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Issue #145 
October 18, 2009 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Major Earnings Report Week Ahead!
DOW Friday close at 9996
The DOW got back up to and over 10,000 for the first time since October 7th 2008 as the he earnings reports this past week generally came out bullish. JPM and GS surpassed expectations and the Retail Sales number came in better than anticipated. The bulls used the positive news to push the market above the major psychological level intra-week but on Friday the market received negative reports on C and BAC, as well as the Michigan Sentiment Report, and fell back to close out the week just below 10,000 at 9996.
It can be said that the DOW has now accomplished its main objective to the upside as the break of the 10,000 level in Oct08 represented all the major negatives of the recession. Getting back to that level is an emotional statement that basically portrays that "things are back to normal". It also puts the market on an "even keel" from which traders can get back to business trading individual stocks and not only the general direction of the market.
On a weekly closing basis, there is psychological resistance at 10,000 as well as at the 100-week MA currently at 10200. On a daily closing basis, there is no resistance, other than psychological at 10,000, until minor resistance is found at 10851. On a weekly closing basis, decent support is now found at the most recent close at 9488, minor support at 9441, and again at 9321. Below that there is nothing until the 50-week MA currently at 8515. On a daily closing basis, there is minor support at 9726 and a bit stronger at 9665. Strong support is found at 9488.
A major psychological level such as 10,000 is likely to act not only as support/resistance but as an important pivot point. Moves of as much as 300 points above and below the pivot point are within the scope of a normal technical trading range associated with a major pivot point. Nonetheless, the market is in the midst of earnings report season and therefore fundamental news is likely to dominate the index for the next couple of weeks. Any moves above or below 10300 and 9700 should be considered indicative.
The DOW does show resistance of consequence at the important 100-week MA which is currently up at 10200. Nonetheless, above that level the index does not show any previous resistance of consequence until the 200-week MA is reached, currently up at 11220. If the fundamental picture continues to be positive and the DOW is able to get above the 100-week MA, on a weekly closing basis, there is nothing to stop it from going up another 1000 points.
On the downside, based on the weekly closing chart, there is no support of consequence until 9488 is reached. Nonetheless, the 50-day MA, which held and generated the latest 2-week rally, is currently at 9600 and moving up fast. Should the index get into some profit taking, it is likely that somewhere between 9600 and 9700 the index will find strong buying and bounce back up to the 10,000 level pivot point.
This coming week there are 399 companies that will report earnings and with the index presently trading off of news, rather than on a chart basis, it is impossible to predict probabilities with any degree of certainty. Nonetheless, the market in general has risen to lofty levels that are more prone to corrections than to further upside. The perfect example was GS this past week as the company reported earnings that beat expectations by 25% and yet the stock ended up falling 5% in price off of the news. As such, the burden of proof is not only on the shoulders of the bears, but it is now to the point that proof needs to be substantially better than in the past to continue further upside of consequence. With all those reports coming out this week, it is likely the market will show some volatility on both sides of the coin, with possible rallies up to 10200 and drops down to 9800.
It is likely that the most important report this month will be GDP, due to come out October 29th. Already the consensus is for a leap upward into the green with a possibility of it being as much as 2.5% in the green (last GDP was -.7%). Until such a time that number comes out (10 trading days), it is not likely the DOW will have any further moves of great consequence in either direction. As such, the next 10 days should be somewhat range bound with 10300 and 9700 as the possible parameters.
NASDAQ Friday Close at 2157
The NASDAQ got up to the next strong resistance level on the weekly closing chart at 2175 with an intra-week rally up to 2174. Nonetheless, the index did close above the "first" weekly closing high seen back in 2003 at 2140 that generated a 6-month correction, and therefore it is now possible that further upside could be seen.
It is evident that the continued rally was due to the positive reports that came out this past week, thus helping the index to "inch" its way higher above the 2140 level that was important in 2003. Nonetheless, the index was not able to close above the 3-year (2003-2005) weekly close resistance at 2175/2185, thus giving notice that no breakout has occurred.
On a weekly closing basis, resistance is very strong at 2175/2185. Nonetheless, on an intra-week basis, resistance is very strong up at the 2005 high at 2217 as well as at the 200-week MA currently at 2212. On a daily closing basis, resistance is minor at Thursday's closing high at 2173. On a weekly closing basis, support is strong at 2048 and minor at 2019 and again at 1986. Below that, there is no support until minor support is found at 1859 and strong at 1756. On a daily closing basis, support is decent at 2035 from the 50-day and 100-week MA. Below that level support is minor at 2018 and decent to strong between 1969 and 1970, as well as at 1931.
It is evident by the fact that the NASDAQ has such important and clearly defined resistance levels that it is the index to watch for clues as to what the market will do from here. With the 2175/2185 high weekly closes that stopped the index from rallying back in 2003-2005, and from which corrections of 20%, 15%, and 10% occurred, the probabilities based on past history seem to suggest that further upside should be limited to no more than 50-55 points to the upside.
The NASDAQ has left an open gap between 2075 and 2079 that should be closed at some point. The index does not have any nearby support and only minor support at 2085. As such, as soon as there is any indication that a top has been found, a move down should be swift. The index did spike down on Friday but ultimately ended up closing in the upper half of the day's range. It is probable that the week will start with a rally but if the 2174 high is not taken out within the first couple of days of the week, a drop down to around the 2060 level should be seen.
S&Poors 500 Friday close at 1088
The SPX continued its upward momentum with another new 12-month weekly close. Nonetheless, the index is getting close to the 100-week MA, which is currently at 1105. Having seen a 1097 high this past week, it likely means that that no more than 8 points above the past week's high could be seen before strong selling and/or profit taking occurs.
The monthly chart of the SPX does show a couple of interesting points that need to be mentioned. To begin with, 5 previous monthly closing lows are found between 1091 and 1112, going all the way back to 1998. Though previous lows closes are never considered as strong a resistance as previous high closes, the fact that there are a total of 5 seems to suggest an area that is likely to put some break on the rally. It must also be mentioned that if the index closes above 1057 at the end of the month it will make a new record of continuous months (8) without any kind of monthly correction. The last time the index had such a run was back in 1994 when the index went up 7 months before a correction occurred.
On a weekly closing basis, there is no resistance until the 100-week MA at 1105 is reached. On a daily closing basis, there is only minor resistance at Thursday's close at 1097. On a weekly closing basis, support is decent to strong at 1025, minor at 1016 and again at 1004. Strong support is found down at 879/882. Below that level there is minor support at 825 and very strong support at 800. On a daily closing basis, there is minor support at 1073 and again at 1044. Decent to strong support is found down at 1025. Below that, there is decent support at 994 and strong at 979.
In looking at the chart during the last year, no resistance can be found other than the 100-week MA at 1105. Nonetheless, as mentioned above, the monthly chart going back to 1998 does show some resistance between 1092 and 1134. The index attempted to get up to the next psychological resistance at 1100 but failed to reach that level having gotten as high as 1097 this past week.
It must be mentioned that the index has a rare gap between 1075 and 1079 that should be closed soon. There is very minor support intra-day at 1067 but if that level is broken, a drop down to the 1044 level is likely to occur. With last month's close having been 1057, it is likely that for the next 2 weeks, until the end of the month, that level will be a pivot point. Having not seen an 8-month rally with no correction over the past 20 years, the likelihood of it occurring on this occasion is not high.
This week will likely be dominated by earnings reports, as such the technical factors are not likely to play an important part unless the reports are totally skewed in one direction or the other.
It is difficult to evaluate the probabilities this coming week as the week will be dominated with earnings reports (399 of them). Nonetheless, the earnings reports seen so far have not been as good as the previous quarter where 75% of them were positive. So far the reports have come out about 55% toward the positive side. Nonetheless, that number is based on just a small amount of companies that have already reported.
The indexes have now reached or are close to reaching major upside objectives where long-term resistance levels of consequence are present. In addition, this 8-month rally has basically occurred without any correction of consequence having been seen. As such, probabilities of further upside have diminished and of a correction being seen soon increased.
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Stock Analysis/Evaluation
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CHART Outlooks
Once again, the probabilities of the indexes being near a major top are high. As such, short positions will again be mentioned this week as the resistance levels are clearly defined and the risk/reward ratios good.
AMTD (Friday's closing price - 20.58)
AMTD is a stock that since April 2000 has traded below the 21.50 level 98% of the time (20.89 on a monthly closing basis). In 2006, the stock was briefly above that level for a period of 3 months with an intra-month rally up to 26.37 and a monthly close at 24.00. Nonetheless, during those 9 years, the stock did get up intra-month to the 21.50 level on 6 separate occasions and on every occasion, with the exception of 2006, that area has stopped the stock from moving higher. There doesn't seem to be any fundamental or chart reason for that trend to change at this time.
In addition, AMTD has shown a strong tendency to drop down to at least the $15 level, if not down to $10, each and every time during this period of time. As such, this trade offers a very good risk/reward situation with a high probabiity number.
On a monthly closing basis, resistance is very strong between 20.58 and 20.89. On a weekly closing basis, resistance is strong between 20.93 and 21.47. On a daily closing basis, resistance is decent at Thursday's high daily close at 20.86. On a monthly closing basis, support is minor to decent at 16.51, decent to strong at 14.88 and strong at 11.21. On a weekly closing basis, support is minor at 18.72, decent between 16.55 and 16.95 and strong at 14.88. On a daily closing basis, minor support is found at 20.18, decent support is found at 19.36, and decent to strong support is found at 18.13. Below that level support is decent to strong again at 16.30-16.65.
AMTD has traded consistently between $10 and $21 during the last 9 years and there doesn't seem to be any reason, fundamentally or technically, to think that is about to change. The stock last Thursday got up to the 20.93 level, which is, on a weekly closing basis, a resistance that is strong and relatively recent, going back to 2007. The close at 20.58 on Friday does suggest that the stock will maintain its strength for one or two weeks more and that a close up at that level could be seen next week. Nonetheless, at these high prices it doesn't seem like there is a lot of risk to selling the stock on any rally up to and above the $21 level.
The main objective of the short position will be a drop down to the $15 level over the next couple of months. Nonetheless, over a longer period of time, it is certainly possible that the stock could get down to the $10-$11 level as it has done on 7 separate occasions over the past 9 years.
Sales of AMTD between 20.89 and 21.31 and using a stop loss at 21.60 and an objective of 14.88 will offer a risk/reward ratio of 8-1.
My rating on the trade is a 4.25 (on a scale of 1-5 with 5 being the highest probability).
SKX (Friday's closing price - 22.00)
SKX has been on an impressive run since March when the stock got down to the 5.20 level. On Friday, the stock closed up at 22.00 and on 14-month high. It is likely the stock will continue to go higher on Monday and Tuesday as there is no immediate resistance nearby and the stock is expecting a bullish earnings report on Wednesday.
SKX shows very strong resistance, on a weekly closing basis, between 23.88 and 24.26 that was in effect between July 2007 and September 2008 that is unlikely to get broken even with a bullish earning report. Such a resistance is likely to bring is strong selling under any circumstance. A bullish earnings report will likely thrust the stock up into resistance where it is likely an aggressive sell.
On a weekly closing basis, resistance is very strong between 23.88 and 24.26 with 4 separate closes between 2007 and 2008. On a daily closing basis, resistance starts at 23.74 and gets stronger all the way up to 24.98. On a weekly closing basis, support is decent between 18.06 and 18.56, and very strong at 16.81. On a daily closing basis, support is decent at the psychological $20 level, decent to strong at 18.30-18.50, and strong between 16.46 and 16.83.
SKX is now into a strong congestion area between 18.50 and 24.50 that is also likely to be the trading range for the next few months, if not longer. With the stock on such a strong run and closing on a 14-month high last Friday, it is likely that the stock will get up into the high end of that congestion area this coming week. The company is in the retail business and anything retail will have definite limitations while the unemployment numbers are high. Since unemployment is not likely to go down significantly for at least a year, companies such as SKX will have trouble generating further upside at this time, especially after having seen more than a 400% rally over the past 7 months.
It is likely that the stock, once it reaches the upper limits of its 1-year trading range between July 07 and September 08, will get into another trading range for the next 3-6-months between $25 and $17. As such, any rallies this week will be opportunities to sell.
Sales of SKX between 22.90 and 23.40 and using a stop loss at 24.10 and having an objective of 17.36 will offer a 5-1 risk/reward ratio.
My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the highest probability).
ELON (Friday's closing price - 14.20)
ELON is a stock that since 2007 has pivoted greatly around the $15 level. In 2007 the $15 level was a major support area and in 2008 a major resistance area. Having rallied mainly on the coattails of the indexes and with resistance levels of consequence now being seen in both, the probabilities of further upside are limited.
The stock in November 08 and in March 09 got down to $5 and during the last 7 months the stock has moved up to reach a 15.09 high seen 4 weeks ago. The stock is now overbought, at a major resistance level, and not showing any retest of the lows. If the indexes do not help any further, it looks like ELON could be in for a move down of consequence over the next few months.
On a weekly closing basis, resistance is very strong between 15.04 and 15.31. On a daily closing basis, resistance is very strong between 15.20 and 15.88. On a weekly closing basis, support is minor to decent between 12.39 and 12.73, decent between 11.15 and 11.25, and strong at 10.20. On a daily closing basis, support is minor to decent at 12.39, decent at 11.50 and at 10.98, and strong at 10.04.
Based on the present circumstances in the market, ELON is not likely to break above the $15 level at this time and is likely to trade back down to the $10 level over the next 1-3 months. It is important to note that since July when the stock was trading down in the lower $7 level, the stock has moved almost straight up without any correction of consequence. Now that the stock is trading at a major resistance level, unless the indexes continue substantially higher, it is highly likely that a correction of consequence will occur. Drops back down to the psychological support at $10 are probable.
It is difficult, though, to predict whether the stock will break above the $15 one more time or if the 15.09 high seen 4 weeks ago will be the high. Rallies up to the 14.68 level are highly likely but if the 15.09 intra-day high is taken out, an intra-day rally all the way up to 15.65 could occur.
Sales of ELON between 14.52 and 14.72 and using a stop loss at 15.84 and having an objective of 10.39 will offer at least 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 probability).
FFIV (Friday's closing price - 42.63)
FFIV has been on a tear to the upside since the stock reached its 17.70 low in March of this year. Nonetheless, the stock is nearing 9-year weekly closing highs at 45.60 and 43.45 on a monthly closing basis, and it is unlikely that under the present fundamental & technical conditions that the stock will be able to break above those resistance levels.
As it is, FFIV did show some strong selling last week after the stock got up close to the October 2007 high at 44.55 (got up to 44.19). Upon reaching that lofty level the stock fell back and 2 days later generated a gap down opening, thus providing evidence that the area above $44 is likely to generate more selling if seen again. It must be noted that 46.94 has been the highest point during the last 9 years and that high came at the height of the 2007 bull market.
On a weekly closing basis, resistance is strong at 43.09 and major at 45.60. On a daily closing basis, resistance is decent at 43.48 and at 43.94, stronger at 44.27, and major at 45.60. On a weekly closing basis, support is minor at 38.50 and strong at 34.97 to 35.03. Below that level, support is decent to strong at 33.34/33.52, and psychologically strong at $30. On a daily closing basis, there is no support until decent support is found at 38.39/38.53. Below that level there is decent support at 35.71/35.83, minor at 33.95 and strong again at 32.54.
FFIV is showing signs that further upside of consequence is going to be difficult to accomplish. Having gotten near the bull market highs and seen strong selling appear, it is likely that the bulls will be looking to take profits soon. With no resistance whatsoever built until the 38.50 level is reached, the probabilities of a strong drop in price coming as soon as a top is established is high.
The stock does show a spike last week and a close above the half point of the range. As such, it is likely that another attempt, and perhaps a higher high above last week's high at 44.19 will be seen. Nonetheless, with daily, weekly, and monthly closes of consequence all converging between 43.45 and 45.60 rallies at this point should be sold aggressively.
The gap on Friday between 42.85 and 42.95 should be closed this week and a rally up to at least 43.50 should be seen, with the possibility of the stock breaking above 44.19 and getting up to 44.55 level. Nonetheless, drops down to 38.50 are highly likely to be seen soon. In addition, if the stock does find a top here, drops down to the $32-$34 level over the next 1-3 months are also likely.
Sales of FFIV between 43.70 and 44.50 and using a stop close only stop loss at 45.70 and having an objective of 34.03 offers a risk/reward ratio of 4-1.
My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the highest probability).
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Updates
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| Updates on Held Stocks
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Open Positions and stop loss changes
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| NUAN was able to generate a break above the $15 resistance level with a weekly close at 15.27 on Friday. In addition, the stock was able to get above a minor intra-day resistance at 15.52 when it rallied up to 15.86 during the week. On Friday the stock tested the 15.00 level with a drop down 14.99 but ended up closing out the day near the highs of the day suggesting further upside this coming week. There is minor resistance at 16.21 and decent resistance at 17.00. Strong resistance is found up at 17/86 (17.70 on a weekly closing basis). Support is now strong at 14.01. Probabilities favor further upside. GPS broke above all the intra-week resistance going back to Nov04 and now only has the 23.75 intra-week resistance (23.25 on a weekly closing basis) to stop any further upside. It is important to mention that 25.72 has been the high since 2001. That high was made on Jun04. The stock did have a positive reversal on Friday with higher highs, lower lows, and a close in the green. Such a reversal suggests the stock will be moving higher this coming week with the 23.25-23.75 as the objective. The stock has not built any strong supports but on a daily and weekly closing basis, 20.81 is now considered decent support. The chart suggests that the stock will be in a monthly close trading range between 23.25 and 18.75 during the next few months. RSG has now totally fulfilled the monthly and weekly charts having rallied this past week to the 100-month MA at 27.60 and the 200-week MA at 27.70. In addition, the charts show 3 separate previous major lows between 27.30 and 27.92 as well as a previous low weekly close at 27.90 that adds strength to this resistance level. As such, it is unlikely the stock will go any higher. If it does, then further upside of consequence is likely to be seen. The stock shows decent support at 25.77 and stronger down at 25.00. If those levels get broken, drops down to 23.43 would be likely. This is a pivotal week for the stock as there is no further room to the upside without generating a breakout of consequence. As such, the stock should not rally past 27.92 and should show red most of the week. UTX broke convincingly above the 200-week MA and shows no resistance of consequence above until 66.80, on a weekly closing basis, is reached. Nonetheless, the breakout above the 200-week MA needs to be confirmed this week with another close above 62.70. A close next week below that level would negate the breakout. On a monthly closing basis, there is decent resistance up at 65.59. The stock did leave an open gap this past week between 62.15 and 62.25 that should not stay open. If there is any weakness in the indexes, it is likely that area will become a magnet. Drops down to the $60 psychological support level continue to be likely if the indexes falter. Nonetheless, at this time being short is not a good place to be. PMCS broke above the 3 previous highs between 9.97 and 9.99 and got up to the 10.07 level. Nonetheless, strong selling came in when that happen and the stock took a fall all the way down to 9.29 during the next couple of days. On the daily closing chart the stock now shows a very ominous double top at 9.99 that should be very difficult to break. A rally back up to 9.81, on a daily closing basis, is possible, but the probabilities of the stock heading lower from here have now increased strongly. Important support is down at 9.03 on a daily closing basis, and if that level is broken, positions should be added on rallies. Likely objective to the downside is the $7 level. AXP was able to break above the recent high at 35.10 but was not able to generate follow through on the weekly close (closed at the same level as last week) or break above the intra-week high made 4 weeks ago at 36.50. In addition, the stock closed right in the middle of the week's trading range and if the indexes do not show strength of consequence this coming week, it is likely the stock will go below the weeks low at 34.20. If such an event happens, it will show this past week's high at 35.68 as a successful retest of the 36.50 high. On the monthly chart, the stock does have decent resistance between 34.08 (high monthly close in 2002) and 34.60 (200-month MA). Based on the recent action I expect the stock to trade between 32.60 and 35.68 during the next 2 weeks. Any rally above 36.50 would be bullish while any drop below 32.49 bearish. MS continues to flirt with the 100-week MA and this past week the stock was able to close above the line by a small margin (line is presently at 32.60). Nonetheless, the stock was unable to break above the recent high at 33.30. The company reports earnings on Wednesday before the opening and based on the recent financial company reports even if the stock reports positive earnings it might sell off. The recent reports, though, have been mixed with GS and JPM reporting positive earnings and C and BAC negative earnings. It is likely the week will be dominated with anticipation of the report and the stock is not likely to do much on either direction until the report is out. In looking at the monthly chart, the stock does show a major monthly low in 2002 at 33.88. As such, I will likely keep the positions until after the report is out. WFC reached several levels of major resistance this past week with the 50-month MA currently at 30.71, the 200-week MA at 30.50, and strong daily close resistance between 31.51 and 31.64. After reaching or getting close to all of these levels the stock saw strong selling coming in pushing the stock down to the psychological support at $30. The stock did leave an open gap on Friday between 30.92 and 30.63 that should be closed. Nonetheless, it does seem like the stock has found a top and unless the indexes head substantially higher, it is likely no further upside above what was seen this past week will occur. The stock does show another open gap between 26.69 and 27.34 that will start to work as a magnet if the stock starts trading below 30.00 again. Nonetheless, the 26.30 level is considered the main objective on the downside right now. WDC broke above the previous strong resistance at the 36.85/26.95 level on a daily closing basis, and generated a rally up to 37.81. Nonetheless, after reaching intra-day above the $38 level, the stock found strong selling coming in and toward the end of the week the breakout was negated and a failure-to-follow-through signal was generated. Important support is down at 35.19 on both a daily and weekly closing basis (34.52 on an intra-day basis), and if broken drops down to the $30 will be likely. It seems likely that a major top has been formed but the short-term trading range is still a bit clouded, with 35.00 to 37.70 being possible. Nonetheless, the stock should now begin to experience selling pressure on a more consistent basis.
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1) COO - Covered shorts at 30.77. Shorted at 30.28. Loss on the trade of $49 per 100 shares plus commissions.
2) YHOO - Purchased at 16.95. Liquidated at 16.54. Loss on the trade of $41 per 100 shares plus commissions.
3) AMZN - Purchased at 93.11. Liquidated at 94.43. Profit on the trade of $132 per 100 shares minus commissions.
4) PMCS - Shorted at 9.78. Stop loss at 10.10. Stock closed on Friday at 9.43.
5) MS - Shorted at 31.09. Averaged short at 32.195. Stop loss at 33.40. Stock closed on Friday at 32.98.
6) GPS - Averaged short at 19.305 (3 mentions). No stop loss at present. Stock closed on Friday at 22.96.
7) WDC - Shorted at 38.22. Stop loss at 38.65. Stock closed on Friday at 35.85 .
8) HON - Covered short at 37.78. Shorted at 36.82. Loss on the trade of $96 per 100 shares plus commissions.
9) RSG - Averaged short at 26.825 (2 mentions). No stop loss at present. Stock closed on Friday at 27.64.
10) UTX - Shorted at 61.28. Averaged short at 62.055 (2 mentions). No stop loss at present. Stock closed on Friday at 64.89.
11) AXP - Shorted at 33.62. Stop loss 36.60. Stock closed on Friday at 34.95.
12) AMZN - Shorted at 97.52. Covered short at 97.76. Loss on the trade of $24 per 100 shares plus commissions.
13) WFC>/b> - Shorted at 30.33. No stop loss at present. Stock closed on Friday at 30.02.
Previous Newsletters
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Encyclopedia of Chart Patterns. A must have for chart aficionados! |
The opinions and commentaries by Mr. De Vito are not a recommendation to buy or sell, but rather
a charting guideline, based on his own knowledge and experience, regarding the stocks he is following or
that are brought to him by others. Mr. De Vito does not presently offer a track record of his trading experiences.
No inference of success and/or failure should be assumed. The
information enclosed above, regarding his background, length of trading, and experience, is correct
but is not meant to suggest, state, or infer any future success in trading, based on his opinions. The information herewith included should only be used by investors who are aware of the risk inherent in securities trading. Mr. De Vito accepts no liability whatsoever for any loss arising from any use of the information and/or comments he supplies. |
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