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Issue #438 
August 2, 2015 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls "and" Bears Await Economic Reports, Likely to Decide Short-term Direction.
DOW Friday closing price - 17689
The DOW generated a positive reversal this past week, having made a new 5-month low but then closing in the green and near the highs of the week, suggesting further upside above last week's high at 17783 will be seen this week.
On a negative note though, the DOW confirmed the downside break of the 200-day MA (currently at 177750) with 5 additional closes in a row below the line, as well as a successful retest of the line on Wednesday (closed at 17751), followed by 2 red closes on Thursday and Friday, which in turn suggests the bulls will need positive fundamental news this week to disaffirm the negativity of the break.
By the same token, the DOW is primed for a short-term decision that is likely to happen on Monday when the ISM Index report come out as the chart shows a successful and confirmed retest of the 200-day MA (which is negative) but also shows a possible inverted flag formation (flagpole being the rally from 17399 to 17783 and the flag being the 3-day action seen Wednesday, Thursday and Friday between 17783 and 17629), which does offer an objective of 18013. As such, much could be decided by the end of trading on Monday.
To the upside and on an intra-week basis, the DOW now shows minor but pivotal resistance between 17783 and 17825. Above that level, resistance is found at the 18000 demilitarized zone and up to 18103. To the downside, there is minor intra-week support at the recent intra-week lows at 17465 and at 17399. support is found again at 17243. Below that level, there is minor support at 17243 and then decent at the double low at 17037/17069 level.
The action this past week seen in the DOW has to be categorized as leaning on the negative side as the index now shows a 6-day confirmed break of the 200-day MA (has not happened since October) as well as a successful retest of the line, having gone up to the line on Wednesday, Thursday and Friday but failing to get over it, much less close over it. Nonetheless, the short-term future of the index still depends on when the Fed will raise interest rates and that could depend on what the economic reports say this week (ISM Index on Monday and Jobs report on Friday) say. Probabilities this week favor the bears but only slightly.
NASDAQ Friday closing price - 5128
The NASDAQ negated the previous week's failure-to-follow-through signal, having closed on Friday above the previous all-time high weekly close from June at 5117 that got broken the previous week when the index closed at 5088. The index closed near the highs of the week and further upside above last week's high at 5155 is expected to be seen this week.
Nonetheless, on a possible negative note, the NASDAQ got down to the weekly gap between 5020 and 5025 that was created 4 weeks ago and the gap was not closed, meaning that it remains a magnet to the traders as weekly gaps are rare and normally closed.
The NASDAQ remains the only index that has not yet tested successfully its previous all-time high and that means that if the index does go above 5155 but not above 5223 (all-time intra-week high) that a successful retest of the high will occur. It is important to note that "normally" all previous highs on charts are tested successfully before a strong correction occurs, especially if there has been no fundamental change.
To the upside, and on intra-week basis, the NASDAQ will show very minor resistance at 5195 and then decent to perhaps strong at the all-time high at 5231. Above that level there is no resistance. To the downside, minor intra-week support is found at 5070 and then nothing until decent support is reached at 5025. Below that level, there is minor but possibly pivotal support at 5016 and then nothing until minor to perhaps decent support is found at 4974.
The NASDAQ is likely to be the key index that the traders will use this week, inasmuch as the gap down at 5020 remains a magnet that will not go away unless the index makes a new all-time high "and" above the "general" resistance at 5300-5330. In addition, a rally above last week's high at 5155, followed by closure of the gap and a break of the 5016 minor but likely pivotal support level would suggest that a major correction is in the making.
The probabilities still favor the bulls, inasmuch as the index has not yet done anything negative, especially having negated the previous week's failure signal on the weekly closing chart.
SPX Friday closing price - 2103
The SPX generated a small positive reversal week, having followed through to the downside below last week's low at 2077 but then turning around to close in the green and near the highs of the week, suggesting further upside above last week's high at 2114 will be seen this week. In addition, the index successfully tested on Monday the 200-day MA, currently at 2068, with a drop down to 2063, followed by 4 closes in a row above the line. The 200-day MA has not been broken since October, meaning that the successful retest of the line keeps the uptrend intact.
On a possible negative note though, the bulls in the SPX did not accomplish anything of consequence either as the index simply got back to the resistance area between 2113 and 2125 that has been in place for the past 5 months, meaning that new and positive information is still required to "resume" the uptrend that got truncated in February.
To the upside, the SPX shows decent intra-week resistance between 2119 and 2125 and decent to strong resistance at the double top at 2132/2135. To the downside, support is minor to perhaps decent at 2172 and decent between 2163 and 2167, which does include the 200-day MA, currently at 2068. Further intra-week support is found between 2039 and 2044 and then nothing until the 1970-2000 level is reached.
The SPX is showing a potential bullish flag formation on the daily chart with the flagpole being the rally seen last week from 2063 to 2114 and the flag being the trading seen Wednesday-Friday between 2094 and 2114. A convincing break above 2114 would give an upside objective of 2145 (which would be a new all-time high) and a break below 2094 would negate the flag and suggest the 200-day MA would be tested again and likely broken the second time around.
The probabilities still favor the bulls in the SPX but having been stuck in a sideways trading range for 5 months, as well as having a double top, they still need some fundamental positive to occur to get them "over the edge".
The market traded technically this past week, having traded mostly between support and resistance levels (at least in the NASDAQ and the SPX) without giving any clear indication of direction. Nonetheless, direction could be decided this week with the 2 most important reports of the month (ISM Index and Jobs) scheduled to come out on Monday and Friday.
The key issue facing the market at this time is time frame for the Fed to raise interest rates. The prevailing thought is that September is the most likely month they will raise interest rates but then again the Fed has stated that they are data-dependent and as such the reports due out this week could influence that time frame, inasmuch as disappointing reports would likely extend the time period while positive reports likely to confirm the time period. The ISM index is expected to come out at 53.7 and the non-farm payrolls in the Jobs report at 223k.
Even though the direction of the market may depend on the reports this week, the reality is that the reports themselves are not likely to generate anything more than "short-term" direction, especially to the upside since the bulls have had much difficulty extending the uptrend more than a few points over the past 5 months. There is more potential for profit to the downside than the upside and that may be what the traders key on after the reports.
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Stock Analysis/Evaluation
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CHART Outlooks
The bulls were able to stop the fall in the indexes this past week and generated enough of a rally to make the important economic reports due out this week pivotal, as far as the short-term outlook for the market. Nonetheless, the overall outlook for the market remains bearish due to the up-coming interest rate hike in which the only question remains is when it will occur.
As such, all mentions will be sales again this week. Two of the 4 sales that were mentioned last week did not reach the desired entry points or reached them late in the week but the stocks did close near the highs of the week, meaning that the desired entry points are likely to be seen or bettered this week. The first of the important economic reports (the ISM Index) is due to come out at 10:00am on Monday and after the report much will be known, suggesting that the mentions can either be followed after the report or nixed if the report rallies the indexes.
The 2 new short mentions this week are really a flip of a coin due to the bullish fundamentals recently out. Nonetheless, if the indexes do not rally those 2 mentions offer a very good risk/reward ratios and decent enough probabilities (if and when the indexes head lower) to consider them.
KMX Friday Closing Price - 64.51
KMX started its uptrend in November 2008 from a low of 5.75 to the all-time seen in March at 75.40. During this rally the stock has seen 3 corrections of some consequence occur, with the first one being 30%, the second being 39% and the third being 20%. The stock seems to be in a correction phase right now and based on the low seen last week, the stock has already corrected 20% from its 75.40 high. Nonetheless, the stock is near a pivotal support level at 60.83 that if broken will likely generate additional strong selling and based on the first 2 corrections of 30% and 39%, if that level of support gets broken, the stock is likely to mimic one of those drops and offer a nice profit.
KMX has already successfully tested the all-time high at 75.40 twice with a rally up to 73.76 in June and with the high seen 3 weeks ago at 68.99. The rally up to 68.99 was indicative, inasmuch as the stock was showing a previous resistance level at 68.71 that held up, meaning the weakness seen this past week is valid.
To the upside, KMX shows intra-week resistance at 68.99, at 73.76 and at the all-time high at 75.40. Like with HD, the stock has already fulfilled all of its requirements for a top through the daily, weekly, and monthly chart, meaning that the probabilities are high that the stock will generate further downside of some consequence, if and when the indexes head lower as well.
To the downside, KMX shows pivotal short-term intra-week support at 60.83. Nonetheless, below that level there is no previous support built until the 45.90 level, which does include the 200-week MA. As such, that line and that support will be the target of the short trade.
KMX generated a positive reversal week after having gotten close to the pivotal support level at 60.83 with a low this past week at 61.04. The stock closed on the highs of the week and further upside above last week's high at 64.87 is expected to be seen this week. The rally seen this past week might end up being just a retracement of the 20% correction before new selling appears, which in turn could mean additional profits for the bears.
KMX charts shows this coming week to be pivotal as the stock broke the 200-day MA, currently at 65.05, and like the DOW, the rally seen this past week might just be a retest of the line and the break, meaning that this week will likely be the best time for the bears to add or begin new short positions.
Sales of KMX between 64.87 and 65.44 and using a stop loss at 69.35 and having a 45.90 objective offers a 4-1 risk/reward ratio.
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest). The rating would be higher if a good stop loss could be found that bettered the risk/reward ratio. In addition, the rating would also be higher if the 60.83 support level had already been broken.
PRAA Friday Closing Price - 63.55
PRAA is a short trade that I covered 2 weeks ago (in profit) but that was before the market showed weakness the previoius week, suggesting the short trade can be reconsidered this week if the indexes start heading lower again.
PRAA made a new 8-month high 3 weeks ago, having gone up to 64.82. Nonetheless, the high made at 64.82 failed to take out the all-time high at 65.00, meaning that the stock still has a strong resistance level above, and with the indexes now showing reasons to believe they are now in a correction and the stock having generated last week a drop below the previous week's low, it does suggest that a major top/retest-of-the-top has occurred.
To the upside, PRAA shows minor intra-week resistance at 63.96/63.99, at 64.82 and major at 65.00.
To the downside, PRAA is showing minor to perhaps decent intra-week support at this past week's low at 60.24 which was further strengthened by being in the $60 demilitarized zone. Below 60.24 there is no previous support of consequence until the 56.35/56.60 level is reached, that does include the 200-day MA, currently at 57.30. Further minor to perhaps decent support is found at the 52.01/52.92 level, at the $50 demilitarized zone, with 47.62 being a decent support and then nothing until the 200-week MA, currently at 45.00 is reached.
Under the kind of trading seen the past 7 months, the 56.35-57.30 level in the PRAA chart would be considered the objective but if the indexes are in a major correction, the stock is also likely to target the 200-week MA, currently at 45.25.
PRAA is facing a pivotal week, inasmuch as it generated a positive reversal week last week, having made a new 6-week low but then closing above the previous week's high, suggesting further upside above last week's high at 63.99 will be seen this week. In addition, the positive reversal should give the bulls enough chart ammunition to break the previous high at 64.82 as well as the all-time high at 65.00, if and when the indexes move higher as well. By the same token, "any failure" to accomplish a new high this week will be seen in a very negative light, suggesting the traders would get aggressively on the short side since the risk would be extremely small while the reward ratio would be very high.
Sales of PRAA between 63.99 and 64.24 and using a stop loss at 65.35 and having at least a 50.00 objective will offer a 10-1 risk/reward ratio.
My rating on the trade is a 2.5 (on a scale of 1-5 with 5 being the highest). The trade is a flip of the coin but very doable if the indexes don't rally higher.
NEW MENTIONS
Under the thought that the tech sector has found a major top and that the NASDAQ will go above last week's high but not make a new all-time high, the following trades can be considered:
GOOG Friday Closing Price - 625.61
GOOG made a new all-time high 4-weeks ago at 678.64 after a much better than expected earnings report came out. Nonetheless, the stock saw only minor follow through to the upside the week after the report came out, having seen a high of 674.47 the week of the report and only rallying an additional $4.17 (less than 1%) the week after. In addition, the stock generated a negative reversal week that week, having made the new all-time high but then closing in the red. That was especially meaningful, given that the rally was so strong that short-covering and margin calls should have kept the stock heading higher.
GOOG is now showing a bearish inverted flag formation with the stock showing a 4-day flagpole with the drop from 678.64 to 620.50 and a 5-day flag with the stock trading between 620.50 and 635.22. A break of the bottom of the flag would offer an objective of 577.08, which in turn would close the gap built after the report came out, between 580.68 and the recent low at 620.50.
The short trade in GOOG can be seriously considered based on the flag formation alone, given that the stop loss level and entry points are clearly defined and that the risk/reward ratio is excellent. Fundamentally though, I have no way to analyze whether the stock trading at this level is justified or not, meaning that the probability number is no better than a flip of a coin.
Sales of GOOG between 628.00 and 630.30 and using a stop loss at 635.35 and having a 577.08 objective will offer a 7-1 risk/reward ratio.
My rating on the trade is a 2.5 (on a scale of 1-5 with 5 being the highest).
NFLX Friday Closing Price - 114.31
NFLX received a much better than expected earnings report 3 weeks ago and made a new all-time high at 117.88. Nonetheless, no follow through was seen the week after, with the stock having seen an inside week as well as a red weekly close. The stock last week generated a strong positive reversal, having dropped down to 103.88, which can be considered a retest of the $100 demilitarized zone, and then reversing direction to go above the previous week's high at 114.70 with a high at 115.00.
Nonetheless, the reversal last week in NFLX fell short of making another new all-time high weekly close as the stock closed at 114.31 and the all-time high weekly close seen 3 weeks before was at 114.77. The failure to make a new all-time high weekly close does open the door for the bears to generate a successful retest of the all-time intra-week high at 117.88 and the all-time high daily close at 115.81 as well as the all-time high weekly close at 114.71 if the stock fails to get above 117.88 this week, fails to close above 115.81 any day this week and closes in the red next Friday.
It is evident that a sale in NFLX offer a very low probability ratio and does depend totally on what the NASDAQ does this week. Nonetheless, if the stock fails this week, the probabilities will be high that the recent low at 103.88 would be tested as well as decent probabilities that further downside to the $100 demilitarized zone would occur.
Sales of NFLX between 114.70 and 115.71 and using a stop loss at 117.98 and having at least a 103.88 objective would offer a 3.6-1 risk/reward ratio. Nonetheless, if the stock fails to make a new high, the probabilities of getting down to the $100 level would be high, meaning the risk/reward ratio would increase to 4.4-1.
My rating on the trade is 2.5 (on a scale of 1-5 with 5 being the highest). Simply stated, the short trade is a flip of a coin. |
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 2015, as of 7/1 Loss of $2287 using 100 shares per mention (after commissions & losses) Closed out profitable trades for July per 100 shares per mention (after commission)
NONE
Closed positions with increase in equity above last months close minus commissions.
XOM(short) $272 Total Profit for July, per 100 shares and after commissions $1716 Closed out losing trades for July per 100 shares of each mention (including commission)
SINA (long) $491
AREX (long) $55 AREX (long) $54 OSK (short) $194 Closed positions with decrease in equity below last months close plus commissions.
COF (short) $555 Total Loss for June, per 100 shares, including commissions $1349 Open positions in profit per 100 shares per mention as of 7/31
NONE
Open positions with increase in equity above last months close. VHC (long) $43 Total $43 Open positions in loss per 100 shares per mention as of 7/31
SINA (long) $662
PGR (short) $5 HD (short) $653 Open positions with decrease in equity below last months close.
ARNA (long) $180 Total $3847 Status of trades for month of July per 100 shares on each mention after losses and commission subtractions.
Loss of $3437
Status of account/portfolio for 2015, as of 7/31Loss of $5724 using 100 shares traded per mention.
AREX extended the downtrend, having confirmed the break of the previous all-time low weekly close at 4.64 with a second red weekly close in a row below that level. The stock once again closed on the lows of the week and further downside below last week's low at 3.84 is likely to be seen. The stock is presently in free-fall as it has generated red closes on 11 of the past 12 weeks and dropped 60% in value since the 9.57 high seen the second week of April. There is no support below until the all-time intra-week low at 3.20 is seen, meaning that the bulls need oil and commodity prices to begin some form of recovery for the stock to turn around before reaching that price. Minor but possible pivotal intra-week resistance is found at 4.43 and a bit stronger and likely more meaningful at 4.73. The only positive note that can be said about the stock is that it is normally a wide-ranging stock, meaning that when a bottom if found it is likely to bounce up aggressively.
ARNA got down to an important intra-week support at 3.85 with a low seen at that price this week. The bulls were able to generate some buying at that level to close the stock in the upper half of the week's trading range, suggesting further upside above last week's high at 4.17 will be seen this week. Nonetheless, the stock remains under sell pressure as the stock generated another red weekly close on Friday, meaning that the bulls still need some positive news to turn the stock around once again. Minor but likely short-term pivotal resistance is found at 4.17 and then nothing until the 4.30-4.42 area is reached. The bulls still need to close above the 200-day MA, currently at 4.37, to generate any new buying interest. Probabilities slightly favor the bears but it is more of a toss-up than anything else. ENG generated the first green weekly close in the past 8 weeks but it was not very meaningful as the downtrend remains intact since the bulls have not yet been able to negate the break of the important weekly close support at 1.31. Nonetheless, the stock closed on the highs of the week and further upside above last week's high at 1.24 is likely to be seen, with a retest of the 1.31 level (weekly close) as the objective. Minor but likely pivotal intra-week resistance is found at 1.42. The probabilities favor the bulls this week but the trend is still down as no previous intra-week support of any consequence is found until the .93 level is reached. FCEL has now reached an intra-week level of support between .80 and .84 cents (.84 on a weekly closing basis) that seems to have stopped the selling interest. For the past 4 weeks the lows of the week have held beteween .81 and .87 and 2 of the 4 weeks saw green weekly closes, suggesting that the traders are uncommitted in either direction to the stock at this price. Chart history suggests the stock will get into a trading range for several weeks if not months between .80 and 1.11, suggesting that sometime in the next couple of week as small short-covering rally will be seen. Nonetheless, it is not likely that anything of consequence above or below that area will happen until after the next earnings report comes out on September 8th. FSLR generated a positive reversal week, having made a new 6-month low and then going above the previous week's high as well as closing in the green. The bulls fell short of generating a key reversal week when they were unable to close the stock on Friday above the previous week's intra-week high at 44.50. Nonetheless, the stock closed near the highs of the week and further upside above last week's high at 45.96 is likely to be seen. Intra-week resistance is found at 47.04 that if broken would strongly suggest the stock has found a bottom and that a rally back up to the $50 area will be seen. This coming week is pivotal though as the stock closed on Friday exactly at the 200-week MA, currently at 44.30, meaning that if another green weekly close is seen next Friday that the previous week's break of that line will have been negated. With the close on the line on Friday and no negation of the break having occurred, the probabilities continue to favor the bears. Nonetheless, this is now a pivotal week for the stock. HD made a new all-time intra-week high last week, having broken the previous high at 117.99 with a rally up to 118.13. Nonetheless, the bulls were unable to confirm the new high, having closed on Friday below the previous all-time high weekly close at 117.49 (closed at 117.03) meaning that no decisive signal of higher prices has yet been given. The stock did close near the highs of the week and further upside above last week's high is expected to be seen this week. The probabilities now favor the bulls, inasmuch as the intra-week double top at 117.92/117.99 is now considered a triple top with the 118.13 high seen this past week, and as such, likely to be broken. Nonetheless, the stock is still somewhat index dependent and after the ISM Index report on Monday at 10:00am more will be known. Short positions should be covered if the index market heads higher on Monday. PGR generated a red close week, thus keeping the double top on the weekly closing chart (30.92/31.28) intact. The stock closed slightly above the middle of the week's trading range suggesting a slightly higher probabilities of going above last week's high at 30.73 than below last-week's low at 30.17. Nonetheless, the stock is certainly index dependent (at least for the downside) and will likely move in whatever direction the indexes do after the economic reports due out this week come out. Minor resistance is found at 30.73 and then nothing until the previous all-time intra-week intra-highs at 31.22 and 31.42. The probabilities this week do suggest that the stock will move above last week's high as a retest of that high is likely to be seen. Nonetheless, the longer term probabilities still favor the bears as the fundamental picture of the stock does not offer many incentives for the bulls to buy at this price. SINA made a new 3-month low and in the process gave a sell signal on all charts (intra-week, daily and weekly close) when the stock broke below 40.44 and closed below the previous low daily and weekly close support at 40.73. Nonetheless, the bears were unable to generate any yet "convincing" sell signal, inasmuch as the stock closed on Friday at the 200-day MA, currently at 40.60, and broke the previous low weekly close support at 40.73 by only 12 points (closed on Friday at 40.61), meaning that the door is still open for a rally this week "if" the Chinese market does not resume its downtrend and/or the U.S. market rallies. The stock closed in the upper half of the week's trading range, suggesting last week's high at 41.70 is more likely to get broken than last week's low at 39.07. Nonetheless, the 39.07 low last week is now critical because if broken the probabilities will favor the stock getting down to the $35 level. The stock did generate a "third" gap down between 41.70 and 42.00 that has a high probability of being closed though some minor intra-week resistance is now found at 41.38. Long-term pivotal and decent resistance is found at 45.04 that if broken would suggest all the weakness seen the last 3 weeks will be negated. Probabilities still favor the bears. VHC had an uneventful inside week but did close on the highs of the week, suggesting further upside above last week's high at 4.65 will be seen this week. Pivotal short-term resistance is found at 4.76 that if broken would suggest a rally at least back up to 5.22. If the top of the $5 demilitarized zone at 5.30 is broken, a rally up to at least the 200-day MA, currently at 5.50, would likely occur. Nonetheless, above 5.22 there is no previous intra-week resistance until 6.12 is reached, meaning that on an intra-day basis the bulls could accomplish a move of $.80-$.90 if the 5.22/5.30 level is broken. Minor support is now found at 4.29 and decent as well as likely pivotal at 4.08. Probabilities favor the bulls.
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1) FCEL - Averaged long at 2.227 (4 mentions). No stop loss at present. Stock closed on Friday at .84.
2) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.22.
3) FSLR - Averaged long at 59.404 (4 mentions). No stop loss at present. Stock closed on Friday at 44.30.
4) AREX - Averaged long at 6.23 (4 mentions). No stop loss at present. Stock closed on Friday at 3.89.
5) ARNA - Averaged long at 4.30 (3 mentions). No stop loss at present. Stock closed on Friday at 4.04.
6) AREX - Purchased at 4.37. Liquidated at 3.97. Loss on the trade of $40 per 100 shares plus commissions.
7) SINA - Liquidated at 40.50. Averaged long at 42.85. Loss on the trade of $470 per 100 shares (2 mentions) plus commissions.
8) SINA - Averaged long at 43.92 (2 mentions). No stop loss at present. Stock closed on Friday at 40.61..
9) PGR - Shorted at 30.45. Stop loss at 31.52. Stock closed on Friday at 30.50.
10) VHC - Purchased at 4.17. Stop loss now at 3.98. Stock closed on Friday at 4.63.
11) HD - Shorteed at 113.90, at 114.79, and at 115.87. Averaged short at 114.853. No stop loss at present. Stock closed on Friday at 117.03.
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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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