 |
 |
 |
 |
 |
 |
Issue #390 
August 24, 2014 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
|
| Tech Sector Remains Hot. NASDAQ Leading the Charge!
DOW Friday closing price - 17000
The DOW rallied over 400 points this past week to close just 150 points below the all-time high at 17151 and 100 points away from the all-time high weekly close at 17100. Nonetheless, the rally was not the complete success that bulls would have like to see as the index failed to make a new high in spite of the new all-time high in the SPX (intra-week and weekly close) and the new 14-year high in the NAZ (intra-week and weekly close). The inability to match the success in the other indexes is a negative that won't be easily resolved this coming week.
The DOW closed near the highs of the week, suggesting further upside above last week's high at 17074 is likely to be seen this coming week but then again on Friday the index closed near the lows of the day and the first course of action is likely to be to the downside, meaning that the bulls may need further positive news to bring about the additional buying that is required to make a new all-time high. With no economic reports due out until Tuesday, the bulls will probably find themselves early in the week defending the support levels below rather than attempting to make the new highs.
To the upside and on an intra-week basis, the DOW now shows minor resistance at Thursday's high at 17074 and then nothing until 17133 and at the all-time high at 17151. Nonetheless, on a daily closing basis, the bulls now show 3 decent resistance levels at 17039 (which includes the top of the demilitarized zone at 17030), at 17068 (which was the previous all-time high daily made in the first week of July), and at the all-time high daily close at 17138. The daily close area at 17068 does seem to be the pivotal resistance as the bulls had every opportunity to close above that level on both Thursday and Friday when new highs in the other 2 indexes were made and the index rallied to 17074 and 17064 respectively. Nonetheless, the failure to accomplish that "minor goal" does generate questions that won't likely be answered until late in the week.
To the downside, the DOW now shows what could be short-term pivotal support at 16966 since a break of that level would likely cause the index to fall back down to the next intra-week support at 16805 which does include the 200 60-minute MA that has shown itself to be pivotal intra-day support/resistance for the past 20 weeks. A break and close below 16800 would likely cause the index to drop down to the 16700 level and suggest the entire rally seen this past week will have been negated as the rally began at last week's close at 16662.
The DOW may be the index the traders watch this week as it is the only one that still shows resistance levels above and action that does not fully represent the bullish aura that the market is presently enjoying.
NASDAQ Friday closing price - 4538
The NASDAQ made a new 14-year high this past week and closed on the highs of the week, suggesting further upside above last week's high at 4547 is likely to be seen. The index seems to be in a runaway-freight-train category as the index has now generated 2 "weekly" gaps over the past 3 months (very rare occurrence), as well as a 13% appreciation in price over the past 4 months and that suggests that the index is in a rapid-appreciation mode that is not likely to stop until the upside targets are reached.
The NASDAQ has 2 targets above, one of which is the all-time high monthly close at 4696 and the other being the all-time intra-month high at 5132. The 4696 level could be seen this week but that is still 158 points above Friday's close and having seen a 111 point rally 2 weeks ago and a 61 point rally last week, the probabilities do not necessarily favor the index rallying 158 points this week. Nonetheless, if the economic reports this week continue to be better than expected, the index could see 4696 by Friday, which in turn would mean higher prices the month after and a target of 5000-5132 in September.
To the upside and on a weekly closing basis, the NASDAQ shows no resistance until 4963 is reached. The all-time high weekly close is at 5048. On a monthly closing basis though, the all-time high monthly close is at 4696. To the downside, the NASDAQ will show minor support at 4485 and again at 4413, minor once more at 4372 and decent at 4351/4352.
The NASDAQ is likely to continue to appreciate in value even if the other indexes don't, much like what was seen on Friday (NAZ in the green and DOW and SPX in the red). NFLX and AAPL made new all-time highs last week and are likely to continue higher, suggesting that they could lead the way for the index.
This Friday is the end of the month and unless there are some negative events in the world (not likely) the NASDAQ bulls will try everything in their power to get up to and above the all-time high monthly close at 4696. At this time, the index has momentum as well as an aura of invincibility as the Fed under Yellen continues to be dovish in supporting low interest rates for as long as possible. Under such fundamental support, the traders will continue to take advantage of it until they no longer can.
SPX Friday closing price - 1988
The SPX made a new all-time intra-week and weekly closing high this past week, above the previous intra-week high at 1991 and above the previous weekly closing high at 1985. The index closed near the highs of the week and further upside is expected with a print of 2000 being highly likely to be seen.
By the same token, the 2000 level in the SPX is likely to be a "tough nut to crack", at least on a monthly closing basis, as the index has proven over the past 17 years that each 500 point level has been a support/resistance level of consequence.
The SPX did take some life of its own inasmuch as it accomplished making a new high at a time that the DOW did not. The ability to do that does show that the financial industry is receiving more buying interest than is being seen in Blue Chip stocks, which in turn suggests that this is not just a Tech Sector rally but one that does encompass a few other industries as well.
To the upside, the SPX shows no resistance whatsoever other than the psychological resistance at 2000. Rallies up to as high as the top of the demilitarized zone at 2030 can be seen but this area is likely to difficult to break. To the downside, the SPX will now show minor daily close support at 1985. Nonetheless, on the intra-day 60 minute chart, some support will be found at 1980 and then decent to strong support at 1960. The daily chart shows no support of consequence until the 1952 level is reached.
Having made a new all-time high last week and then closing near the high of the week does set some important guidelines for the bulls, inasmuch as follow through both on an intra-week and weekly closing basis needs to be seen. The SPX bulls cannot allow any weakness, at least on a closing basis, to occur this week. The 2000 level must not only be seen but broken in order for the bulls to make the statement they want to make. Any failure to accomplish that this week will cause doubts to emerge.
The indexes once again are giving mixed signals with the NAZ and the SPX showing further upside is likely to be seen and the DOW acting a bit like an anchor. Nonetheless, with 2 indexes now committed to higher prices, the bears seem to be fighting a losing battle.
Some economic information of consequence is due out this week with Durable Goods and 20-city Case/Schiller reports coming out on Tuesday, the 2nd estimate of GDP coming out on Thursday, and Personal Income and Spending, Chicago PMI, and Michigan Sentiment coming out on Friday. Nonetheless, most economic reports have been coming out better than expected and there is little reason to think that won't continue. The only thing that the bulls are worrying about these days is any sign that the Fed is going to start tightening sooner rather than later and with Fed Chief Yellen still acting like a major dove, that scenario is not likely to happen anytime soon, at least not this week. As such, there seems to be no fundamental basis for thinking the indexes won't continue higher.
By the same token, new highs do bring a set of guidelines that must be followed to a tee and that means that the bulls are forced to keep the rally going higher, at least this week, meaning that any weakness of consequence seen would likely spook the traders as these high levels are not easily explained away as having much of a basis for being maintained.
|
Stock Analysis/Evaluation
|
CHART Outlooks
It is becoming evident that the market in general is not likely to go down with any strength anytime soon. By the same token, the indexes no longer have the power to make every stock a good purchase, meaning that it is now likely that the traders will pick and choose sectors, industries, and individual stocks to buy and sell accordingly.
In researching a plethora of stocks this weekend, it does seem that in general traders will lean to the upside, meaning that the way to go is to find stocks that have good upside potential but limited risk. Most stocks have already had big moves to the upside and though further upside is likely to be seen, the upside is likely limited and purchases of those stocks risky.
As such, I decided to key purchases mostly on small cap stocks that have not "yet" participated in the rally but have given some signs recently that buying interest is being seen. The idea is that the traders are now going to key on that type of a stock since the market in general is likely to move higher and finding stocks with good profit potential and small risk is what the traders will likely decide to do. The negative to this plan is that many of the stocks that fit this description have shown low volume and interest, meaning that trading these type of stocks will offer other negatives such as liquidity and perhaps even slow results.
There are 2 sell mentions this week in stocks that are still showing a tendency or desire to go lower.
PURCHASES
RECN Friday Closing Price - 15.37
RECN is a stock that in 2007 got up to an all-time high of 36.21 but then for the next 4 years it went into a downtrend that culminated in September 2011 with a low of 8.26. Since then, the stock has been on a mid-term uptrend that was successful in breaking above the 200-week MA in November of last year, meaning that the long-term downtrend is now considered to be over.
From November of last year to July of this year, RECN straddled the 200-week MA consistently, trading above the line during 2 periods of time and below the line for 2 periods of time but in the third week of July the company reported much better than expected earnings and stated that they were able to return $10.7 million of capital to shareholders in the form of dividends and that created the third break above the 200-week MA as well as a buy signal of consequence when the stock broke and closed above the $15 level.
RECN is now showing a bullish flag formation with the flagpole being the rally from 12.88 to 15.97 that was seen after the earnings report and the flag being the trading range down to 14.42 that has been seen thereafter. A break above the top of the flag at 15.97 offers an objective of 17.50. By the same token, above 15.97 the stock shows no previous resistance for the past 6 years until the $20 demilitarized zone is reached, meaning that the stock is not only likely to fulfill the flag objective but go farther to the upside if 15.97 is broken.
RECN made an 8-month high in December at 15.94 and that high was reached again on Friday with a rally up to 15.97. Selling did appear, likely because that level was a previous resistance level of consequence, causing the stock to fall and close in the lower half of the week's trading range, suggesting that at some point this week the stock will drop below last week's low at 15.14, which in turn would be a good opportunity to purchase the stock with small risk while offering a high probability rating.
To the downside, RECN will show support at the bottom of the flag at 14.42. If 14.42 is broken, quite a few of the positives for this trade will disappear, making that level a good stop loss point. To the upside, above 15.97 there is no resistance until 19.64 is reached. As such, this is a very good risk/reward trade with a high probability rating. The only negative, though a big one, is the fact the stock has been trading an average of only 100,000 shares a day for the past few weeks.
Purchases of RECN between 14.70 and 15.13 and using a 14.32 stop loss and having an objective of 19.70 will offer a 5-1 or better risk/reward ratio.
My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the highest).
SIGM Friday Closing Price - 4.60
SIGM reached a high of 73.00 on December 2007 but since then has been on a major downtrend having made a new all-time low in May of this year at 3.28. The downtrend began to decelerate in May 2011 when the stock broke below the 200-week MA (at the time at 10.30) and during the past 3 years the stock has been mostly deteriorating rather than making a bearish statement.
On June 12th of this year, SIGM received a better than expected earnings report and was upgraded immediately thereafter, causing the stock to rally from 3.28 to 4.97 over a period of 3 weeks and giving notice that the 3.28 level could now be considered a bottom to the downtrend. On a negative note though, no buy signal has yet been given on any of the charts, meaning that the stock is still likely to have a large short interest that could cause a strong move up if a buy signal is given.
During the past 2 months SIGM has built a bullish flag formation with the flagpole being the rally from 3.28 to 4.97, the flag being the trading range between 4.09 and 4.97, meaning that if the top of the flag is broken it offers a 5.78 objective. What makes this flag even more interesting is that the 200-day MA is currently located at Friday's closing price of 4.60. The 200-day MA is an important indicator at this time since it has not been broken decisively since December of last year but has been tested successfully on 6 different occasions, and specifically 3 times since the 4.97 high was made, likely meaning that a decisive break of the line will likely bring about a strong short-covering rally.
SIGM closed on the highs of the day/week on Friday and further upside above last week's high at 4.64 is expected to be seen. A green close on Monday would be the first buy signal on the daily chart and a close next Friday above 4.77 would be a buy signal on the weekly chart. With the overall market looking to go higher and the stock finally showing a fundamental picture that is improving and trading action that supports further upside, this week seems to be the perfect opportunity to buy the stock.
To the upside, SIGM will show decent resistance at the $5 demilitarized zone, given that the stock shows 3 weekly high closes from January to March between 5.04 and 5.20. Further resistance on a weekly closing basis is found between 6.50 and 7.01 that includes the 200-week MA, currently at 6.85. It is likely that reaching the 200-week MA is going to be the main target of the bulls if they can get the stock to move higher this week. To the downside, SIGM will show support at Friday's low of 4.42. If that level is broken, it will slow down the potential rally to the upside. Further support is found between 4.04 and 4.09 that if broken would likely turn the bullish sentiment into negative action.
I do want to mention that SIGM was a very popular and highly traded stock in the past and if a bottom has been found, the popularity will come back and an upside objective overall is likely to be the $10 level.
Purchases of SIGM between 4.60 and 4.70 and using a stop loss at 4.32 and having an upside objective of 6.50 will offer a 4-1 risk/reward ratio.
My rating on the trade is a 3.5 (on a scale of 1-5 with 5 being the highest).
SALES
TOL Friday Closing Price - 35.57
TOL is a company that sells luxury homes and as such is not a stock that is very sensitive to what the market does as rich people are not closely tied to what the economy does. In fact, the stock price supports that statement as the stock for the past 2 years has traded mostly sideways between $30 and $40 in spite of the fact that during the same period of time the stock market has appreciated over 30% in value.
In March of this year, TOL got up to a high of 39.95 but since then has been on a mid-term downtrend having seen 2 waves of selling over the past 5 months and a price drop of over $7.50, having gotten down to 32.34 just 3 weeks ago. The downtrend has been clearly defined with each high being lower than the previous one and each low being lower than the previous one as well.
For the past 2 weeks, TOL has been rallying and the stock reached a high last week of 35.82 and the probabilities favor that rally continuing this week with an objective of 37.10-37.20 where resistance should once again be found.
To the upside, TOL will show minor resistance at 36.68, then a bit stronger between 37.10 and 37.20 and then at the previous high at 37.61. If the stock is able to get above 37.61, the recent mid-term downtrend will be broken and the stock will likely rally up to the May 2013th high at 39.25 or even to this year's high at 39.95.
To the downside, TOL will show minor to perhaps decent support at 33.26 and then stronger at the recent low of 32.34. Strong support is found at the $30 demilitarized zone that has not been broken for the past 20 months, though it has been seen on 5 different occasions.
TOL is not a stock that is likely to be affected by what is happening in the market and therefore a good candidate on its own chart for a short position.
Sales of TOL between 36.68 and 37.20 and using a stop loss at 37.71 and having an objective of 30.00 will offer a 6-1 risk/reward ratio.
My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
CAT Friday Closing Price - 107.31
CAT continues to show a chart that has decent to high probabilities of not going substantially higher in spite of the stock market rallying, especially considering that the last earnings report was worse than expected. By the same token, the fact the indexes are likely to go higher this week does suggest the stock could rally a bit higher than last week's high at 108.54 and perhaps as high as the $110 demilitarized zone, though in reality the stock action does suggest that the 108.54 high could have been the needed retest of the 111.46 high seen the second week of July.
There are quite a few question marks regarding this trade already, starting with the fact that the stock should have gotten up above 112.00 when it stopped at 111.46 and on this rally should have gotten up to 109.77 but seems to have stopped at 108.54. The stock closed in the lower half of the week's trading range, suggesting the 108.54 high might mean no further upside will be seen. Both of these actions suggest weakness rather than strength, also meaning that consideration should be given to shorting the stock this week on a rally up back up to 108.20.
Nonetheless, right now I am going to leave the decision to each individual as to where to short the stock (at least above 108.00) until such a time that the action seen gives me a clear indication of where the best entry point is located.
The best stop loss is at 112.75 as a break above 112.65 would suggest the stock will test the all-time high at 116.95. Nonetheless, on last week's mention the stop loss was at 115.56 and with last week's action, a case can be made to put a sensitive stop loss at 108.64. Either way, CAT is a stock I believe is heading back down to at least the $100 level if not lower. The only question then is where to short the stock and what stop loss to use.
There are 3 options regarding sales of CAT with the first one being between 108.00 and 108.20 using a stop loss at 108.64, the second one of selling the stock between 109.60 and 109.70 using a stop loss at 111.56 and the third one is to sell the stock between 109.77 and 110.25 and using a stop loss at 112.75. On all cases, the main objective is the 97.00-100.00 level.
My rating on the trade is between 2.75 and 3.50 depending on the entry point and stop loss chosen (on a scale of 1-5 with 5 being the highest). A stop loss at 112.75 will offer the best probability rating.
|
Updates
|
| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AKS made a new 37-month weekly closing high on Friday, having closed indicatively above the previous high weekly close seen on January 2012 at 9.91. The stock closed on the highs of the week and further upside is likely to be seen with the 13.07 high seen on January 2009 as the likely objective. It should be mentioned though that the stock went through a 6-month congestion area between 11.71 and 15.41 from May to November 2010 that will offer resistance of some consequence. On a weekly closing basis, it is difficult to see the stock closing above 11.71 at this time and even a close above 11.07 might not be in the cards yet. As such, if any intra-week rally up near the 13.00 is seen, it should be used to take profits. To the downside, a move back down below Thursday's low at 9.89 would be worrisome and a break below 9.52 would likely bring about another $1 to the downside, down to the 8.52 level. Probabilities favor the bulls this week. DLTR continued to trade in a sideways but with a slight upward bias fashion but came within 4 points on Friday of breaking that slight upward bias having closed only 4 points above the previous low weekly close at 54.22. The stock did make a new 7-week intra-week low and did close near the lows of the week, suggesting that further downside will be seen this week. The stock for the past 6 weeks has been mostly staying above the 200-day MA, currently at 54.00, and until the bears can close the stock indicatively below that line, the bulls will continue to have a slight edge. A break below 53.60 would likely give the edge back to the bears and with the probabilities favoring a break below last week's low at 53.60, it seems that is a good possibility for this week. Further support is found at 52.92 and then again at 52.26 but the weekly chart suggests that if 52.92 is broken that the $50 level will be seen. To the upside, last week's high at 55.36 seems to be a pivot point that if broken would take the stock back up to the $57 level. Probabilities favor the bears slightly but it does seem to be a possible pivotal week. ENG continued the recent 11-week downtrend by making a new 14-week weekly closing low on Friday. The stock closed near the lows of the week and further downside below last week's low at 2.68 is likely to be seen. A clear break below the 2.70 level is likely to push the stock down to test the 200-week MA, currently at 2.09, and from which the recent rally up to 4.22 was generated. This is a stock that seems to be on the way up overall but if the 2.70 level does not hold up this week, further downside to the 2.00-2.10 level is likely to occur. Stops should be at 2.65 and if hit, the stock should be re-purchased between 2.00 and 2.10. Resistance is now at 2.90 that if broken would likely bring about some new buying interest. A break above 3.27 would be a strongly bullish sign. Probabilities suggest the stock will break the support at 2.70 and head down to 2.10. FCEL confirmed the previous week's breakout above the 2.45 level with a second close in a row in the green and above that price. Nonetheless, the stock did close slightly below the mid-point of the week's trading range, leaving the door open for some downside to be seen with the objective of closing around the 2.45 level next Friday. The stock did close on the highs of the day on Friday and the first course of action is likely to be to the upside with 2.81 as the objective. If the bulls do rally to 2.81 but fail to take out last week's high at 2.84, there will be disappointment and a drop back down below 2.46 is likely to occur. Probabilities do favor a trading range this week between 2.43 and 2.81. The bulls continue to hold the edge in this chart. GIGM had a positive week with a green close and on the highs of the week, suggesting further upside will be seen this week. Nonetheless, the bulls were unable to negate the break of the 1.00 level, having closed on Friday at .99 cents. It is evident that this coming week could be an important pivotal week because if the bulls are able to get above 1.00 and close the stock above 1.00, on both the daily and weekly closing chart, the break of support and weakness seen the past 3 weeks will be negated. If that is accomplished, the .87 cent low will become a spike low from which a new attempt to rally can be made. Probabilities are 50-50 at this time. HAL made a new 10-week weekly closing low on Friday, in spite of the overall market heading higher. The stock closed on the lows of the week and further downside below last week's low at 67.26 is likely to be seen. Support is found at 66.77 that if broken would likely bring about new selling interest and with no support found until the $61-$62 level is reached, the drop could be fast and dramatic. The bulls have had no success in generating any buying interest of consequence as not even a retest of the all-time high at 74.33 has been seen. Short-term indicative resistance is now found at 69.46. It is likely that a short-term decision will be made this week, with 66.77 acting as support and 69.46 as resistance. Probabilities favor the bears. LVS generated a second green weekly close on Friday but the green was again very small as to not make any impression on the chart, especially considering that the break of low weekly close at 69.80 has not yet been negated. It seems that the bulls have been able to generate the green weekly closes only because the overall market has been strong. Nonetheless, having failed to negate the break of support at 69.80, the probabilities continue to favor the bears. The chart shows an inverted flag formation with the flagpole being the drop from 75.50 to 65.83 and the flag the trading the past 12 days between 65.83 and 69.77. Based on no further upside being seen, a break below 65.83 would offer a 60.60 objective. Resistance is found at 69.77 and again at 70.68, which is where the bottom of the 71.36-70.68 gap is located. A rally above 69.77 would likely generate about a 90 point move up with the possibility of more, meaning that using a stop loss at 69.87 makes sense. SINA has shown weakness in spite of the better than expected earnings report 2 weeks ago and closed on the lows of the week and further downside below last week's low at 46.17 is expected to be seen. The bulls were successful in preventing a new sell signal from being given by keeping the stock above the previous low weekly close at 46.53, as well as above the April 2013 close at 46.26. Nonetheless, the bulls no longer have any margin for error as a red close next Friday would likely be a "nail in the coffin". Intra-week support is found at 44.86 that if broken would give the bears the strong edge they need to take the stock lower. As such, the stock loss should be at 44.76. By the same token, any close next Friday below 46.26 would be a strong negative. The stock is likely to go lower on Monday but the bulls need to generate some buying interest this week and hopefully starting on Monday. This entire area around the 46.26 to 46.71 on a daily closing basis is considered support. Any daily close below that area will be considered a negative. A green close would likely stop the selling interest. A close above 48.23 would likely bring in some new buying.
|
1) OXY - Covered shorts at 101.36. Averaged short at 103.486. Profit of $638 per 100 shares (3 mentions) minus commissions.
2) AKS - Purchased at 8.57. Stop loss now at 9.79. Stock closed on Friday at 10.68.
3) FCEL - Averaged long at 2.276 (3 mentions). No stop loss at this time. Stock closed on Friday at 2.61.
4) WDC - Covered shorts at 101.11. Averaged short at 100.775. Loss on the trade of $67 per 100 shares plus commissions.
5) MELI - Shorted at 112.56. Averaged short at 111.06. Covered shorts at 113.55. Loss on the trade of $498 per 100 shares (2 mentions) plus commissions.
6) GIGM - Averaged long at 1.225 (2 mentions). No stop loss at present. Stock closed on Friday at .99.
7) HAL - Shorted at 69.68. Stop loss at 69.56. Stock closed on Friday at 67.47.
8) CVX - Covered shorts at 126.81. Shorted at 127.58. Profit on the trade of $77 per 100 shares minus commissions.
9) SINA - Averaged long at 46.316 (3 mentions). Stop loss now at 44.76. Stock closed on Friday at 46.54.
10) LVS - Averaged short at 74.033. Stop loss now at 71.46. Stock closed on Friday at 69.21.
11) ENG - Purchased at 2.81. Stop loss at 2.65. Stock closed on Friday at 2.71.
12) NFLX - Shorted at 473.00. Covered shorts at 476.14. Loss on the trade of $314 per 100 shares plus commissions.
Previous Newsletters
|
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. |
|
|
|