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Issue #401 
November 9, 2014 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Fundamental Outlook Remains Positive. Uptrend Likely to Continue!
DOW Friday closing price - 17573
The DOW made a new all-time intra-week and weekly closing high on Friday, confirming that the previous week's break above the 17279 weekly closing high seen in September is resumption of the uptrend.
The DOW closed on the highs of the week and further upside above last week's high at 17575 is likely to be seen. No selling interest has been seen during the last 3 weeks as there have only been 2 minor red close days in the last 12. With no scheduled economic reports of consequence until next Friday, the probabilities strongly favor the bulls.
To the upside, the DOW has no resistance. Nonetheless, having broken 4 weeks ago a previous low of consequence at 16333 by 478 points with the drop down to 15855, the upside objective might end up being 17828 as that would be considered the "rubber band theory" which in turn would generate the same 478 points to the upside above the previous all-time high at 17350. The rubber band theory is considered simply a mathematical formula that would be negated by fundamental changes. Nonetheless, since no fundamental information of consequence is due out until Friday, the mathematical formula might just work out.
To the downside, the DOW now shows pivotal support at 17278/17279, having been last week's low as well as the previous all-time high weekly close. With the index having closed on the highs of the week, if last week's low gets broken this coming week it would be seen as a failure-to-follow and a drop down to the 17000 demilitarized zone would then likely ensue since no other support has been built between those 2 levels.
The probabilities for this week favor higher highs and higher lows than last week and continuation of the uptrend.
NASDAQ Friday closing price - 4632
The NASDAQ generated another green close week on Friday, confirming that the previous week's break of the previous 14-year weekly closing high at 4582 was valid. The index did close in the upper half of the week's trading range, suggesting that further upside above last week's high at 4654 will be seen this week.
Nonetheless, the NASDAQ did not get the amount of buying interest that was seen in the other 2 indexes and that is a cause for concern as for the past 5 years it has generally been the leader when the market is heading higher. In addition, the bulls had to generate a 6-point rally in the last 10 minutes of trading to accomplish closing 2 points above the previous week's close. Simply stated, it was not the kind of action that creates a lot of confidence the index will be heading higher.
It is possible though, that the chart traders in the NASDAQ were simply trying to close the third gap (now between 4575 and 4594) and that since they failed to do so after 4 attempts that the index will roar upward this coming week. Certainly with the close in the upper half of the week's trading range, the probabilities favor the bulls. If the gap is closed this week, it would be considered a negative since it would mean a lower low than last week.
To the upside, there is minor resistance at Monday's high at 4654. Above that level 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 4594 that should not remain unclosed before much further upside is seen. Important and pivotal support is now found at the 4500 level.
The key this week in the NASDAQ will be last week's high and low (4654 and 4594) as a break of either one will not only generate follow through but even perhaps a signal of what is to come the rest of the year. By the same token, the bears will not be able to claim any success unless they can generate a failure signal with a weekly close below 4582, meaning that even if the index goes below last week's low this week it may not be decisive.
Probabilities favor the bulls and further upside this week.
SPX Friday closing price - 2031
The SPX confirmed the new all-time high made last week with another green close on Friday. The index closed on the highs of the week and further upside above last week's high at 2034 is likely to be seen.
The SPX may now be in a position to continue upward without any need of a retest of the breakout since on Tuesday the index got down to 2001. If a new high above 2034 is made, the 2001 drop will be considered a successful retest of that important level and will give the bulls "free rein" to take the index higher without the need of further retests.
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.
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 uptrend 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.
With all the important fundamental reports behind and a new all-time high made on Friday, the SPX has open air above and should continue higher without much problem.
Right across the board the indexes confirmed the previous week's breakout. In addition, the indexes closed on the highs of the week or in the upper half of the week's trading range, suggesting follow through to the upside will be seen this week.
There are no economic reports of consequence until Friday's Retail Sales report. Even then, the Retail Sales report is by nature volatile, meaning that even if negative it probably won't generate selling interest. If positive, it will simply add to the reasons for the traders to keep taking the market higher.
As such, it is expected that further upside will be seen this week. What the traders will now have their eyes open for, is for discrepancies to that scenario. Any drops this week below last week's low will be of concern.
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Stock Analysis/Evaluation
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CHART Outlooks
The indexes generated a pause period last week but the bullish outlook remains and further upside is expected to be seen.
Nonetheless, the present rally being seen could easily become the last leg of the bull market and 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 small cap stocks that are part of the RUT index. I did research RUT stocks that have at least 1 million shares traded and are considered undervalued.
PURCHASES
ACHN Friday Closing Price - 10.11
ACHN is a bio-pharma stock that has been around for 8 years and did see a high of 20.00 in 2007 and a low of .65 cents in 2008. From 2011 to 2013 the stock traded between $5 and $13 but in September of last year the FDA put a hold on one of their most promising Hepatitis drugs and stock dropped back down to 2.25 and traded for 9 months between 2.25 and 4.36. In June of this year, the FDA lifted the hold on the drug and the stock surged once again to make a new 7-year high at 13.80.
For the past 8 weeks, ACHN has likely experienced a bit of a correction/profit taking from the 560% rally that it experienced and now seems poised to resume the uptrend after having repeatedly tested the $10 level as the new support area.
ACHN reported better than expected earnings this past week but took a bit of a dive after the company did not provide any data on its Hepatitis C drug ACH-3422. Nonetheless, Deutsche Bank said Tuesday that it believes the stock price decline was an overreaction as the firm used ACHN's timeline as guidance and does not see the lack of data as a delay. The company did announce that they would be releasing that information later on in the quarter.
To the upside, ACHN will show minor resistance at 10.99 and then nothing until the most recent high prior to the earnings report at 12.62. Further and likely a bit stronger resistance is found at the 7-year high at 13.80 and then nothing until the 17.60-17.94 levels are reached.
To the downside, ACHN will show decent weekly close support between 9.50 and 9.80 with intra-week support found at 9.32. Further support is found at 8.47 and then nothing until the 200-day MA, currently at 7.05, is reached.
The recent rally in ACHN has been impressive as the stock has rallied 560% (over $11) in a matter of 5 months. It has also been evident that the information regarding the drug has lit up the speculative interest of the bulls as the stock just made a new 7-year high and the 2 corrections seen since June have been small and short-lived.
The $10 level is a psychological support level that should not be broken decisively without negative news, especially since the stock now also shows a decent history at that price. With ACHN closing on Friday at that level, it makes the purchase of the stock a natural trade with decent risk/reward and probability ratings.
It should be mentioned that the short-term chart ACHN does have potential for a break of support and another sharp move down, meaning the stop loss needs to be adhered to. Nonetheless, if the break of support does not occur this week, the stock is likely to move up strongly before the end of the week.
Purchases of ACHN between 9.60 and 10.00 and using a stop loss at 9.22 and having an objective 17.90 will offer a 9-1 risk/reward ratio. It should be mentioned that if the 9.32 level does not break the stock should see at least a rally up to the 12.05 level, meaning that the stock still has a decent risk/reward ratio as long as the support does not break.
My rating on the trade is a 2.75 (on a scale of 1-5 with 5 being the highest).
AREX Friday Closing Price - 10.73
AREX is an oil exploration company in the U.S. that has been on a strong downtrend since April 2012 when it made its new all-time high at 39.18. The lack of support by the Obama administration for oil exploration in the U.S. caused the stock to make a new 4-year low last week at 8.32. Nonetheless, the stock generated a key reversal (multi-year low and a close above the previous weeks' high) after the Republicans won the Senate, likely because the Republican win will favor support for oil exploration.
It should be mentioned that the $10 level in AREX has been a support/pivot point level since the stock started trading in 2005, meaning that the reversal seen this past week was not only because of the election but likely also because the stock is oversold and at a level of support that is not likely to be broken easily.
With the 8.32 low seen last week, AREX fulfilled an inverted flag formation objective that stated that 8.99 would be seen, meaning that the stock no longer has a technical chart objective to the downside, suggesting that a bounce of some consequence is likely to be seen.
To the upside, AREX shows no resistance until minor resistance at 13.79 is reached Nonetheless, that resistance is actually 6 years old and unlikely to offer much of a challenge to the bulls if the stock gets moving higher. The next resistance level is found at 16.80 and that is a more likely objective inasmuch as it includes the 16.73 weekly close support level that got broken. If the stock has found a bottom to this rally, the probabilities are high that level will be the target of a bounce.
To the downside, AREX will now show minor to perhaps decent support at the $10 demilitarized zone and then a bit stronger at the low seen 9 trading days ago at 9.06. Decent to likely strong support is found at 8.32.
AREX generated a spike rally on Friday from 8.83 to 10.97 and did close on the highs of the day/week, suggesting further upside above last week's high at 10.97 will be seen this week. Nonetheless, the probabilities strongly favor a retest of the lows (has not been seen yet) before further upside of some consequence will be seen. As such, there is a strong possibility that the desired entry point will not be seen this week. Nonetheless, with this trade offering a lot of mid-term positives, it is worthwhile waiting for the stock to reach the desired entry point and not chase the stock at this time.
Purchases of AREX between 9.06 and 9.90 and using a 8.22 stop loss and having a 16.80 objective will offer 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).
BDBD Friday Closing Price - 8.75
BDBD is a food company that specializes on organic foods and the trend toward better nutrition. The stock has been trading since August 2007 and has traded between a high of 18.46 (seen in March of this year) and a low of 3.34 (seen in October 2010). For the past 8 months the stock has been dropping in price and as of September of this year had earned the title of being the highest shorted stock in the market with $39 million shares shorted.
On October 22nd, BDBD pre-announced that earnings would be lower-than-expected and received a downgrade the same day because of it and the stock went ahead and dropped 40% in value (from 12.87 to 7.77) over a period of 2 weeks. The earnings report actually came out on Thursday and it was exactly as the pre-announcement said it would be.
In spite of the huge short interest, the downgrade, and the negative news the bears were unable to break the 28-month low seen in March 2013 at 7.74 (8.34/8.47 on a weekly closing basis) and BDBD generated a positive reversal week as well as follow through to the upside last week, suggesting that there is definite buying interest in that area. It should also be mentioned that the drop and 2-week bounce from 7.77 has created a double bottom of consequence with the low seen in March 2013 at 7.74. In addition, when added to the fact that on a weekly closing basis the area has a history of being pivotal (8.21 was week close resistance for 4 years between June 2008 and June 2012). It does suggest that further negatives are needed to break that level.
To the upside, BDBD will show natural resistance at the $10 demilitarized zone which does include the 200-week MA, currently 10.15. Nonetheless, the 200-week MA has not been an important factor in the history of the stock and therefore is not considered a strong resistance level. Additional resistance will be found at 11.01, which was the low that got broken 3-weeks ago and that was support for 13 months. A weekly close above that level would suggest further upside with 12.99 or 13.99 as the objective.
The trade in BDBD is mostly technical in nature based on the chart strength shown at the 8.20-8.40 area (based on a weekly close). In addition, the huge short-interest does offer an opportunity of a fast short-covering rally of consequence should the shorts make the decision to cover.
Purchases of BDBD between 8.35 and 8.45 and using a stop loss at 7.65 and having an objective of 12.99 will offer a 5-1 risk/reward ratio.
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AKS took a fall on Tuesday, from 7.59 to Thursday's low at 5.99, after the earnings report came out. The report itself was not bearish except that some one-time fees that were not expected got included. Closure of the gap between 5.86 and 6.10 was targeted by the bears but when the stock only got down to previous support 5.99 and no further downside was seen, a strong short-covering rally occurred on Friday that generated enough buying to close the stock above a minor daily close resistance at 6.50. The stock did close in the lower half of the week's trading range but on the highs of the day on Friday and the first course of action is likely to be to the upside but last week's lows at 5.99 are still at risk of being broken. Minor intra-week resistance is found at 7.01. Stronger resistance is found at 7.32 and pivotal resistance is at the 200-day MA, currently at 7.57. Minor support is found at 6.45, stronger at 5.99, and then minor and likely pivotal at 5.79. Probabilities favor the bulls inasmuch as this drop was not well supported fundamentally or technically but was needed as no retest of the 5.17 low had been seen yet on the weekly chart. A rally above last week's high at 7.59 would be a bullish statement. ARNA generated a red weekly close on Friday, making the previous week's close at 4.36 into a successful retest of the previous low weekly close of importance at 4.37. The stock closed near the lows of the week and further downside below last week's low at 4.12 is likely to be seen. Nonetheless, the red weekly close was not unexpected as the 4.37 weekly close level is considered pivotal resistance and there has not yet been any strong fundamental reason to negate the break of that support that occurred 4 months ago. By the same token, the stock ended up having an inside week, meaning that the bears are not in control either and that does suggest the move down will be limited and possibly short-timed. Important support continues to be found at 3.82 but quite a bit of support has been built into the daily chart between 4.05 and 4.12 that has a high probability of holding up. Resistance is found at 4.52 that if broken would suggest further upside, up to the 5.00-5.13 level will be seen. Probabilities favor a technical trading week with a possible trading range of 4.07 to 4.45. ENG reported better-than-expected earnings on Thursday and the stock gapped up between 1.59 and 1.85 and broke above the resistance found at 1.88. The stock closed near the highs of the week and further upside above last week's high at 2.15 is likely to be seen with the 200-day MA, currently at 2.33 as the minimum objective. Nonetheless, the bulls were unable to close the stock on Friday above the 200-week MA, currently at 2.00, and did close on the lows of the day on Friday, suggesting the first course of action for the week will be to the downside, with the likely objective of testing the gap area as well as a minor intra-week support from April at 1.84. Should that get done successfully, the bulls will likely take the stock up the rest of the week. The 2.00 level on a weekly closing basis remains the key and pivotal area the bulls must best. A confirmed weekly close above 2.00 would open the door for rallies up to 2.75, to 2.98, or even up to 3.64. Closure of the gap would now be considered a strong negative since the gap was created off of positive news. FB failed to follow through to the downside this past week after the previous week's close near the lows of the week and proceeded to generate a green weekly close, suggesting that the worst of the disappointing earnings report is over and that the traders may attempt to regenerate the uptrend. The stock did close in the upper half of the week's trading range and further upside above last week's high at 76.80 is likely to be seen. A rally above the top of the gap at 76.88 will likely generate further buying in an attempt to close the gap at 79.57. On a possible bearish note though, the stock has been building what can be considered an inverted flag formation, with the flag pole being the drop from 81.16 to 72.90 and the flag being the trading range seen the last 7 days between 72.90 and 76.80. A break below 72.90 would offer a downside objective of 68.54 which does match up with the fact the 200-day MA is currently at 68.30. It is evident then, that all eyes will be on the 72.90 and 76.80 levels for direction. The probabilities do favor the bulls, mostly because the stock closed on Friday on a positive note and the indexes are likely to head higher. Nonetheless, a stop loss at 72.65 should be in place. FCEL followed through to the upside this past week with a rally up to 2.29. Nonetheless, the bulls were not able to generate a close above the 200-day MA, currently at 2.22, and the stock sold off to close in the middle of the week's trading range and exactly on the 50-week MA, currently at 2.11, suggesting the traders are waiting to see what the general market does before committing to a clear direction for the rest of the year. Nonetheless, the stock did confirm the recent downtrend has been negated, by closing above the 1.84/1.90 level for a second week in a row. The stock did close on the highs of the day on Friday and the first course of action for the week will be another test of the 200-day MA. A break above last week's high at 2.29 and a confirmed close above 2.22 would suggest the stock is resuming the uptrend and that a rally up to 2.64 would likely be seen within a week or two. Support is now at 1.84/1.86 and a break of that level would regenerate some selling interest. Probabilities favor the bulls but only slightly. FSLR received a disappointing earnings report on Friday and gapped down between 55.80 and 53.48 and ended up making a new 9-month weekly closing low. The stock closed on the lows of the week and in a spike down fashion, suggesting further downside will be seen next week below last week's low at 50.00. Nonetheless, the $50 level has been an important pivot point area for the past 3 years and it is unlikely the level will be broken by much or for long. Intra-week support is found at 49.40/49.50, at 47.75, and strong at 47.04. Minor resistance is found at 52.14 and at 53.65 but if 53.65 is broken, the next resistance level is not found until $59 is reached. The probabilities favor the stock trading between $47 and $53 for the next few weeks and then buying interest come in with $59 as the first objective. GIGM bulls were unable to generate follow through to the previous weeks strong rally and an inside week was generated as well as a red close. Nonetheless, on a weekly closing basis, the bulls were able to keep the stock closing at the 1.00 level, suggesting the bullish rally seen the previous week was valid. The action during the past 2 weeks suggests that a bullish flag formation has been forming and a rally above the top of the flag at 1.06 would offer a 1.25 objective. Support is found at .93 and again at .87 but it should be mentioned that the bottom of the flag is at .93 cents so it behooves the bulls to keep the stock above that level. The stock closed in the middle of the week's trading range, meaning that direction at the beginning of the week might depend on what the indexes do. Probabilities favor the bulls. PACB generated an inside week that was likely just a pause in the recent uptrend, especially since the weekly close on Friday was still above the previous high weekly close at 6.49 that got broken the previous week. The stock closed in the middle of the week's trading range and it is likely the traders are waiting to see what the overall market will do. Probabilities favor the bulls and a rally above last week's high at 6.71 would likely stimulate resumption of the uptrend. Support is found at last week's low at 6.30 and again at 6.18. As long as the bulls can keep the stock above 6.18, the probabilities will strongly favor the bulls. RFMD came close to generating a reversal week as the stock made a new 12-year high at 13.90 and then traded down to last week's close at 13.01. Nonetheless, the bulls were able to generate another green weekly close, suggesting the uptrend remains intact. The stock closed near the lows of the week and further downside below last week's low at 12.97 is likely to be seen this week. Support is found at the previous 12-year high daily close at 12.78 and again at the previous high weekly close at 12.47. The outlook for the stock is bullish and a retest of the previous breakout is expected but should be simply strengthen the probabilities of higher prices.
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1) PACB - Purchased at 6.49. Stop loss at 5.73. Stock closed on Friday at 6.52.
2) AKS - Averaged long at 7.44 (3 mentions). Stop loss now at 5.69. Stock closed on Friday at 6.62.
3) FCEL - Averaged long at 2.227 (4 mentions). No stop loss at this time. Stock closed on Friday at 2.11.
4) RFMD - Purchased at 13.25 and at 13.01. Averaged long at 13.13 (2 mentions) Stop loss is at 1.268 on a daily closing basis. Stock closed on Friday at 13.23.
5) GIGM - Averaged long at 1.225 (2 mentions). No stop loss at present. Stock closed on Friday at 1.00.
6) ENG - Purchased at 1.37. Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.96.
7) FSLR - Averaged long at 62.30 (4 mentions). No stop loss at present. Stock closed on Friday at 50.29.
8) FB - Purchased at 74.38. Averaged long at 73.725 (2 mentions). Stop loss is at 72.65. Stock closed on Friday at 75.60.
9) ADSK - Covered shorts at 58.85. Loss on the trade of $57 per 100 shares plus 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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