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Issue #378 
May 25, 2014 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Market Rallies, Further Upside Expected!
DOW Friday closing price - 16606
The DOW generated a new weekly closing high on Friday, above the previous one at 16583, but did not make a new intra-week high as the index is still 129 points from the 16735 high that was made 10 day ago. Nonetheless, the index closed on the highs of the week and further upside is likely to be seen next week with a decent possibility of the all-time intra-week high being tested or even broken.
By the same token, the DOW did show some unexpected weakness on Tuesday when the index broke below a previous intra-week low at 16357, which in turn suggests that the recent rally might be running out of steam or reaching levels where further upside of consequence will be limited.
The NASDAQ has outperformed the DOW to the upside during the past 2 weeks and could be a sign that the uptrend is resuming. By the same token, it is likely that all the NASDAQ is doing is retesting the 14-year high, which in turn suggests that a strong correction is in the future for the index.
To the upside, the DOW will find some minor but possibly indicative resistance between 16620 and 16631 and then nothing until the all-time high at 16735. Above that level, only psychological resistance at 17000 is found. It should be mentioned that in the year 2000 the index made an intra-week high at 11750 and a weekly closing high at 11722, meaning that it is possible the index will do something like that this year with a weekly close around the 16700 general resistance level. With the high weekly close so far being Friday's close at 16606, it is possible and maybe even likely that on a weekly closing basis another 100 points to the upside will be seen before a top is found.
To the downside, the DOW has built decent support around the 16300 level, having been down to that general area 3 times over the past 4 weeks (16312, 16357, and 16340). In addition, the 50 and 100 day MA's are both in that general area as well, suggesting that the traders it has become a pivot point that if broken would suggest the top is found. Further but minor support is found at 16240 and then the strong support at 16015/16046 that is considered a double low that if broken would likely bring in new selling.
The DOW has not accomplished much this year, having closed out the year on December 31st at 16588 and closing out last week just 18 points higher at 16606. On an intra-week basis, the index has continued with a slight upward bias but the extended sideways trading being seen over a period of 6 months does suggest that a major top is being built, one from which a strong correction will occur. It must be kept in mind that the "sell in May and go away adage" remains as a dependable seasonal factor that has not yet begun to occur.
Expect higher prices in the DOW this week but limited and sluggish in nature.
NASDAQ Friday closing price - 4185
The NASDAQ made a new 4-week intra-week and weekly closing high last week and gave a small short-term buy signal having closed above the most recent high weekly close at 4123. In the process, the index broke 2 additional decent intra-week resistance levels at 4177 and at 4185 and closed on the highs of the week, suggesting further upside above 4186 will be seen next week. With no resistance found until 4246 is reached, the probabilities strongly favor further upside of at least 60 points this coming week.
It is evident now that the NASDAQ has built a decent weekly close support level around the 4000 area, having first broken above that area in November and having come back to that level on 2 occasions without any weekly closing break of 4000 being seen. It is therefore evident that the index has built a support base from which a resumption of the uptrend can begin with the 5132 all-time high as the objective or a level that if broken would signal a strong correction is to occur. The bulls and the bears are both committed now and it is likely that an important statement will be the end result of this rally. The probabilities favor this rally being a retest of the highs simply because the "sell in May and go away" adage is quite dependable and there has been nothing of fundamental consequence happening that would suggest otherwise.
Fundamentally, the big question the NASDAQ traders will be asking over the next couple of weeks is whether the economy can sustain the big Tech sector stocks (such as AAPL, AMZN, NFLX, PCLN, and GOOG) going substantially higher above their recent highs or whether they have outpaced their current value and are ready to have a "reality check".
To the upside, the NASDAQ has pivotal short-term resistance at 4246 that could end up becoming the right shoulder of a possible Head & Shoulders formation if the index stops there. Further but minor intra-week resistance is found at 4285, at 4344, and then major resistance at the all-time high at 4371. The weekly closing chart though, shows resistance at 4197 and at the 14-year high weekly close 4336.
To the downside, the NASDAQ shows minor intra-week support at 4131 and then nothing until 4035. Further but minor support is found at 4025, at 4021, and at 4014 where the 200-day MA is currently at. Strong intra-week support is found at the year's low at 3946 but any daily close below 3996 would likely mean the index is heading lower. It is important to note that there is a triple bottom on the daily closing chart at 3998, 3996, and 3999 that does suggest that at some point that level will be broken.
It is interesting to note that on the monthly chart, the NASDAQ is having an inside month (lower highs and higher lows than last month) but is presently trading above last month's close at 4014, suggesting the index will end up having a green close month. The last time that happened (green close inside month) was in December 2008 and the end result on that occasion was a higher high the next month but a red close, followed by 2 more months of downside and a new low. What this suggests is that either the index will go above last month's high at 4285 or below last month's low at 4014 by next Friday or the traders will close the index near the highs of the month, go above this month's high next month, and then decide what is to happen in June.
The probabilities still suggest the NASDAQ is simply retesting the 4371 high. The big question is how high this rally will go. In 2011 the index did something very similar and the retest took the index up to 9 points below the previous high, which would mean a rally this time up to 4362. I don't believe that will happen this time but I do believe the index will get above 4246 and then have problems getting above the 14-year monthly closing high at 4308. In addition, I believe the rally high this time will be seen in June (not next week).
SPX Friday closing price - 1900
The SPX made a new all-time weekly closing high and with the index closing on the highs of the day/week on Friday and just 2 points from the all-time high at 1902, the probabilities are very high that this coming week the index will once again make another new all-time intra-week high as well. With no resistance above, the bulls will be trying to take the index up to the 2000 level, which must be considered a strong psychological target as well as resistance.
The SPX is showing some signs of fatigue as the index has generated a total of 6 red close weeks out of the last 12 and moved up only a total of 17 points during that 3-month period of time, suggesting that any new highs made are not likely to go far or last long. By the same token, with no resistance above, upside objectives need to be measured as potential targets rather than actual objectives.
To the upside, the SPX has no resistance other than minor and likely to be broken resistance at 1902. Nonetheless, the index has a 3-point trend-line using the last 3 highs made in December, March, and April that suggests the upside target could be 1925 as that is where the trend-line is currently at. By the same token, another way to figure out a potential upside target is by expecting that the previous all-time high seen in 2007 at 1576 is likely to be tested at some point and considering that the DOW and the NASDAQ corrected 20% in the May to October 2011 period, it would suggest a potential intra-week high this time around could be 1945 as a 20% correction from that price would take the index back down to 1576.
To the downside, the SPX shows support at the most recent low at 1862, especially since the 50-day MA is currently at 1870 and a break of 1862 would suggest the MA line would be broken as well. Since the MA line has been tested successfully on 3 occasions since April 16th but not broken, it would suggest that a break of that line would be a signal that a top to the rally may have been found. Further support is found at 1814 which is the low seen for the past 15 weeks and is the last spike correction low found on the chart. For the past 44 months, the index has not broken a previous spike low on the weekly chart, suggesting that a break of 1814 would be a clear signal that the index is in a strong corrective phase.
For the time being, the SPX should be heading higher with either 1925 or 1945 as the upside objective.
There are several decently important economic reports this week with Durable Goods on Tuesday, 2nd estimate of GDP on Thursday, and Personal Income and Spending, Chicago PMI, and Michigan Sentiment on Friday. By the same token, the economic reports have generally been better than expected and even when they haven't been as good as anticipated, the traders have not paid close attention to them, suggesting that unless the reports "all" come out negative (unlikely) that the indexes will accomplish the upside targets, more so if the reports are positive.
Nonetheless, the lack of strong participation (low volume) and inability of the bulls to take the indexes substantially higher over the past 6 months, does suggest that a top to this rally is being sought and it could easily be found over the next couple of weeks as the market is now into the dependable "sell in May and go away" seasonal period.
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Stock Analysis/Evaluation
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CHART Outlooks
I have no mentions this week as stocks of interest for a short-term rally have already moved up substantially over the past week or two, meaning that although they are likely to go higher for this week and possibly next, the risk/reward ratios do not meet the necessary requirements for a mention. By the same token, with this week (and possibly next) likely to be mostly up, there is no reason yet to give short mentions as it is unlikely that the stocks to be shorted will reach the desired entry point levels this week.
On the other hand, this week could be a good week to trade on the long side but only on a day or short-term basis and that means that the action at the beginning of the week, as well as the support levels to be used for stop losses, will need to be determined by the intra-day 10 and 60 minute charts and that is not something I can do over the weekend.
Simply stated, I will likely have some buy mentions to give this week but they will all be on the message board and all using sensitive intra-day chart stop loss points to be determined by the action seen.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AMZN generated a green weekly close and on the highs of the day/week on Friday, suggesting further upside above last week's high at 312.35 will be seen this week. The stock made a new 20-day intra-week high and got above the previous bounce up high after earnings report at 312.29, suggesting the negatives of the report have diminished. The stock has a gap between 322.95 and 316.49 that is likely going to be the target this week. Closure of the gap would suggest further upside to the next resistance area between $332 and $337 if and when the bulls are able to close the stock above the 50-day MA, currently at 322.90. Closure of the gap would also make the original breakaway gap between 387.70 and 383.11 into a possible target as well. The 200-day MA is currently at 342.90 and the line will likely act as decent resistance area if the $332-$337 level is broken. Decent intra-week support is now found at 296.50. Probabilities favor further upside this week but closure of the gap is pivotal. ARNA generated an inside week but did extend the recent weakness after the earnings report with another red weekly close on Friday. The stock closed on the lows of the week and further downside below last week's low at 6.15 is likely to be seen this week. Support is found at the previous week's low at 6.08 which includes the 200-day MA, currently at 6.10, and below that further support is found at 5.96 and at 5.85. A break below 5.85 would suggest a drop down to the 5.00 area but even a break below 5.96 might end up having the same effect. Resistance is decent and likely pivotal between 6.71 and 6.75. Probabilities favor the bears because of the negative earnings report as well as failure to close the gap between 6.75 and 6.77. CVX generated a positive reversal week, having made a new 5-week low and then closing in the green. The stock closed in the upper half of the week's trading range, suggesting the stock will go above last week's high at 124.41 at some point this week. By the same token, the stock closed on the lows of the day on Friday and the first course of action is likely to be to the downside. Support is found at last week's low at 122.24. Resistance is found at 125.32 and a bit stronger at 125.65. The stock is still showing an open gap to the downside between 125.50 and 125.76 that the bulls will try to close. Failure to close the gap will likely bring in new selling interest with a drop down to the $120 level where the 200-day MA is located. Probabilities favor a trading range this week between 122.90 and 125.06. Longer term probabilities still favor the downside. DOW made a new 9-year weekly closing high on Friday and closed on the high of the week, suggesting further upside above last week's high at 50.74 will be seen this week. If the stock gets above the recent 9-year intra-week high at 50.96 it is likely the traders will attempt to get up to the all-time high at 56.75 (56.42 on a weekly closing basis) and likely do it in a fast manner since there is no resistance whatsoever between 50.96 and 56.75. I continue to believe the stock is a strong short but will cover the shorts if stopped out at 51.06 and re-short the stock above $56. Indicative support is now found at 48.12. Probabilities favor the bulls this week. EBAY received negative news on Wednesday regarding a data breach of its internet accounts and the stock dropped 3% in value during the day. Nonetheless, on Friday the stock actually generated a green weekly close as well as on the highs of the week, suggesting the data breach was ignored by the traders and that further upside above last week's high at 52.46 will be seen this week. Minor but indicative resistance is found between 52.48 and 52.75 as that is the area that includes the gap between 53.39 and 52.75 that was created after the last earnings report. Closure of the gap and a daily close above 52.33 will remove a large portion of the selling pressure as well as generate a minor buy signal. The week's low at 50.30 will also become a successful retest of the 49.77 low, which in turn would likely renew the sideways trend between $50 and $58 that has been in existence for the past 16 months. As with the NASDAQ, the stock has not yet retested on the weekly chart the 59.70 high seen in February and a rally and close above the 50-week and 200-day MA's, currently at 53.35 and at 53.60 respectively, would suggest the stock will rally back up to the $58 level. A break below 50.30 would now be considered a negative. Probabilities favor the bulls. ELON generated the first green weekly close in 5 weeks and only the second one in the last 9 weeks, suggesting the bears may have found an area of support at 2.38. It should be mentioned that on January 14th the stock gapped up between 2.30 and 2.39 and the drop down to 2.38 could simply be a retest of that gap before new buying interest appears. It should also be mentioned that the bears have had the opportunity to close the gap during the last 9 days and have failed to do so in spite of the fact that on 8 of the last 9 days the stock has had a low of 2.40, 2.41 or 2.42. The stock will show resistance on a daily closing basis at the 200-day MA, currently at 2.54. Intra-week resistance is found at 2.59 and at 2.61. A confirmed break above 2.61 and a close above 2.54 will likely generate new buying interest. A break below 2.38 in conjunction with closure of the gap would be a bearish statement. FCEL had an uneventful week, having generated an inside week and a close in the middle of the week's trading range. On a negative note, the stock did not see any follow through to last week's close on the highs of the week, but on a positive note, the bears were only above to close the stock down 3 points from the previous week's close, suggesting that the bears have lost their edge. If the stock goes above Friday's high at 2.16, the daily chart will show a second successful retest of the 1.86 low and if the bulls are able to get above 2.21 and close above 2.18, another mini buy signal will be given. Weekly close resistance is found at 2.31 but an intra-week break above the previous week's high at 2.24 is likely to generate a rally up to the 50-day MA, currently at 2.50. Some intra-week resistance is found at 2.35 but it is minor in nature and not likely to have much effect if the stock starts trading higher this week. Any drop below 1.86 would now be considered a negative. Probabilities slightly favor the bulls, especially if the index market rallies. GIGM had an uneventful week considering that the weekly close was the same as the previous week's close. By the same token, the stock dropped down to 1.00 this past week and if the bulls are able to get above last week's high at 1.06 this week, a double low on both the daily and weekly chart will be generated, giving the bulls a new reason to buy and the bears a reason to short-cover. The stock did close in the middle of the week's trading range but in the upper half of Friday's trading range, suggesting the first course of action this week will be to the upside. Resistance is found at 1.13 that does include the 200-day MA, currently at 1.12. If broken, a rally up to the 1.20 to 1.23 level is likely to occur that does include the 200-week MA, currently at 1.18, and the 50 and 100-day MA's, currently at 1.23 and 1.22 respectively. Decent intra-week resistance is found at 1.20. The possible (not yet established) double low at 1.00 is likely critical for the health of this stock. If able to get established, and the 1.13 level get broken, the 1.20-1.23 level will be pivotal as to the direction for the future. Probabilities do favor the stock rallying up to 1.20 but thereafter it will depend on factors not yet in evidence. LINE continued to trade sideways (39 days) between 27.75 and 29.21 but the bearish outlook has been maintained since the bears have been able to keep the stock consistently below the 50-week and 200-day MA's, both currently at 29.00, since those lines got broken the second week of March. As such, the probabilities continue to favor the bears as long as the recent high at 29.21 does not get broken. A break below 27.75 would be a decent negative and a break below the recent 7-month low at 26.80 would re-energize the selling interest. It is possible something will be decided for the short term early in the week since the stock closed on the lows of the day on Friday and the first course of action for the week should be to the downside. Minor but possibly short-term indicative support is found at 28.11. Probabilities for the longer-term trend continue to strongly favor the bears. MELI made a new 30-month low at 79.52 this past week but the bulls were not able to generate new selling interest and the stock rallied to close near the highs of the week, suggesting that further upside above last week's high at 85.49 will be seen this week. Resistance is found at the 200-week MA, currently at 88.00, which does include the most recent spike high at 87.99, suggesting that level is an important pivot point both on an intra-week basis as well as on a weekly closing basis. Support is now found at 82.08 and again at 80.44. The stock has not yet tested successfully the recent low and if the stock is to be heading higher above 88.00, a retest of the recent low should be seen. Important resistance is found at the 7-week high at 93.80 that if broken would likely thrust the stock up to the $100 level. It should be mentioned that the $80 level has been good support, as well as an important pivot point, since 2007, meaning that it is possible the stock has seen its lows. Probabilities favor further upside up to the 88.00 level but longer-term is still a big question mark. PWRD generated a positive key reversal week, having made a new 6-month low and then closing in the green and above the previous week's high. The stock closed near the highs of the week and further upside above last week's high at 18.48 is likely to be seen. The clearly defined short-term objective is the 50-week and 200-day MA, both currently right around the 19.50 level. On an intra-week basis, the probabilities strongly favor a rally up to the $20 demilitarized zone. It should be mentioned that the last week's high at 18.48 is very important as the stock has been on a short-term downtrend since the 26.25 high made in March and each spike high (6 of them) have been lower than the previous one, meaning that break above 18.48 would mean the downtrend is over. Any close above the $20 level would suggest the 26.25 high will be retested with at least a rally up to 22.82 which is a level that has minor to decent resistance. SINA reported earnings on Thursday and though the earnings were better than expected, the guidance number given by the company was disappointing and the stock proceeded to drop strongly, making a new 18-month low at 42.40 and in the process breaking below a previous decent intra-week support at 45.54. Nonetheless, the stock did find some strong buying at the lows and promptly regained on Friday all of Thursday's losses to generate a weekly close still in the red but near the highs of the week and above the previous weekly closing low from April 2013 at 46.26, meaning that on a weekly closing basis, no damage to the chart was done. The weekly close was still in the red and that means the bulls need to generate further buying this week and a green close next Friday in order to be able to say that the stock has found a valid low to this recent downtrend. Resistance is found at the $50 demilitarized zone but based on the strength of the rally seen on Friday, the stock should rally above that level this week and if that happens there is no resistance found until the 56.55 level is reached. Intra-day support on the 60-minute chart is found at 45.70 but the 200 10-minute MA is currently at 46.40 and if the bulls are able to keep above that level on Monday, the stock is likely to end up having a strong week. Keep a close eye on the 200 60-minute MA, currently at 49.20, as a break above that level could get the bull's juices flowing.
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1) ELON - Averaged long at 5.534 (4 mentions). No stop loss at present. Stock closed on Friday at 2.51.
2) ARNA - Purchased at 6.50. Stop loss at 5.75. Stock closed on Friday at 6.19.
3) FCEL - Averaged long at 2.276 (3 mentions). No stop loss at this time. Stock closed on Friday at 2.13
4) EBAY - Purchased at 51.81. Stop loss at 49.67. Stock closed on Friday at 52.02.
5) MELI - Averaged long at 82.88 (2 mentions). No stop loss at present. Stock closed on Friday at 84.11.
6) LINE - Shorted at 28.75. Mental stop at 30.35. Stock closed on Friday at 28.40.
7) GIGM - Averaged long at 1.225 (2 mentions). No stop loss at present. Stock closed on Friday at 1.03.
8) DOW - Averaged short at 49.58 (2 mentions). Stop loss at 51.06. Stock closed on Friday at 50.68.
9) CVX - Shorted at 125.42. Covered shorts at 123.59. Profit on the trade of $183 per 100 shares minus comission.
10) INTC - Purchased at 26.01. Liquidated at 25.94. Loss on the trade of $7 per 100 shares plus commissions.
11) AMZN - Purchased at 290.56. Liquidated at 299.91. Profit on the trade of $935 per 100 shares minus commissions.
12) CVX - Shorted at 126.40. Stop loss at 127.93. Stock closed on Friday at 123.37.
13) AMZN - Purchased at 299.89. Stop loss now at 290.28. Stock closed on Friday at 312.24.
14) FSLR - Purchased at 59.69. Liquidated at 59.84. Profit on the trade of $15 per 100 shares minus commissions.
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The opinions and commentaries by Mr. De Vito are not a recommendation to buy or sell, but rather
a charting guideline, based on his own knowledge and experience, regarding the stocks he is following or
that are brought to him by others. Mr. De Vito does not presently offer a track record of his trading experiences.
No inference of success and/or failure should be assumed. The
information enclosed above, regarding his background, length of trading, and experience, is correct
but is not meant to suggest, state, or infer any future success in trading, based on his opinions. The information herewith included should only be used by investors who are aware of the risk inherent in securities trading. Mr. De Vito accepts no liability whatsoever for any loss arising from any use of the information and/or comments he supplies. |
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