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Issue #400 
November 2, 2014 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Uptrend Likely Resuming. Bears Need Help!
DOW Friday closing price - 17390
The DOW over the past 2 weeks has rallied 9.7% in value (1540 points) to go from an 8th month low and thoughts of a strong 20% correction being in the process, to a new all-time high and thoughts that the uptrend has resumed and that much higher prices will be seen. All of this occurring because of a "marginally" improving GDP number, slightly better than expected average overall earnings, and the announcement of a Stimulus program in Japan.
The DOW closed on the highs of the week and further upside above last week's high at 17395 is expected to be seen this week. With the last new all-time high generating a 3.3% increase in price (over a period of 8 weeks) before another correction occurred, it would suggest the upside objective is at least the 17716 level. The "rubber band theory" suggests the upside objective will be 17828 (478 points above the previous high, mimicking the 478 points that were seen below the previous low at 16333).
The turnaround in the DOW has been unexpected and possibly overdone as the big reports that are likely to affect the market are due not due out until this week, likely meaning that last week's action could have been premature. The ISM index report is due out on Tuesday morning, election results are due out Tuesday night, and the Jobs report is due out on Friday. As such, it can be considered the rally is mostly speculation rather than tangible information and as such, could fail at a moment's notice if the reports due out this week fail to support the strength.
To the upside, the DOW has no resistance. To the downside, the index will show minor but possibly pivotal support at the previous all-time daily and weekly close at 17279. On an intra-week basis though, no support is found until the 17000 demilitarized zone is reached.
The action in the DOW last week has committed the bulls to higher prices this week as any pause or a failure to follow through signal would likely turn the bullish feelings into fear because of the lack of near-by support and extreme volatility being seen recently.
With Wednesday likely to be the most important day of the week due to the election results, the probabilities favor the DOW trading on Monday and Tuesday in a choppy fashion with slightly higher prices than seen last week (fulfilling the need for higher highs than last week) but with dips down near Friday's low at 17208 as the 17279 level of now support likely to be tested as well.
The probabilities support the bulls in the DOW as it is likely the election results will favor the Republicans taking over the Senate and the economic reports will not reflect any new negatives in the improving economy. As such, expect higher prices to be seen at the end of the week. By the same token, any deviation from this scenario would likely be a cause for concern.
NASDAQ Friday closing price - 4630
After a 10.8% correction seen in September/October, the NASDAQ resumed its uptrend when the index broke above the double top at 4610 and ended up making on Friday a new 14-year high in every category. The index closed on the highs of the week and further upside above last week's high at 4641 is likely to be seen.
The bulls in the NASDAQ are now likely to target the all-time high monthly close at 4695 that was made February of the year 2000. That level is now a magnet that is likely to be reached this month if no big negatives are seen in the election or economic reports that come out this week.
It should be mentioned that the NASDAQ ended up having a positive reversal on the monthly chart, having made a new 4-month low and then making a new 14-year high and closing above the previous month's high. The positive reversal suggests that the index may end up having similary month in November, which in turn would suggest the all-time high at 5132 could be in the crosshairs for this month since the index rallied 535 points from the low in October and the all-time high is 502 points from the close on Friday.
It should be mentioned that October was the biggest rally month seen in the past 13 years, with the index having rallied a total of 535 points from the low of the month and the last time that kind of a rally was seen was in April 2001 when the index rallied 583 points from that months low.
Big trading ranges and huge volatility were the norm between 1999 and 2001, with the NASDAQ having seen the first 500+ point rally in November 1999 when the index broke above 3000 level and then seeing the last of the big rally months in April 2001 after the index got down to the 1619 low. It should be mentioned that there were only 2 green rally months in a row seen during that entire period of time and that was at the very beginning of the rally in November/December 1999 when the index went up from 2967 to 4698. After that period of time and during the next 14 months, the big trading ranges of as much as 1345 points and as low as 592 points continued but there were only 4 green months and none in a row.
To the upside and on an intra-month basis, there is minor intra-week resistance at 4698 but strong monthly close resistance at 4695. To the downside, the NASDAQ will now show daily and weekly close support at the previous 14-year high daily and weekly close at 4598/4582 respectively. Further but minor support is found at 4542 that could be seen due to the chart showing a "third" unclosed gap between 4575 and 4616 that should not remain unclosed before much further upside is seen. Important and pivotal support is now found at the 4500 level.
The positive monthly reversal and huge trading range seen, in addition to the increasing volatility, suggests that the NASDAQ will be moving strongly higher this coming month and perhaps next (at least on an intra-week basis) but that a top is now in the process of being built over the next 2-4 months and from which a downtrend will begin sometime next year.
Expect further upside in the NASDAQ this week though some 2-way action is likely to be seen the first 2 days of the week.
SPX Friday closing price - 2018
The SPX generated a positive reversal month as well as a new all-time closing high on Friday and closed on the highs of the day/week/month, suggesting that further upside of consequence, above last month's high 2018, will be seen this month.
The SPX generated a 198 point trading range this past month and in the entire history of the index there have only been 2 other months that have had as much or higher trading ranges to the upside, suggesting something of consequence is about to occur. Unfortunately, neither of those 2 other occasions (March 2000 with 206 point trading range and October 2011 with a 214 point trading range) can be compared in any way to the present chart scenario, meaning that history is not giving a clue as to what will happen at this time. By the same token, it can be said the increased high monthly trading range is either a sign that a major top will soon be made or that the uptrend is about to get another huge leg up.
Several fundamental analysts have stated that the SPX is heading up to the 2100 level and certainly the action seen this past week/month does now support that objective. In fact, using the "rubber band theory" the objective is 2103, given that the index fell a total of 84 points below its August low at 1904 and a rally of 84 points above its September high at 2019 would offer 2103.
Nonetheless, the big question that is now likely to be asked is whether this rally is the beginning of the end of the 7-year rally or the beginning of the next leg up in the uptrend. The answer to that question is likely to be answered by the NASDAQ chart that still has resistance levels above, rather than in the SPX that upside price objectives can only be speculated on.
To the upside, the SPX has no resistance above. To the downside, the SPX should now show closing support around the 2000 level and intra-week support at 1979. Further but minor support is found between 1966 and 1970. Decent to strong support is found at 1904.
Having made a new all-time daily and weekly closing high on Friday, as well as generating a positive reversal on the monthly chart and a 198 point monthly trading range, the bulls in the SPX are now committed to taking the index higher with 2103 as the objective. There might be some hesitation on Monday and Tuesday but after Wednesday, if there hasn't been any disappointing fundamental news, the rally should resume with strength.
A strong chart statement was made this past week when the indexes were all able to generate strong positive reversals on the monthly chart as well as make new all-time or multi-year closing highs on Friday. The bears find themselves with no chart ammunition with which to stimulate any selling interest and now needing negative fundamental information to "hopefully" stop what seems to be a "runaway freight train".
Nonetheless, this is certainly the week where fundamental information will be available as the ISM Index report comes out on Tuesday, the election results come out on Tuesday night and the Jobs report on Friday. The election results are likely the most important as additional seats won by the Republicans in the Senate would give the bulls the majority in both Houses and generate a feeling of well-being among investors.
Either way, it is evident that the bears need help at this time and barring that, it is likely that the uptrend has resumed.
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Stock Analysis/Evaluation
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CHART Outlooks
Based on a better than expected GDP report and a Stimulus program announced by the Japanese, the bulls were able to make new all-time and multi-year highs. Such action does suggest much higher prices will be seen, if and when there are no negative surprises in the economic reports this week and/or surprises in the mid-term elections.
From a chart point of view, the volatility, the unexpected-this-year new highs and the increased trading ranges suggest the indexes might be in the last leg of a major bull market that could end up finding a major top within the next 1-4 months.
The last leg of a bull market is "usually" where the small-cap stocks shine as traders normally look for undervalued stocks to invest in. As such, all mentions this week will be purchases and all will be in small cap stocks.
There will be opportunities to trade the bigger cap stocks as well but with increased risk they will only be traded for either day or very short-term opportunities. As such, those trades will only be mentions in the message board.
PURCHASES
ARNA Friday Closing Price - 4.36
ARNA fulfilled building the right leg of a rounded bottom when 4 weeks ago it dropped down to 3.26 and then generated a positive weekly reversal as well as follow through with 2 subsequent green weekly closes. A rounded bottom is a powerful indicator of long-term support and from which uptrends of consequence are usually seen.
ARNA bulls still need to generate a break above the 200-week MA, currently at 5.15, to generate any new buying interest but a rally up to that level is now highly likely. With the fundamental picture starting to improve almost every week with increasing script sales numbers, it does suggest the stock is ready to begin a consistent move to the upside.
To the upside, ARNA will show short-term resistance at 4.74 and then again at the 200-week MA. Further but likely minor resistance is found at the gap area between 5.69 and 5.79 and then again at the 100-week MA, currently at 6.50, that also has additional strength from 2 previous intra-week highs at 6.59 and at 6.65. The 6.52 area on a daily closing basis is an important resistance that if broken would give a buy signal and suggest a longer-term uptrend has begun. Strong resistance will be found at 8.00 that if broken on a monthly closing basis would confirm the rounded bottom is set.
To the downside, ARNA will show minor support at 4.20, a bit stronger at 4.05 and again at 3.82. Major support is found at 3.26.
If ARNA bulls are able to accomplish a close above 8.00, there will be 4 upside objective/resistance levels to be tackled in the future, with the first one being at 13.50, the second at 20.67, the third at 35.49 and the all-time high at 47.00 as the last one.
Though the $8 level needs to be broken to confirm the rounded bottom is set, a monthly close above 6.60 would break the 14-year downtrend and a daily close above 7.32 would give a strong buy signal that would suggest the rest will occur. As such, the 6.60 level will be the minimum upside considered for this buy mention.
Purchases of ARNA between 3.82 and 4.25 and using a stop loss at 3.16 and having at least a 6.60 objective will only offer a 2-1 risk/reward ratio. Nonetheless, it is probable that within a week or two at most that the stop loss will be raised and it should also be mentioned that 6.60 is only the first objective and not necessarily one that will stop the stock from moving higher. The rounded bottom suggests this could be the beginning of a rally up to at least the $20 level and at that price the risk/reward ratio would be closed to 16-1.
My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
PACB Friday Closing Price - 6.56
PACB broke a 4-year long-term downtrend and a 9-month mid-term downtrend this past week when the stock made a new 4-month intra-week and weekly closing high at 6.56 and above the previous two high weekly closes at 5.86 and at 6.49. The stock closed near the highs of the week and further upside above last week's high at 6.84 is expected to be seen.
PACB generated a negative reversal day on Friday, having made a new 7-month high and then closing in the red and on the lows of the day, suggesting the first course of action for the week will be to the downside, below Friday's low at 6.53 and with the possible objective of retesting the trend-line that was broken and is currently located at the 6.00 level.
To the downside, PACB shows very minor support at 6.50, minor to perhaps decent support at 6.18, minor support at 5.88/5.92 and at Wednesday's low at 5.83.
To the upside, PACB will show minor to perhaps decent resistance between 7.60 and 7.65 and decent resistance at 8.19. Above that level, no resistance is found until psychological resistance at the $10 demilitarized zone.
The chart suggests that PACB is now resuming the uptrend that started on November 2012 at 1.06 and that ended in January 2014 at 8.19 and that the $10 level is now the objective the traders will be shooting for. Nonetheless, the probabilities also favor some type of retest of the breakout seen this week with a drop at least down to 6.50 but perhaps as low as 6.00 where support is now likely to be strong.
Purchases of PACB between 6.00 and 6.51 and using a stop loss at 5.65 and having a 10.00 objective will offer at least a 4-1 risk/reward ratio.
My rating on the trade is a 4 (on a scale of 1-5 with 5 being the highest).
RFMD Friday Closing Price - 13.01
RFMD reported earnings this past week and generated a strong spike up rally from 10.37 to 13.21 that caused the stock to make a new 12-year monthly closing high above the previous one seen in the year 2002 at 12.19.
RFMD is a high Beta stock that is not considered a small-cap stock but it can be said the stock is "undervalued" since it did trade as high as 92.25 in the year 2000 but for the past 12 years has been trading mostly between 3.50 and 10.00.
It should also be mentioned that RFMD has mostly open air up to the $22 level if the bulls can get the stock above the 12-year year intra-week high at 13.51. Having closed on the highs of the week and generating a 30% move to the upside this past week, the chances of breaking above 13.50 and generating a strong uptrend are high.
To the upside and on an intra-month basis, RFMD still shows intra-month resistance at 13.50, very minor at 17.00 and then nothing until minor resistance at 22.19.
To the downside, RFMD should now show decent support at the $12 demilitarized zone, if and when the breakout is not negated this coming week (unlikely). If the stock does continue higher this week and above 13.50, as well as closing next Friday near the highs of the week again, the 12.78 level (on a daily closing basis) will then become decent support. It should also be mentioned that the stock now shows a breakaway/runaway gap with the runaway gap being between 10.64 and 11.33. With 2 previous intra-week lows at 11.29 and at 11.27, the probabilities of that support breaking are very low and if broken would suggest the breakout was fake (unlikely as well).
RFMD closed on the highs of the week and further upside above last week's high at 13.21 is likely to be seen this week. With the index market likely to continue higher, the probabilities favor a break above 13.51 and an immediate rally up to at least 17.00 if not up to the $20 demilitarized zone.
Purchases of RFMD between 12.00 and 12.80 and using a stop loss at 11.16 and having a 22.10 objective will offer a 5-1 risk/reward ratio.
My rating on the trade is a 4 (on a scale of 1-5 with 5 being the highest).
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Updates
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| Monthly & Yearly Portfolio Results
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Closed Trades, Open Positions and Stop Loss Changes
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Status of account for 2007: Profit of $9,758 per 100 shares after losses and commissions were subtracted. Status of account for 2014, as of 9/1 Profit of $23649 using 100 shares per mention (after commissions & losses) Closed out profitable trades for October per 100 shares per mention (after commission)
AAPL (long) $21 NFLX (long) $9 NFLX (long) $892 CVX (long) $1526 OXY (long) $306 Closed positions with increase in equity above last months close minus commissions. DLTR (short) $416 Total Profit for October, per 100 shares and after commissions $3170 Closed out losing trades for October per 100 shares of each mention (including commission)
FSLR (long) $272
FSLR (short) $112 NFLX (long) $66 WYY (long) $21 OXY (long) $102 LEN (short) $372 BIDU (short) $111 WHR (short) $91 BIDU (short) $298 Closed positions with decrease in equity below last months close plus commissions. SIGM (long) $83 Total Loss for October, per 100 shares, including commissions $1528 Open positions in profit per 100 shares per mention as of 10/31
FSLR (long) $980 Open positions with increase in equity above last months close. GIGM (long) $40 ELON (long) $12 Total $1342 Open positions in loss per 100 shares per mention as of 10/31
NONE
Open positions with decrease in equity below last months close.
FSLR (long) $1382 Total $1501 Status of trades for month of October per 100 shares on each mention after losses and commission subtractions.
Profit of $1483
Status of account/portfolio for 2014, as of 10/31Profit of $25132 using 100 shares traded per mention.
AKS generated the third green close in a row, as well as a close at the 200-day and 200-week MA's, both currently between 7.55 and 7.60. The close on Friday suggests the traders will wait for the economic news that is due to come out this week before committing themselves to a direction. Nonetheless, the probabilities do favor the upside and another green close next Friday would suggest the stock will be heading up to the 10.33 level to fulfill the upgrade objective. Resistance is found at 8.00 and a bit stronger at 8.47 and then nothing until the $10 demilitarized zone. Some support, though minor, is now found at 7.15 and the nothing of consequence until the 6.45/6.55 level is reached. Probabilities favor the bulls.
ADSK has rallied 21% in value over the past 3 weeks but unlike many other stocks was unable to make a new all-time intra-week or weekly closing high (above 58.75/58.12), suggesting there is still selling interest being seen. The stock did close in the upper half of the week's trading range and further upside above last week's high at 58.74 is likely to be seen. By the same token, the stock closed on the lows of the day on Friday and the first course of action for the week is likely to be to the downside below Friday's low at 57.47. A break below Friday's low would make Friday's high into a double top on the intra-week chart when measured with the 58.75 high seen on October 2nd. Very minor support is found at 55.59 and a bit stronger at 54.54. The strongest support is found at 52.69, which includes the 200-week MA. Probabilities favor a new all-time high being made but the 57.50 to 58.75 level has proven to be a brick wall since February when the stock first got up to that area. Any daily close below 55.00 would generate some big question marks on the ability of the bulls to take the stock higher. ARNA gave a buy signal on the daily chart on Tuesday when the stock closed above the 4.27 level, as well as a small buy signal on the weekly chart on Friday with a close above 4.16. Nonetheless, the bulls were unable to make a statement of consequence on Friday, having closed slightly below the previous low weekly close at 4.37 that generated all the weakness seen the last 3 months. Negating that break is what is needed to make it a "game changer". The stock closed in the upper half of the week's trading range, suggesting that further upside above last week's high at 4.51 will be seen this week. A green close next Friday would strongly suggest the stock has recovered from the selling pressure and at least gotten into a sideways trading sideways between the $4 and $5 level, with outside parameters of 3.82 to 5.69. Support should now be decent at 4.05 and minor to decent at 3.82. Resistance is found at 4.74, at 5.15 (on a weekly closing basis - 200-week MA) and then nothing until the gap area between 5.69 and 5.78. Probabilities favor the bulls but only as far as the stock getting into a sideways trading range. FB had a negative reversal week, having made a new all-time intra-week high and then closing in the red and below the previous week's low. The stock closed in the lower half of the week's trading range and further downside below last week's low at 72.90 is likely to be seen. Nonetheless, the stock was able to generate a green daily close on Friday, which suggests that the selling interest may have abated a little after the rally in the indexes, having reached the 100-day MA, currently at Thursday's low at 72.90, as well as having reached a decent intra-week support at 73.07. The stock did gap down off of the earnings report 79.57 and 76.88 and having closed in the middle of Friday's trading range if the bulls are able to generate some buying interest on Monday and rally above Friday's high at 75.70, the gap area is likely to be tested. Minor but pivotal resistance is found at 76.74 which includes the 50-day MA that has been somewhat pivotal all-year long. A close above the 76.88 would suggest the bulls will attempt to close the gap and if closed, resumption of the uptrend is likely to occur. Support is found at Thursday's 72.90 low and then again at 71.55. Decent and pivotal support is found at 70.58. If it wasn't for the strength seen in the indexes, the probabilities would favor the stock getting down to at least 71.55 but now the probabilities seem to be 50-50 and if the bulls are able to get above 76.88, they will shift to the bulls. ENG made a new 52-week intra-week and weekly closing low on Friday and closed on the lows of the week, suggesting further downside below last week's low at 1.28 will be seen. The stock has been under strong selling pressure during the past 12 weeks, having dropped over 50% in value (from 3.27 to 1.28) and generating 10 of 12 red weekly closes and 5 in a row. The stock also broke the 100-week MA (currently at 1.45) that had not been broken to the downside since October 28th of 2013. Chart-wise, the stock is looking weak. Monthly close support is found at 1.24 (1.15 intra-month) from a major low seen in September 2004 and from which a rally up to 3.39 was seen in just a period of 3 months. The company reports earnings on Thursday AM and that could be a game changer if better than expected. Intra-week resistance is now found at 1.53, at 1.74 and at 1.88. Probabilities favor the bears. FCEL generated a failure-to-follow-through-to-the-downside signal on Friday, having closed above the previous high weekly close from March 2012 at 1.86, and from which the rally to 4.71 occurred, as well as above the previous low weekly close support at 1.90 from May of this year, and from which the selling pressure for the past 4 weeks occurred. The stock also gave a buy signal on the daily closing chart, closing above the most recent previous high at 1.86. The bulls still have some work to do as they must close the stock above the 200-day MA, currently at 2.20, to generate "new" buying interest, rather than simple short-covering. Nonetheless, the action seen on Friday does remove the threat of lower prices and puts the stock at least into a sideways trend with 1.86 to the downside and 2.20 to the upside as the trading parameters. The stock did close near the highs of the week and further upside above last week's high at 2.08 is likely to be seen. FSLR generated a new 4 week high on Friday and closed on the highs of the week, suggesting further upside above last week's high at 58.97 will be seen this week. For the past 7 months the stock has been straddling the 200-week MA, currently at 59.00, and that means that a close in the green next Friday would likely generate another period of at least a few weeks of trading above the line, as has been seen 3 times before in the last 7 months. The stock gapped up on Friday between 56.39 and 56.60 and if a second gap occurs on Monday, it might end up being a breakaway/runaway gap formation that could signal that the downside is over and that a strong run to the upside is to come. A gap on Monday would suggest an immediate run up to the 200-day MA, currently at 63.25, before any new selling interest is seen. Minor resistance is found at 59.44 and then some at the $60 demilitarized zone. Nonetheless, above 59.00 the intra-week chart does not show any previous resistance of consequence until 65.98 is reached and if that level is broken, there is no resistance until the $72 level is reached. Support is now found at 57.80 and then nothing until 54.61 is reached. That likely means that the bulls are somewhat committed to generating a runaway gap on Monday and a run above the 60.30 level so that the $60 demilitarized zone will become support thereafter. If that occurs, the stock is likely to move up to the 200-day MA, correct back down to the $60 level and then begin a 6-month journey that could ultimately take it to the objective I have mentioned in the past at $100. GIGM generated a spike rally this past week, having seen a .20 cent rally from .85 to 1.06 (20% appreciation) and then closing at the highs of the week, suggesting further upside up to the 200-day MA, currently at 1.10 and the 200-week MA, currently at 1.08, will be seen. Intra-week resistance is found at 1.13, at 1.18 and at 1.27. Nonetheless, any weekly close above 1.18 would be considered a breakout that would likely thrust the stock up to at least the 1.49 level if not up to test the multi-year high at 1.84. Support is now found at 1.00, at .94 and the strong one at .87. The spike up rally suggests the bulls are ready to make a statement by closing above the 200-day and 200-week MA's this week.
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1) SIGM - Liquidated at 4.01. Averaged long at 4.82. Loss of $162 per 100 shares (2 mentions) plus commissions.
2) AKS - Purchased at 7.49. Averaged long at 7.44 (3 mentions). Stop loss now at 6.47. Stock closed on Friday at 7.56.
3) FCEL - Averaged long at 2.227 (4 mentions). No stop loss at this time. Stock closed on Friday at 2.02.
4) WYY - Liquidated at 1.56. Purchased at 1.63. Loss on the trade of $7 per 100 shares plus commissions.
5) GIGM - Averaged long at 1.225 (2 mentions). No stop loss at present. Stock closed on Friday at 1.05.
6) ENG - Averaged long at 2.195 (2 mentions). No stop loss at present. Stock closed on Friday at 1.31.
7) FSLR - Averaged long at 62.30 (4 mentions). No stop loss at present. Stock closed on Friday at 58.90.
8) OXY - Liquidated at 87.86. Purchased at 83.66. Profit of $320 per 100 shares minus commissions.
9) CVX - Kiquidated at 117.07. Averaged long at 109.335. Profit on the trade of $1547 per 100 shares (2 mentions) minus commissions.
10) LEN - Covered shorts at 43.27. Shorted at 39.69. Loss on the trade of $358 per 100 shares plus commissions.
11) BIDU - Shorted at 228.26. Covered shorts at 231.03. Loss on the trade of $277 per 100 shares plus commissions.
12) FB - Purchased at 73.07, Stop loss at 69.65. Stock closed on Friday at 74.99.
13) ADSK - Shorted at 58.28. Stop loss at 58.85. Stock closed on Friday at 57.54.
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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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