 |
 |
 |
 |
 |
 |
Issue #441 
August 23, 2015 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
|
| It's Official! Market is in a Correction.
DOW Friday closing price - 16459
The DOW made a new 10-month low this past week and in the process broke all the supports built since December, meaning that a major top has been built and that for the time being and until the fundamental picture changes the uptrend is over.
The DOW has now corrected 10.4% from the all-time high made in May at 18351 and having closed on the lows of the week and further downside below last week's low at 16459 is expected to be seen this week, the probabilities are high that percentage of correction will increase.
Anything past 10% is considered a correction and it must be said that since the second quarter of 2011, the DOW has not had a correction as all dips seen from new highs (a total of 11 of them) were less than 10%, meaning they were simply pauses-in-the-action. Nonetheless, the last "correction" of more than 10% occurred in July/October 2011 and on that occasion the correction was 20% from the highs, meaning that the index came within a whisker of getting into a bear market. It does need to be stated that the Chinese market, and several of the Asian markets as well, have now dropped more than 20% in value (Chinese market has dropped +30%) and are considered to be in a bear market, meaning that the possibilities of the DOW following suit and getting down close to the 20% mark seen in 2011 has to be considered viable and perhaps even probable given that the Asian markets are expected to head even lower.
To the upside and on an intra-week basis, minor resistance will be found in the DOW at the 17000 demilitarized zone, minor to perhaps decent intra-week resistance will now be found at 17100 and a bit stronger at 17350. On a daily closing basis, resistance will be found between 17036 and 17279.
To the downside and on an intra-week basis, support is minor in the DOW at 16333, minor to perhaps decent at the 16000 demilitarized zone, and then decent at 15855. Below that level there is minor support at 15340 that does include the 200-week MA, currently at 15310.
With the DOW showing no intra-week support of consequence until the 15855-16000 area is reached, the probabilities favor further downside next week. Nonetheless, volatility will continue, meaning that it will likely be choppy trading with both red and green likely to be seen throughout the week. Another red weekly close next Friday is expected though.
NASDAQ Friday closing price - 4706
The NASDAQ gave a strong sell signal on Friday, having made a new 6-month low, having closed convincingly below the 5000 level, and having wiped out all the gains seen since February when the index first got above last year's high at 4810. The index closed on the lows of the week and further downside below last week's low at 4706 is expected to be seen.
The NASDAQ got the brunt of the selling this past week, having dropped 6.8% in value, compared to the 5.9% and 5.8% drop seen in the DOW and in the SPX respectively. That trend should continue, given that the area that enjoyed the greatest rally (tech stocks) are likely to be the ones that will see the most follow through selling this week.
The NASDAQ is likely to continue to be the index that the traders will be watching the closest this week, not only because the index has been the catalytic one to the upside (and is likely to be the catalytic one to the downside) but also because there is a level of support 125-160 points lower (between 4547 and 4580) that was seen repeatedly (4 times) between December and February. Though the level of support is considered at best minor to decent, it does represent the "only" support of consequence until 4116 is reached, meaning that a break of that support would likely bring another round of panic selling.
To the upside and on intra-week basis, the NASDAQ shows minor but likely short-term pivotal resistance at 4813. Above that level, resistance will be found at the runaway gap area between 4856 and 4877 and a bit stronger at the 200-day MA, currently at 4915, which got broken on Friday.
To the downside and on an intra-week basis, minor support is found is found at 4580 and a bit stronger at 4547. Below that level there is very minor support at 4321 and stronger at 4116. It must be mentioned that the 4700 level is considered general support on a weekly closing basis and if broken (and the break confirmed with a second close in a row below that level the following week), would open the door for the 5231 level to become a major long term top.
This coming week could be pivotal for the NASDAQ, as far as determining how much of a correction can occur, given that the index has only corrected 8.9% from the 5231 high but the charts suggest that if the support level at 4547 is broken that the index would likely drop down to the 4100 level and a given that 4158 is the target price that would mimic the 2011 correction of 20.5%, it is evident the traders will be closely monitoring what happens at that support level this week (if reached).
The probabilities are favoring the bears, especially since most of the big stocks in the NASDAQ have just "begun" to correct and it is certainly possible that those stocks will drop even more in value than they dropped last week. Perfect example is AAPL, which would project a drop down to its 200-week MA, currently at 86.55, if the $100 level of support is broken, which in turn could mean that another 19% drop could occur.
SPX Friday closing price - 1970
The SPX was the most supported index among the big three, having so far only corrected 7.8% from the all-time high and NOT have broken its important 9-month intra-week support at 1970. Nonetheless, the index did close on the lows of the week and further downside below 1970 is likely to be seen this week, meaning that it too is likely in a major correction.
By the same token, the SPX did generate a sell signal on the weekly closing chart, having closed on Friday below the 10-month weekly closing low at 1994.
The SPX will also be one of the indexes that the traders will be closely monitoring this week, given that the index closed only 10 points above the 100-week MA, currently at 1960, which is a line that has not been broken since 2011. A close next Friday below 1960 would suggest the index will be in the same type of correction seen in 2011, in which the index corrected 20.8% (1356 to1074) and in which the index traded below the line for 5 of the 10 weeks while the correction occurred.
To the upside, the SPX shows minor intra-week resistance at 1991 and a bit stronger at 2019. Above that level and on a daily closing basis, resistance will be found between 2039 and 2044.
To the downside and below 1970, the SPX shows minor support at 1904 and then decent between 1814 and 1820.
The SPX is in a precarious situation, given that there is no previous support below 1970 until 1904 is reached and even then that support is considered minor. As such, the probabilities of the index dropping an additional 150 points from Friday's close (down to the stronger support at 1820) is very real. Nonetheless, it must be kept in mind that the index corrected 20.8% in 2011 and if this correction mimics that one, the downside objective would be 1690.
It must also be pointed out that that on the monthly chart, the SPX only shows "one" level of support of any consequence and that is the one at 1820 and that makes it a magnet now that a correction phase has been established. That level of support is likely to determine whether this is simply a correction or the beginning of a downtrend. Over the past 15 years there have been 2 downtrends (2007 and 2014) and in both of those cases a previous intra-month low of consequence (such as 1820 is considered to be) were broken. In the year 2000 it was 1233 and in 2007 it was 1219. Subsequent drops down to 768 and 666 (respectively) were seen once those levels of support were broken. A drop down to 1820 would be seen as a 15% correction from the recent all-time high at 2135, which would be considered simply a correction. A drop below that level would take on the look of a downtrend.
The chart of the SPX does suggest that the bears presently have the upper hand since the probabilities of the support at 1970 getting broken are high. The probabilities are also high that a drop down to the 1904 area will be seen this week with a small bounce likely to be seen from there. The correction should continue thereafter toward the 1820 level where a major decision will be made, likely depending on what the Fed does and how it is perceived by the market.
It is now official, the market is in a corrective phase as a drop of 10% or more has now been seen in the DOW and the NAZ. The question now becomes "how much of a correction will be seen?". It is unlikely that question will be answered this week as the market is likely to wait to see what the Fed does in September. Nonetheless, further downside is expected to be seen as there is very little positive fundamental news that could come out at this time that would stop the momentum that started last week.
The 20-city Case/Schiller report, Durable Goods, Consumer Confidence, 2nd estimate of GDP, Personal Income and Spending and Michigan Sentiment are due out this week. The problem lies in the fact that none of these reports are usually catalytic and also the fact that positive reports would likely be a negative as it would give the Fed added reasons to raise interest rates sooner rather than later, whereas negative reports would not help much as it would support the idea that the world's markets are in a recession and likely help push the market down even more. Simply stated, the bulls seem to be "up a creek at this time".
The bulls will be fighting a defensive battle this week with the only question likely to be "how successful can they be at the support levels listed above?".
|
Stock Analysis/Evaluation
|
CHART Outlooks
The market is now officially in a correction and it is likely that further downside will be seen. Nonetheless, it is always tough chasing a falling market as good risk/reward ratios are tough to find and probability ratings by nature will be low when good stop losses are far away.
I do believe that money will be shifting from the overbought and overextended stocks to the depressed stocks but that is unlikely to happen until the indexes find a bottom from which general buying interest will emerge, meaning that this week is not likely to offer any good buying opportunities.
I did look at over 100 stocks this weekend but with the very specific parameters I am looking for that offer at least a decent chance of profit with a minimum of risk, I was only able to find 2 stocks that fit the parameters. Those are the 2 mentions this week.
WMT Friday Closing Price - 66.54
WMT has been on a downtrend since January when it got up to a high of 90.97 and 10-weeks ago broke through the 200-week MA, that had not been broken for a period of 5-years, suggesting the long-term uptrend is now over. The company received a disappointing earnings report on Tuesday, which caused it to fall close to its 38-month low at 67.37 with a drop down to 67.94 but then on Friday, with the help of the indexes, the stock made a new 38-month low, having dropped down to 66.54 on Friday. The stock closed on the lows of the week and further downside below that low is expected to be seen this week.
In April of 2012, WMT generated over a period of 14 weeks a straight up rally (without any dips or pauses) from a low of 57.18 to a high of 75.24 and I am mentioning this because below the 38-month intra-week support at 67.37 that got broken on Friday, there is recent support built until that level is reached, suggesting that chasing the stock to the downside is an option at this time.
As far as support is concerned, WMT does shows a previous weekly closing high from September 2008 at 62.14 and a couple of additional ones from February and March 2012 at 62.48 and 62.45. Nonetheless, it must be mentioned that previous weekly closing highs are considered only minor support and then only on a weekly closing basis, meaning that even if they hold up it won't mean that on an intra-week basis the stock will not drop further down. Further weekly closing support is found at 58.09, at 58.70 and at 58.79 that even though they are considered minor supports are from low weekly closes rather than high weekly closes, making them a support base to consider. Then again, on an intra-week basis, the support is actually around the $57 level.
Based on this chart picture, the falling index market, and the fact the stock has fundamentally disappointed recently, it does suggest that at the very least WMT will be visiting the $60 level before any new buying interest appears.
To the upside, WMT does not show any close-by resistance of consequence, meaning that the stop loss will need to be sensitive and based on the intra-day charts. Nonetheless, given than the 67.00-68.00 level was the breakdown point this past week, it is unlikely the bulls will have any success taking the stock above that level at this time, at least not without the index market turning around (unlikely to happen).
Sales of WMT between 66.90 and 67.10 and using a stop loss at 68.35 and having a 60.00 objective, will offer a 6-1 risk/reward ratio.
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
IBM Friday Closing Price - 148.89
IBM has been in a downtrend for the past 29 months, ever since it got up to a high 215.90 back in March 2013, probably because the company is no longer of the forefront of the Tech world. For the past 10 months the stock has traded mostly between $150 and $175, having established the $150 level as important support with 2 previous tests of that area. The support also garnered additional strength from the fact it was a level that was also somewhat popular back in 2011 where it traded for most of 7 months. Nonetheless, the stock this past week, traded and closed below the $150 level for the first time in the past 55 months and closed on the lows of the week, suggesting further downside below last week's low at 148.70 will be seen this week.
What makes this short trade somewhat attractive is that IBM shows no support below until a previous high of consequence is reached down around the $132 level. It was the $132 area from which the stock broke out of after trading up to and below that level a total of 7 times for a period of 2 years between 2008 and 2010, suggesting that a drop back down to that level is highly likely to be seen in a corrective market phase, at least from a chart point of view. Even then, it has to be said that the $132 level of support is from "previous highs" and as such, it is not a highly dependable support area, meaning that drops down to the stronger intra-week low support at $115-$116 are certainly possible.
The biggest negative to a short trade of IBM is that there is no level of established resistance close-by, other than the psychological one at the $150 area that just got broken, meaning that placing a dependable stop loss is impossible and as such the trade will have just slightly above a 50-50 probability rating. By the same token, with the index market having broken support, it is unlikely that the bulls will have much success in rallying the stock much above $150, if at all.
Sales of IBM between Friday's close at 148.89 and up to 149.70 and using a mental stop loss at 150.60 and having a $132 downside objective will offer an 8-1 risk/reward ratio.
My rating on the trade is a 2.6 (on a scale of 1-5 with 5 being the highest).
|
Updates
|
| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AREX generated another red weekly close, the 15th out of the last 16 and the 8th in a row. Oil prices have continued to move lower, having made a new 6-year low and now within hailing distance of the $32 low seen in 2009. Nonetheless, in spite of the continued red weekly closes, the intra-week low at 1.86 seen 3 weeks ago remains unbroken and given that the $40 level in the price of crude oil does offer "some" long-term support, it is possible the stock might see a bit of a turn-around this week if the 1.86 level does not break. Resistance is found at 3.03. ARNA made a new 39-month intra-week and low weekly close on Friday and closed near the lows of the week, suggesting further downside below last week's low at 2.74 is likely to be seen. Nonetheless, the stock generated a positive reversal on the daily chart on Friday, having made the 2.74 low and then going above Thursday's high at 3.02 and closing in the green, suggesting that the support from 2009 at 2.70 is generating some buying interest. As such, it is possible and perhaps even probable that the stock will see 2.70 this week but then generate a reversal and a green weekly close, which in turn would make Friday's close at 2.97 into a successful retest of the weekly close support at 2.93/2.80 seen in 2008 and 2010. Probabilities slightly favor the bulls this week. ENG made a new 22-month low this past week and did get down to the psychological support at 1.00. The stock closed on the lows of the week and further downside below 1.00 is likely to be seen. Nonetheless, the stock is close to reaching a level of weekly close support between .95 and .97 that should generate some buying interest, given that level held up strongly between July and October 2013 and from which rallies up to 1.53, up to 1.35, and subsequently up to 1.79 were seen thereafter. Minor resistance is found at 1.09, at 1.17 and decent between 1.28 and 1.30. Probabilities favor further downside this week, likely down to at least the .95-.97 level, but the probabilities favor a turn-around the following week and a short-covering rally to begin. FCEL bulls were unable to build upon the previous week's green close, having generated a red weekly close and lower lows than the previous week. The stock closed on the lows of the week and further downside below last week's low at .71 is likely to be seen. The all-time low at .68, seen just 3 weeks ago, is likely to be tested this week but if the bulls can hold that level without breaking and generate a green close next Friday, a short-covering rally would likely ensue. Resistance is found at .84, at .89, at .92, at .95 and at 1.00. This coming week is likely to be pivotal, given that a new low below .68 would further weaken the chart, while a successful retest of the lows and a reversal would likely generate a decent short-covering rally. Based on the low price and continued fundamental viability of the company, I would venture to say that the stock is ready to generate a decent rally over the next month or two, back up to the 200-week MA, currently at 1.41. FSLR moved in conjunction with the indexes this past week and had a strong negative spike down week, as well as a close on the lows of the week, suggesting further downside below last week's low at 45.26 will be seen this week. The gap that was created just after the earnings report, between 44.79 and 49.01 now has a high probability of being closed, which would be considered a negative. By the same token, the 200-week MA, currently at 44.00, has always been pivotal for the stock and with the much better than expected earnings report and positive outlook for green energy, it is doubtful the line will be broken unless the index market has turned around and is in a long-term downtrend (doubtful). Probabilities do favor the bears this week but the stock could see a dramatic turn-around to the upside within 1-3 weeks. Resistance is found between 47.01 and 47.75 (50-day MA). Any daily close below 43.69 would further weaken the chart. KMX made a new 9-month intra-week and weekly closing low on Friday, as well as closed on the lows of the week, suggesting further downside below last week's low at 59.50 will be seen this week. Minor support is found at 57.62 and then nothing of consequence until minor intra-week support at 54.04 is reached. Additional support might be found at the previous all-time high weekly closes at 53.71 and at 51.20. Any weekly close below 51.20 would suggest the stock will test the 200-week MA, currently at 45.90. Minor but possibly short-term pivotal resistance is found at 60.66. Above that level, decent resistance is found at 64.07. Monthly chart does suggest the stock will drop down to at least the $52-$54 level but it also suggests that if the indexes are in a strong correction (like the one in 2011) that the stock will drop down to the $44-$45 level. LVLT generated a second sell signal on the weekly closing chart, having closed below the 47.23/47.54 area that included 1 previous high weekly close of consequence, as well as 2 previous low weekly closes of importance. The stock closed on the lows of the week and further downside below last week's low at 46.09 is expected to be seen. Minor support is found at 44.42 but the weekly chart does not show any support until minor support is found at 41.28/40.92. Decent support is found between 40.05 and 37.61 from a previous high of consequence (at 40.05) and a previous intra-week low of consequence (37.61). Should both of those levels be broken, a drop down to the 200-week MA, currently at 33.00) would likely be seen. Daily close resistance will now be found between 47.02 and 47.50. A close above that level would remove some of the selling interest. Probabilities strongly favor the bears. NFLX generated a sell signal on the daily "and" weekly charts this past week, having closed below the previous low daily close at 106.43 as well as below the previous low weekly close at 109.34. The stock closed on the lows of the week and further downside below last week's low at 102.75 is expected to be seen. The stock generated a gap down opening on Friday, between 111.34 and 110.00 and if another gap is seen on Monday, it will be considered a runaway gap and further downside of consequence will be seen. Psychological support should be found at the $100 level but other than 2 previous intra-week highs at 98.97 and at 100.89, as well as one minor previous intra-week low on the daily chart at the "general" support at 97.05, there are no compelling chart reasons to believe that area will hold up if the indexes continue lower. Weekly chart shows minor support at 91.11 and at 78.90 but the key word is "minor". Support of consequence is not found until the previous all-time highs between 67.49 and 69.89 are reached. Resistance is minor at the gap area at 110.00. My best "guess" scenario would be a drop down to the $91-$92 level where a bounce back up to the $100 level would be seen. PGR generated a "key" reversal, having made a new all-time high at 31.57 (above the previous one at 31.42) and then closing below the previous week's low at 30.40. The stock closed on the lows of the week and further downside below last week's low at 29.96 is expected to be seen. In addition, the red weekly close did confirm the double top on the weekly closing chart 30.92/31.28 as well as give a sell signal with the close below the previous low weekly close at 30.50. The chart shows very minor support at the runaway gap at 29.53 but a close of that gap would suggest the next support will be found at 27.79-28.00 level, which is considered minor to decent but does include the 200-day MA, currently at 27.60. Any weekly close below 27.93 would open the door for the stock to drop down to the $25 level. Probabilities favor the bears. PHM generated a negative reversal week, having made a new 4-month high and then closing in the red and on the lows of the week, suggesting further downside below last week's low at 20.81 will be seen this week. The stock did close at the 200-day MA, currently at 20.90, meaning that a red close on Monday would likely bring in additional selling interest, while a green close would likely stimulate some new buying. Minor support is found at 20.59 and stronger between 20.17 and 20.26, which does include the 50 and 100 day MA's, both currently at 20.35. Further support of some consequence is found at 19.68, a bit stronger at 19.20/19.28 and pivotal longer term at 18.61, which if broken would suggest a visit to the 200-week MA, currently at 17.00. Minor resistance is found at 21.54 and then stronger at the recent high at 22.10. Chart continues to suggest that the stock will visit the 200-month MA, currently at 16.75. Probabilities favor the bears. PRAA generated follow through to the downside off of the previous week's red close but it was nowhere near as dramatic as what was seen in the indexes and other stocks, suggesting a measure of buying interest is found at these price levels. Nonetheless, the stock did close in the lower half of the week's trading range and further downside below last week's low at 54.72 is expected to be seen. Intra-week support is found at 52.92, at 52.02 and at 50.29 (which must be considered the downside objective, given that the $50 level is also psychological support. The stock gapped down on Thursday between 57.01 and 56.61 and given that the stock generated a positive reversal day on Friday (new 3-month lows and a green close), it is expected the bulls will attempt to close the gap on Monday. Failure to close the gap though, would be a decent short-term negative that would likely take the stock down to the next support level at 52.92. The 200-day MA is currently at 57.30 and a close above that line, in conjunction will an intra-week rally above the recent high at 58.34, would take away much of the selling interest. Probabilities favor the bears but downside movement is not likely to mimic what is likely to be seen in the indexes or in other overbought stocks. XOM generated a strong spike-down week as well as a close on the lows of the week, suggesting further downside below last week's low at 72.07 is likely to be seen. Probabilities now strongly favor a drop down to the $70 demilitarized zone but decent support is found there and likely to stop the downtrend. Resistance will now be minor to decent on the weekly closing chart between 73.78 and 74.87 but on an intra-week basis, resistance is between 74.83 and 76.87. Probabilities now favor the stock getting into a trading range between $68/$70 and $75 for the 8-10 weeks.
|
1) FCEL - Averaged long at 2.227 (4 mentions). No stop loss at present. Stock closed on Friday at .73.
2) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.02.
3) FSLR - Averaged long at 59.404 (4 mentions). No stop loss at present. Stock closed on Friday at 45.27.
4) AREX - Averaged long at 5.292 (4 mentions). No stop loss at present. Stock closed on Friday at 2.02.
5) ARNA - Averaged long at 4.30 (3 mentions). No stop loss at present. Stock closed on Friday at 3.97.
6) PGR - Averaged short at 30.73 (2 mentions). Stock closed on Friday at 29.96.
7) VHC - Liquidated at 3.26. Purchased at 4.17. Loss on the trade of $91 per 100 shares plus commissions.
8) PHM - Shorted at 22.06. Stop loss now at 22.35. Stock closed on Friday at 20.93.
9) PRAA - Shorted at 63.64. Stop loss now at 59.35. Stock closed on Friday at 55.77.
10) KMX - Averaged short at 65.12 (2 mentions). Stop loss at 64.35. Stock closed on Friday at 59.58.
11) XOM - Averaged long at 76.825 (2 mentions). No stop loss at present. Stock closed on Friday at 72.13.
12) XOM - Purchased at 76.99 and at 76.99. Liquidated at 76.68. Loss on the trade of $62 per 100 shares plus commissions.
13) NFLX - Shorted at 118.66. Stop loss now at 118.35. Stock closed on Friday at 103.96.
14) LVLT - Shorted at 47.10. Stop loss now at 47.65. Stock closed on Friday at 46.11.
Previous Newsletters
|
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. |
|
|
|