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Issue #423 
April 12, 2015 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Earnings to Decide Direction?
DOW Friday closing price - 18056
For the past "21 weeks" (since the first week of December when the DOW generated an all-time high of 17991 and a weekly close at 17958) the uptrend in the index has stalled. The bulls have only been able to muster an additional intra-week appreciation of 297 points and only 183 points on a weekly closing basis, and more importantly for the past 6 weeks the bulls have not been successful in making a new high and now show a double top on the weekly closing chart at 18140/18127 and a previous successful retest on the intra-week chart with the rally to 18203 5 weeks ago.
Such an extended failure period has not been seen since 2007 (last major top) when the DOW had an extremely similar 6-month topping out pattern before a downtrend began. Even in 1999 (previous major top) when the index generated a similar 5-month pattern that was ultimately resolved with a new high on the 9th month, the appreciation thereafter (above the previous high) was only 385 points before the index began an 18-month period of lower highs and lower lows, which was then followed by a strong fall. The action seen during the past 5 months strongly suggests that a top is in the process of being built with the only question being whether the "top is already built" or whether further but "minor appreciation in price" will be occur over the next couple of months.
The DOW did close on the highs of the week and further upside above last week's high of 18066 is likely to be seen this week. The proximity and short-term importance of the resistance levels above suggests this coming week could be indicative if not pivotal.
To the upside, the DOW shows intra-week resistance at 18103 and at 18203 and strong at the all-time high of 18288. To the downside, minor intra-week support is found at 17878 and at 17823 and again at 17726. Further support is found between 17579 and 17620 and the nothing until 17262.
The rally this past week in the DOW was all technical in nature, given that the fundamental news (Jobs and ISM index reports) were negative. As such, the action this coming week will likely be technical in nature as well, even though the traders are likely to use the earnings reports as the reported catalyst for whatever the index ends up doing.
The 18203 level in the DOW is strongly pivotal as it does represent the successful retest of the all-time high and a break above that level would negate the successfulness of it. The 18103 level also has some importance, inasmuch as a rally to that level would fulfill the requirement for higher prices above last week's high but does represent a previous high of consequence as well as a likely high for a "second" successful retest of the previous all-time high. The 18127-18140 will also have some importance, given that it represents a double top on the weekly closing chart. An intra-week rally above both 18103 and 18140 would suggest the bulls will come out victorious.
Earnings reports are likely to be the key this week, with 3 of the DOW stocks reporting (JNJ, INTC, and GE).
The bears in the DOW may still have a slight edge (in spite of last week's rally), inasmuch as the bulls have yet to invalidate the topping out action seen the past 6 weeks. In addition, the volatility has been generally high for the past 21 weeks, continuing to suggest that the market is in the process of building a top.
NASDAQ Friday closing price - 4995
The NASDAQ led the rally this past week, having appreciated 2.2% in value, whereas the other indexes rallied less than 1.7%. By the same token, the NASDAQ is the only index that had not yet tested its previous high (at 5042), meaning that once the rally got going and the minor resistance high seen on March 30th at 4948 got broken, it was not surprising the traders would choose this index over the others, especially considering the yet untested high, no resistance until 4993 and the magnetism of the 5000 level.
The NASDAQ closed on the highs of the week and further upside above last week's high at 4996 is expected to be seen. By the same token, the bulls will not have it easy this week since they will be running into an area of resistance between 5000 and 5048 that is both historical and psychological, and that is likely to require additional fundamental help to break.
To the upside, the NASDAQ shows resistance at 5008 and strong at 5042. Major weekly close resistance is found at 5048. To the downside, minor support is found at 4938, very minor at 4918, and then stronger between 4825 and 4842.
The NASDAQ is once again likely to be the leading index this week, inasmuch as the tech sector led the market last week and NFLX (one of its main stocks) reports earnings this week. In addition, it is still the one index that has something to prove (a new all-time high which has been already accomplished by the other indexes in the recent past), suggesting the traders will be keying on the index.
By the same token, the NASDAQ is in a precarious situation as any drop and close below a previous day's low could be considered a successful retest of the high on the daily chart and a close next Friday in the red would be considered a successful retest of the high on the weekly closing chart. This scenario does suggest the bulls cannot afford any weakness this week, at least not before 5042 is broken.
At this time, the bulls have a slight edge in the NASDAQ simply because the index has not had the same topping out action as the other 2 indexes (6 weeks in the NASDAQ versus 21 weeks in the DOW) and no successful retest of the highs has been seen yet.
The 5008 level in the NASDAQ chart is likely to play a strong role this coming week as it is likely to be seen early in the week but does represent a resistance level that is likely pivotal because if broken would likely mean the previous high at 5042 would be seen and probably broken as well.
SPX Friday closing price - 2102
The SPX is likely to start the week being the fundamental leader of the market, inasmuch as JPM and WFC kick off the earning's week with reports on Tuesday morning, followed by BAC, C, and GS later on in the week. As such, the traders are likely pay close attention to the index for clues as to direction for the week, given that this week is likely to be all about earnings.
The SPX closed on the highs of the week and further upside above last week's high at 2102 is likely to be seen. With the index only 17 points below the all-time intra-week high at 2119 and only 8 points below the all-time weekly closing high at 2110, it does suggest that some decisions on direction for the next few weeks will be made this week.
To the upside, the SPX shows very minor intra-week resistance at 2106, a bit stronger at 2114 and strong at the all-time high at 2119. To the downside, minor support is found between 2085 and 2087, a bit stronger between 2067 and 2073 and then decent between 2039 and 2048.
The SPX will face a pivot point area early in the week, inasmuch as on a "daily closing basis" the 2008 level is considered pivotal and that is only 6 points higher than Friday's close. A daily close above 2008 will give the bulls a technical edge they are not likely to squander away, inasmuch as that level is presently seen as the first successful retest of the all-time high daily close and a break of it would suggest that a top has "not" been built and that the uptrend is resuming. In addition, the index shows a double top on the weekly closing chart at 2110/2108 and a rally above that level would certainly encourage new buying.
Probabilities favor the SPX experiencing choppy 2-way trading on Monday but within a small trading range and with no decisions made, as the traders await the earnings reports on Tuesday morning.
The bulls were able to take a negative ISM Index and Jobs report and turn it into a technical rally after the bears failed to generate a break of chart support on Monday, the first trading day after the disappointing Jobs report came out. The failed breakdown and high volatility seen the last 5 months was all that the bulls needed to turn the indexes around and put them in a position that if the earnings and economic reports scheduled for this week come out better than expected that the uptrend could resume.
There is quite a bit of fundamental information due out this week with PPI, CPI, Retail Sales, Housing and Manufacturing reports scheduled on the economic front and JNJ, JPM, WFC,, INTC, BAC, NFLX, C, GS, GE, and HON reporting on the earnings front. As such, this week is likely to be more about fundamentals than about charts. By the same token, the importance of the resistance levels nearby will make the charts the barometer the traders will use to clearly measure the reaction of the traders to the reports.
Nonetheless, the bears seem to have achieved a slight edge due to the inability of the bulls to achieve anything substantial for the past 5 months, meaning that these economic and earnings reports would have to be substantially better than in the past to bring about renewed buying interest "above" the recent highs. The earnings reports are not likely to be "good enough" to change the outlook of the market, especially since they have already been downgraded during the past month. If that proves to be the case, the market should end up the week on a down note.
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Stock Analysis/Evaluation
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CHART Outlooks
I have no mentions in the newsletter this week since the bulls have not yet made their case and the bears are presently in a defensive mode. By the same token, the charts do suggest that some determination on direction might be made this week and if that occurs, mentions will be made in the message board.
I do want to re-mention that FSLR is a presently held-long stock that I believe will outperform the market even if the indexes get into a strong correction and as such I am seriously considering adding positions on the next dip down to the 57.80 level (check out the update on the held-stocks comment area).
A purchase of FSLR between 57.50 and 57.90 and using a stop loss at 53.87 and having an objective of $82 will offer an 8-1 risk/reward ratio.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AREX came within a "cat's whisker" of generating another strong buy signal on the weekly closing chart, having closed just 13 points below the high weekly close for the past 18 weeks at 8.15. Nonetheless, the traders likely decided to wait to see what the market ends up doing this pivotal week before committing to higher prices. The stock did close in the middle of the week's trading range, leaving the door open for either direction to be chosen. By the same token, the bulls do have a decent edge, having broken convincingly above the 100-day MA (first time since August) and building what seems to be a bullish flag formation (flagpole being the rally from 6.23-8.70 and the flag being the trading range between 7.61 and 8.70 seen the last 4 days of the week) that offers a 10.08 upside objective if 8.70 is broken. Probabilities favor the stock trading between 7.70 and 8.30 for the first few days of the week and then the traders deciding on the next direction. Probabilities favor the bulls. ARNA continues to trade mostly sideways with support at 4.15 and resistance at 5.00. Nonetheless, the bulls may have gotten a very slight edge this past week, having generated a confirmed break of the 200-day MA, currently at 4.42, suggesting the stock this week is now likely to test the resistance above rather than the support below. The stock did close near the lows of the day on Friday and the first course of action for the week is likely to be to the downside, with 4.37 as the downside objective. Nonetheless, the stock should also test the resistance above at 4.81. Probabilities slightly favor the bulls but not yet to the point that the bulls can make a bullish statement. AXP had an uneventful week as well as a minute trading range (compared to what it has been doing the past 5 months) suggesting the bears maintain their strong edge but that the stock is not yet ready to head lower. The stock closed near the highs of the week and further upside above last week's high at 80.10 is expected to be seen with the 50-day MA, currently at 80.85 as the upside objective. Further resistance (but unlikely to be broken at this time) is found at 81.53. By the same token, the stock has been building what seems to be a bearish inverted flag formation that offers a downside objective of 74.18 if the recent low at 77.62 is broken. It should be mentioned that in order to keep the flag functional, the stock should not get much above the top of the $80 demilitarized zone (80.30). It should also be mentioned that there was a downgrade this past week that gave a $75 objective. Probabilities favor the bears. BWA bulls failed to generate a new buy signal on the weekly closing chart this week, having traded mostly above the previous high weekly close at 61.46 but then closing below it (closed at 61.31) The stock did close in the lower half of the week's trading range and further downside below last week's low at 60.61 is likely to be seen. Support is found at the $60 demilitarized zone. Probabilities continue to favor the bulls as the chart is still showing a bullish flag formation that offers a 73.23 objective if the recent high at 63.30 is broken. A break below 58.33 would be considered a bearish sign. COF has been trading sideways for the past 9 weeks between 77.70 and 81.99 and there is yet no strong clue as to what direction the stock will go next. The stock did close on the highs of the week and further upside above last week's high at 81.04 is expected to be seen. Nonetheless, the probabilities still slightly favor the bears inasmuch as the stock has been generating lower highs and lower lows (4 and 3) since July of last year and there is yet no chart action that suggests that is about to change. A break above or below those parameters would be indicative but with the resistance level presently being closer than the support level, it does suggest this week the bulls will have their chance to make a statement. Stop loss should continue to be at 82.09. ENG generated a positive reversal week, having made a new 22-week low and then closing in the green and on the highs of the week, suggesting further upside above last week's high at 1.63 will be seen this week. The stock generated a spike up on Friday that also looks strongly positive and if the bulls can generate a daily close above 1.65 any day this week (now seen as a daily close resistance level), it will be a short-term bullish statement. It should also be mentioned that the green weekly close has now made the previous weeks close at 1.56 into a successful retest of the 2-point uptrend line on the weekly chart that started in April 2013 at .30 cents. The successful retest now makes the line a 3-pointer, which is much stronger and more indicative. A weekly close below 1.56 would now be considered a negative. On an intra-week basis, there is no resistance until 1.85, suggesting this week could generate some positive volatility. FCEL traded uneventfully within a 9 point trading range this past week but did close near the lows of the week, suggesting further downside below last week's low at 1.27 will be seen this week. Nonetheless, the stock seems to be mired within a 15 point trading range between 1.20 and 1.35 that does not show any intention of being broken anytime soon. A close above 1.41 would be a breakout, a close below 1.19 a breakdown. FSLR made a new 6-month high weekly close but then only by 11 points above last week's close and without going above the previous intra-week high, suggesting that for now the traders continue to wait for some new catalyst with which to determine direction. The probabilities continue to favor the bulls as the trend is up and the chart remains with a bullish flag or pennant formation. Important and pivotal support continues to be found at 57.80 and intra-week resistance at 63.31 that if broken, would likely take the stock up to the next resistance level at 65.99. Nonetheless, the bullish flag formation continues to offer a 72.53 objective. GS made a new 7-year weekly closing high, having closed above the double top at 195.45 that had been made last year in December. The stock did not get above the 7-year intra-week high at 198.06 but did close on the highs of the week, suggesting further upside above last week's high at 195.86 will be seen this week. Nonetheless, it should be mentioned that the last 2 times the stock got up to this level (both in December) it closed on the highs of the week, generated minimal follow through the following week and then proceeded to close in the red the following Friday. In addition, the $200 level has been a difficult resistance level for the bulls since April 2008 when the stock got up to 203.39, meaning that this area continues to be resistance of consequence. Resistance is found at 196.96 and at 198.06. Likely pivotal daily close support is now found at 193.13. A daily close below that level would be seen as a failure and selling interest would likely rise. Probabilities favor the bulls but it does need to be mentioned that the stock reports earnings on Thursday morning before the opening bell and as such the stock is likely to move based on the report than on the charts. KMX failed to follow through to the upside this past week in spite of the close on the highs of the week after the better than expected earnings report the previous week. The stock closed in the red and on the lows of the week, suggesting further downside below last week's low at 73.11 will be seen this week. Probabilities favor the stock getting down to the top of the gap area between 69.21 and 71.97 to test the gap to see if it is a viable indicator of further upside to be seen or whether the rally up to 75.40 was just a spike high top. It is likely the index market will have some effect on what the stock does. Minor but likely pivotal resistance is now found at 74.55. Below 71.97 there is no established support until minor but likely pivotal support at 67.67. Probabilities favor the bulls but the failure to follow through seen this past week gives the bears a chance of establishing the 75.40 level as a major top. ORCL generated a positive reversal week, having made a new 3-week low and then going above the previous week's high and closing in the green. The stock closed near the highs of the week and further upside above last week's high at 43.89 is likely to be seen. Minor to perhaps decent resistance is found between 44.13 and 44.47 and decent as well as pivotal at 44.93. It should be mentioned that the stock got up to 43.89 and did back off to close in the middle of Friday's trading range, in spite of the strength seen in the indexes, suggesting that there is still a decent amount of selling interest. Probabilities suggest the stock will get up to around the 44.37 level this week and likely back off if the indexes are unable to make new highs. The stock is likely tied in to what the index market does. OSK made a new 7-month weekly closing high, having closed above the previous weekly closing high seen in February at 48.79. The stock closed on the highs of the week and further upside above 49.26 is expected to be seen. Nonetheless, the stock still shows a lot of resistance above with previous intra-week highs found at 49.40, at 49.50, and at 50.27, meaning that the bulls still have a lot of work to do before they can claim any resounding success. Pivotal support is now found at 46.00 that if broken would "deflate the recent balloon". Stop losses should continue to be placed at 50.37. Probabilities slightly favor the bulls this week. TOL made a new 10-year intra-week high at 40.34, above the high seen in March 2014 at 39.95 and above the one made in October 2005 at 39.99. Nonetheless, the bulls were unable to generate any follow through buying as the stock then went below the previous week's low and closed in the red. The stock closed right around the middle of the week's trading range and it is likely that direction will be decided this week by what the index market does. A break above or below last week's trading range of 38.69 to 40.33 is likely to be indicative. Probabilities favor the bulls but then again the $40 level has proven to be a strong resistance level for 10 years. VHC bulls were able to convincingly get above the resistance level at 6.85-6.95 to close near the highs of the week, suggesting further upside above last week's high at 7.48 will be seen this week. Resistance is found at 8.09 but with no resistance found until that level is reached, the probabilities are high that it will be reached. By the same token, the 200-day MA is currently at 8.35, meaning that the resistance area is considered decent and though likely to be reached, not likely to get broken the first time around. Probabilities do favor a positive week, at least as far as a rally up to 8.09 (or slightly higher) is concerned. Nonetheless, the probabilities also favor the stock heading back down to test the 6.85-6.95 level sometime over the next 2-3 weeks. Overall the outlook is positive for the longer term but a $7-$8 trading range for 2-3 weeks is the most likely scenario.
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1) AXP - Averaged short at 83.65 (2 mentions). Stop loss now at 83.57. Stock closed on Friday at 79.59.
2) FCEL - Averaged long at 2.227 (4 mentions). No stop loss at this time. Stock closed on Friday at 1.28.
3) KMX - Averaged short at 69.366 (3 mentions). No stop loss at present. Stock closed on Friday at 73.19.
4) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.60.
5) FSLR - Averaged long at 59.404 (4 mentions). No stop loss at present. Stock closed on Friday at 61.30.
6) VHC - Averaged long at 4.86 (2 mentions). Stop loss now at 5.69. Stock closed on Friday at 7.22.
7) AREX - Averaged long at 6.08 (3 mentions). Stop loss now at 5.99. Stock closed on Friday at 8.02.
8) ARNA - Averaged long at 4.30 (3 mentions). No stop loss at present. Stock closed on Friday at 4.55.
9) ORCL - Shorted at 43.08. Stop loss now at 45.35. Stock closed on Friday at 43.51.
10) OSK - Averaged short at 48.08 (3 mentions). Stop loss at 50.81. Stock closed on Friday at 49.14.
11) TOL - Averaged short at 37.45 (2 mentions). Stop loss at 40.35. Stock closed on Friday at 39.68.
12) COF - Shorted at 79.32. Stop loss at 82.09. Stock closed on Friday at 80.61.
13) GS - Averaged short at 189.625 (2 mentions). No stop loss at present. Stock closed on Friday at 195.64.
14) BWA - Purchased at 60.38. Stop loss is at 58.14. Stock closed on Friday at 61.31.
15) NFLX - Shorted at 438.90. Covered shorts at 439.21. Loss on the trade of $31 per 100 shares plus commissions.
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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