carry the market higher until it doesn't go any higher. Determining when that is to occur is the big question. Probabilities favor further upside during the next couple of weeks as the Xmas holiday period usually has few surprises due to low participation and lack of tangible economic news of consequence. By the same token and for the same reasons, the upside is likely to be limited and small.
I do want to mention one dichotomy that is occurring that is likely indicative, though not necessarily timing-wise. The VIX broke out of a 2-month downtrend the first week of December and in spite of the impressive and strong rally in the general market that ended up with new all-time highs being made this past week the index has not given a failure-to-follow-through signal to the downside, having broken above the 13.49-13.91 level and closing on Friday at 13.79. The index seems to be suggesting the breakout seen this week is not going to last long or be totally supported.
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Stock Analysis/Evaluation
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CHART Outlooks
The probabilities favor further upside for the next week or two with decent possibilities that a correction of some consequence will begin in January. There are no specific mentions this week but I am giving several stocks that can be considered for sales should the upside objectives be reached within the next few weeks. In addition, I am giving the likely trading range of these stocks for the next 3-4 months, meaning that they are likely sales at the top of the range and purchases at the bottom of the range.
All mentions are sales due to the fact that risk/reward ratios favor the bears strongly, The 4 mentions given are all stocks that are presently "under" the 200-week MA and needing to rally just to get back up to the line and to reach the desired entry points, meaning that the probability ratings on these stocks is also decent to high. These stocks were chosen specifically because of that reason as they are stocks that "should not" participate strongly in any further upside in the market, thus prime candidates for sales if the desired entry points are reached. Simply stated, they are considered "safer" choices to short than others at this time.
SALES
AA Friday Closing Price - 9.94
AA will show decent to perhaps strong resistance at 10.92. Support will be found around 8.44. Sales of AA between 10.75 and 10.96 and using a stop loss at 11.35 and having an 8.44 objective will offer a 4-1 risk/reward ratio.
PMCS Friday Closing Price - 6.28
PMCS will show decent to perhaps strong resistance at the 200-week MA, currently at 6.80, and then stronger resistance up at 7.16. Support is found between 4.91 and 5.26. Sales of PMCS between 6.80 and 6.88 and using a stop loss at 7.26 and having a 5.00 objective will offer a 4-1 risk/reward ratio.
X Friday Closing Price - 27.95
X will show decent to perhaps strong resistance at 32.52. Support will be found at 18.85. Sales of X between 32.04 and 32.52 and using a stop loss at 33.35 and having an 18.85 objective will offer a 4-1 risk/reward ratio.
USO Friday Closing Price - 35.48
USO will show decent to perhaps strong resistance between 36.15 and 37.17. Support is found at 30.79. Sales of USO around 36.15 and using a stop loss at 37.35 and having an objective of 30.79 will offer a 4-1 risk/reward ratio.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA had a reversal week having made a new 3-week low and then closing in the green. Nonetheless, the stock closed in the middle of the week's trading range and still below the 100-day MA, currently at 5.75, leaving questions unanswered whether the stock has found support at the recent low of 5.42 or whether this was just a 1-week pause in the recent downtrend. Resistance is found at 5.86 and support at 5.42 and a break of either level will likely bring about at least a 20-30 point move in whatever direction is broken. The stock has been in a short-term downtrend for 14 days and the probabilities favor the downside with the 50-day MA, currently at 5.20, as the objective. Nonetheless, if the bull can generate some follow through to the upside and get above last week's high at 5.70, the probabilities will increase that 5.86 will be broken and that the downturn is over. CAT generated a new 9-week high as well as a new 9-month weekly close and ended up closing on the highs of the week suggesting further upside will be seen this coming week. Minor to perhaps decent intra-week resistance is found at 89.17 and then decent intra-week resistance is found at 90.69. The stock did close above the 200-week MA for the first time in the last 9 weeks but does show 2 previous closes above the line between July and October that lasted only 1 week, and 2 previous closes before that going back to April when the line first got broken to the downside that lasted only a couple of weeks. Probabilities favor further upside this coming week, likely above 89.17 and probably up to 90.69 with a close next Friday likely to be around the 90.00 level, before new selling interest appears. The stock does show quite a few signs that perhaps this rally will turn into a mid-term uptrend but that has not yet been decided. The action this coming week will offer more information. The 86.38 level is now pivotal support that if broken would give back the edge to the bears. A possible trading strategy could be to cover shorts on a drop back down to the 88.38 level and re-sell the stock between 90.25 and 90.69. By the same token, if the stock gets below 86.38, it should mean additional shorts should be added. CVX generated a green weekly close which in turn made last week's close at 119.90 into a successful retest of the 50-week MA, currently at that price. The stock closed near the highs of the week suggesting further upside above last week's high at 123.79 will be seen this week and with important intra-week resistance at 124.19, the bulls have an opportunity to generate a break that would likely take the stock back up to test the all-time high peaks between 126.63 and 127.83. Nonetheless, the stock generated a negative reversal day on Friday, having made the week's high that day but then closing in the red, suggesting the first course of action for the week will be to the downside. Minor support is found at 122.11 and at 121.64 that if broken would push the index down to the 200-day MA, currently at 121.40. A break and close below that level, as well as of 120.70 would likely turn the tables around and give the edge to the bears. This is a stock that fundamentally should not be going higher and therefore the bulls are depending on this past week's momentum to generate new chart buying. However, having failed to get above 124.19 this past week on the buying surge seen, if the bulls cannot accomplish the rally above 124.19 by Wednesday, the selling pressure will likely come back. ELON did nothing this past week but the bulls were able to generate a green weekly close (first in 5 weeks) and a close near the highs of the week that gives the stock an opportunity to build on this coming week if the bears don't find a "new" reason to sell. The stock has no resistance until 2.17 and then no strong resistance until 2.27-2.31 is reached, which is where the 200-day and 50-week MA's are located. By the same token, the stock needs to get above 2.38 before aggressive new buying is seen again. The stock now shows a confirmed double bottom on the daily chart at 1.99/2.01 and a double bottom will be confirmed on the weekly chart if the stock can get above last week's high at 2.10. Probabilities favor the bulls but only slightly. EPD had an uneventful week even though the stock indexes had a strong breakout. The stock stayed within the 60.57 to 63.54 trading range the stock has been in for the past 7 weeks and no support or resistance levels of consequence were broken. The stock did close in the upper half of the week's trading range suggesting that further upside above last week's high at 63.30 will be seen this coming week, but the stock did generate a negative reversal day on the daily chart, as well as close in the lower half of Friday's trading range, suggesting the first course of action for the week will be to the downside. Support is found at 61.29 and at 60.77 which sandwiches the 200-day MA, currently at 61.00, that has been tested successfully 5 times during the past 6 months. Nonetheless, none of the past 4 successful retests have been able to stimulate a new all-time high and the last 2 retests were not even able to stimulate a break above a previous high, suggesting that the selling interest is increasing. Important resistance is found at 63.54 and important support at 60.77. Whichever of those areas break first will likely stimulate new and strong interest. FCEL had a strong classic negative reversal week after the earnings report came out, having made a new 20-month high and then closing below the previous week's low. The stock closed on the lows of the week and further downside is expected to be seen this coming week. Nonetheless, the stock closed slightly above the 200-week MA, currently at 1.37, that got broken to the upside convincingly 3 weeks ago, meaning that if the stock closes in the green next Friday that a successful retest of the line will have occurred, which is something that technically had to be expected to happen at some point. Minor support is found at 1.34 and again at 1.31 and stronger support is found at the 200-day MA, currently at 1.25. Resistance will again be found at 1.57 and at 1.64, which does include the gap that was created the day the earnings report came out between 1.76 and 1.67. The stock is facing a pivotal week as a close below the 200-week MA would be a strong negative, while a close in the green next week would be a decent positive. Probabilities favor the bulls as the earnings report was not a big negative (just not as positive as expected) and over the past 2 months the traders have shown a propensity for the stock beginning an uptrend. FSLR was able to generate a green weekly close, making the previous weekly close at 53.79 into a successful retest of the breakout weekly close at 54.39. Nonetheless, the green weekly close was not as convincing as it should have been starting with the fact that the stock closed slightly in the lower half of the week's trading range and the week itself was an inside week, meaning that no statement of consequence was made by the bulls. In addition, it is likely the stock will start the week under selling pressure as Friday was a mini reversal day for the stock, having made a new 7 day high but then closing in the red and near the lows of the day, suggesting that Friday's low at 55.23 will be broken to the downside on Monday. Minor support is found at 54.70 that if it holds up and the stock is able to rally from there would be considered a second successful retest of the low seen recently at 53.07. Resistance is now found again at 56.25 and at the week's high at 57.47, which is further strengthened by the fact the 50-day MA is currently there. The probabilities favor the bulls as they were successful this past week in getting the stock above 2 decent intra-week resistance levels at 56.25 and at 56.75, suggesting that the bulls now have an edge. HD had an uneventful week with the stock still trading around the $80 level without any tangible sign that the bulls will be successful in breaking that level to the upside convincingly. The stock continues to show a double top on the weekly closing chart at 80.57/80.67 that looms imposing and with the indexes having been strong this past week, the inability of the bulls to accomplish a new all-time high in the stock is considered a negative. The stock did sell off on Friday to close near the lows of the day even though it was a green close it does suggest the first course of action for the week will be to the downside. Support is found at 78.31 that if broken would further weaken the chart. Drops down to 78.60 seem probable. Stock seems to be in the process of topping out but until the recent low at 77.70 gets broken, the bulls will continue to have a chance of taking the stock higher. Resistance is now decent between 81.23 and 81.39. INAP had an uneventful week but did generate a green close at the highs of the week, meaning that bulls are still in control. The stock did make a new 13-day high getting above the previous high at 7.25 that suggests the recent high at 7.75 will be tested. Minor resistance is found at 7.45 and at 7.50 but the probabilities favor those levels getting broken and a rally up to 7.75, or perhaps up to the 200-day MA, currently at 7.80 will be seen before the bears attempt a new push to the downside. The support at 6.92 is now important and indicative and should not get broken. Probabilities favor the bulls at this time. KGC made a new 11-year low today and closed on the lows of the day suggesting further downside will be seen this coming week. There is no previous support established until 3.72 is reached and the way that Gold is being sold, the probabilities suggest the stock will get down to that level before any new interest in buying is found. Some psychological support should be expected at 4.00 that may include the $4 demilitarized zone (3.70-4.30) but the way the stock is dropping, it is likely that 4.00 will be seen before any buying occurs. On a more negative note, there is no support on a weekly closing basis until 2.88 is reached and with the very important weekly close support at 5.00 level being broken so convincingly, it does suggest that any rallies at this point will meet strong selling at 5.00. There are few reasons to stay with this long position other than the possibility that if the correction in the market occurs in January it could cause the stock to rally a bit. Probabilities strongly favor the bears. PGR generated a green weekly close this past week, making last week's close at 26.24 into a successful retest of the previous low weekly close at 26.02. By the same token, the green close could signal that the stock is building a bearish Head & Shoulders formation with the right shoulder now in the process of being built. The left shoulder is at 27.35, which likely means that is a target that will be seen this coming week. On an intra-week basis, that could mean a rally up to 27.50 which is where resistance is found. The short positions in the stock were mentioned as a short and hold positions, meaning that fundamentally the company should go down for the longer term, also meaning that this rally up to 27.50 should not be a cause for profits to be taken, especially since the stock closed at 26.82 on Friday and likely no more than 68 points to the upside will be seen. The recent low at 25.92 is now decent support but if broken any time in the near future, before new highs are made, it would mean the neckline of the H&S formation has been broken, which in turn would offer a short-term objective of 24.42 to 24.82. Longer term, the objective has to be at least the 200-week MA, currently at 21.65. A new all-time high above 28.54 would negate the H&S formation and be cause for covering of the shorts. YGE generated a spike up rally that means the recent drop to 4.17 is the 2nd successful weekly close retest of the all-time low weekly close at 1.29. In addition, the green weekly close also means that the always important and indicative 50-week MA, currently at 4.00, was also successfully retested with the 4.17 weekly close. On the other side of the coin, the bulls failed to close the stock above a minor to decent weekly close resistance at 5.34, leaving the door open for some sideways trading and likely some retracement before new buying is seen. The stock did generate a reversal day on Friday, having made a new 11-day high at 5.38 and then closing in the red, suggesting the first course of action for this coming week will be to the downside, with the first level of support at 4.96 as the first objective. Should 4.96 get broken, the next support is found at 4.50 but it is minor support as well. Resistance is found at 5.38, at 5.48, at 5.74 and the stronger one is at 6.15. Probabilities favor some backing and filling at the beginning of the week but continuation of the rally at the end of the week, with a possible trading range of 4.96 to 6.15.
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1) ELON - Averaged long at 5.534 (4 mentions). No stop loss at present. Stock closed on Friday at 2.08.
2) ARNA - Averaged long at 4.36 (2 mentions). No stop loss at present. Stock closed on Friday at 5.57.
3) FCEL - Averaged long at 1.34 (5 mentions). No stop loss at present. Stock closed on Friday at 1.39.
4) EPD - Shorted at 63.25. Stop loss at 63.64. Stock closed on Friday at 62.68.
5) KGC - Averaged long at 5.226 (3 mentions). No stop loss at present. Stock closed on Friday at 4.28.
6) PGR - Shorted at 27.71. Stop loss at 28.05. Stock closed on Friday at 26.82.
7) FSLR - Purchased at 53.49. Averaged long at 51.33 (5 mentions). Stop loss now at 52.79. Stock closed on Friday at 55.87.
8) CVX - Shorted at 123.23. Averaged short at 123.365 (2 mentions). Stop loss at 124.35. Stock closed on Friday at 122.78.
9) DDD - Covered shorts at 82.75. Shorted at 81.65. Loss on the trade oif $110 per 100 shares plus commissions.
10) DIS - Shorted at 71.33. Covered shorts at 72.83. Loss on the trade of $150 per 100 shares plus commissions.
11) YGE - Averaged long at 6.225 (4 mentions). No stop loss at present. Stock closed on Friday at 5.14.
12) INAP - Purchased at 7.07. Stop loss now at 6.64. Stock closed on Friday at 7.30.
13) XOM - Covered shorts at 96.71. Loss on the trade of $1208 per 100 shares (3 mentions) plus commissions.
14) HD - Shorted at 80.61. Stop loss now at 81.49. Stock closed on Friday at 80.04.
15) CAT - Shorted at 86.71. No stop loss at present. Stock closed on Friday at 88.93.
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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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