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Issue #426 
May 3, 2015 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Nothing Decided, Uncertainty Reigns!
DOW Friday closing price - 18024
On a weekly closing basis, the DOW bulls failed to generate follow through on the previous weeks strong move up and close on the highs of the week, having generated a negative reversal and a red close. Nonetheless, the index closed in the upper half of the week's trading range, meaning that the bears were not able to make their case either, leaving the traders perplexed about the direction of the index.
To further muddle the outlook for the DOW, it has now been exactly 6 months that on a weekly closing basis, the bulls have not been able to produce any continuation of the uptrend, having made an all-time high weekly close on December 1st at 17958 and last Friday closing just 66 points higher. The lack of direction being seen is testament to the future uncertainty being felt by the traders.
To the upside, the DOW shows minor intra-week resistance at 18169/18175, at 18203 and strong at the all-time high of 18288. To the downside, minor intra-week support is found at 17774 and decent as well as likely short-term pivotal at 17748. Further support is found between 17579 and 17620.
Even though the DOW has been trading sideways for the past 6 months, the prospects for the future continue to favor the bulls, especially since the bears have been unable to break a previous low of consequence for the last 6 weeks. The chart action suggests that the bears are the ones with the onus on their backs, needing some negative catalyst to generate the kind of selling interest that is needed to stop the "buy all dips" mentality that has prevailed in the market for the past 3+ years.
With last week having been a negative reversal week but with the DOW having closed in the upper half of the week's trading range and on the highs of the day on Friday, if the Factory Orders report on Monday morning does not generate new selling interest and last week's high at 18175 gets broken, it would likely give the bulls enough chart ammunition with which to bring about at least a strong retest of the all-time high at 18288, if not make a new all-time high.
The probabilities slightly favor the bulls this week.
NASDAQ Friday closing price - 5005
The NASDAQ made a new 15-year intra-week high at 5119 but then generated a negative reversal, having gone below the previous week's low and then closing in the red. The bulls were able to rally the index on Friday to close just slightly below the mid-point of the week's trading range but were unable to prevent a failure signal from being given when the index closed below the previous all-time weekly closing high at 5048 that was broken the previous week, but also below the previous high weekly close seen this year in March at 5026.
The failure signal given in the NASDAQ on Friday, if confirmed this coming week with another close below both the 5026 and 5048 levels, as well as with a break below last week's low at 4921, would suggest that the all-time intra-week high at 5132 would become a formidable resistance area, especially when coupled with the 5119 high seen this past week. Such a scenario would create a double top of consequence.
The action seen in the NASDAQ this last week suggests the index may have lost a step with the departure of AAPL and the extended new all-time highs seen in AMZN and NFLX. Simply stated, it seems difficult to think the bulls could accomplish a lot more, above the recent accomplishments, without a positive catalyst of consequence.
To the upside, the NASDAQ shows minor intra-week resistance at 5108, a little bit stronger at 5042 and strong between 5119 and 5132. Above 5132 there is no resistance. To the downside, last week's low at 4921 is now minor to perhaps decent support. Further and possibly short-term pivotal support is found at 4912 and then nothing until the 4825/4842 area.
Ever since the low of the recession in 2008, but even more so during the past 3 years, the NASDAQ and the tech sector have led the market to the upside. Nonetheless, all tech stocks are now at levels that can be considered "overdone/overbought" and it seems unlikely the index will continue to "lead" the market to the upside. This does not necessarily mean the index will head lower but it does suggest the leadership of the market will shift to one of the other indexes, if and when the market can continue higher.
The NASDAQ will continue to be the index to watch, if for no other reason than it is the only index with a major long-term intra-week resistance level above at 5119/5132. Evidently if the resistance level is broken, it will suggest the entire market is resuming the uptrend. By the same token, if the bears can break below the recent low at 4825, it would be the first index to generate a strong sell signal.
Probabilities suggest the NASDAQ will trade sideways over the next couple of weeks without either the resistance or support levels breaking.
SPX Friday closing price - 2108
The SPX generated a negative reversal week, having made a new all-time high last week and then going below the previous week's low and closing in the red. The index also generated a failure signal on the weekly closing chart, having made a new all-time weekly closing high at 2117 the previous week and closing on Friday below the previous all-time weekly closing high at 2110. Nonetheless, the index did close in the upper half of the week's trading range and only closed 2 points below the previous all-time high weekly close, suggesting that the negative action seen last week may not be all that indicative.
The SPX has also traded in a sideways fashion during the last 11 weeks, having gone above 2100 on 9 of those 11 weeks but no higher than 2125, meaning that the bulls have not been able to muster more than 25 points to the upside during that period of time.
To the upside, the SPX shows minor intra-week resistance at 2114, a bit stronger at 2119 and decent at 2125. To the downside, last week's low at 2077 is now minor to perhaps decent support. Below that, further but likely short-term pivotal support is found at 2072 and then nothing until the 2039/2045 area is reached.
The SPX has built an ominous double top on the daily closing chart at 2117 as well as showing minor to decent but likely pivotal daily close resistance at 2108. With the index having closed at 2108 on Friday, Monday's close has taken on a bit of meaning, suggesting the SPX could be the first index to give a clue this coming week as to what the traders are thinking, and as early as Monday. A red close on Monday would give the chart a short-term bearish look that would need to be negated, likely with some positive fundamental news. A green close on Monday would suggest the double top at 2117 would become a magnet and likely broken.
Probabilities should favor the bulls as the index closed on the highs of the day and further upside above Friday's high of 2108 is likely to be seen. As such, the bears are the ones with the Onus as they are the ones that will need to generate a red close on Monday.
The traders are now thoroughly confused as the bulls failed to generate follow through to the upside last week, as was expected, but the bears were unable to take advantage of it. The economic and earnings reports did not clarify anything either and with most of the important earnings and economic reports now out, the traders are likely to find themselves, for a few weeks at least, without any fundamental catalysts to help them make decisions.
The Jobs Report comes out this Friday and that report usually generates movement to the upside. Nonetheless, the probabilities of that report having a surprise number are low, meaning the bulls are not likely to have much help to generate new buying, especially since during the last 6 months new buying has been limited to buying dips. It certainly can be said that the Jobs report has not been overly successful in taking the indexes higher, especially above previous highs.
Probabilities favor more of the same but they also favor a "changing of the guard" as it is now likely that the DOW will become the leader, especially during the summer doldrums when money is likely to head to the Blue Chip stocks rather than the speculative ones. As such, it is probably time to buy DOW stocks and sell NAZ stocks, at least if doing it as a hedge.
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Stock Analysis/Evaluation
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CHART Outlooks
Based on the recent action and economic news, it is unlikely that for the time being the indexes will be doing much trending (in either direction). Nonetheless, it does seem likely that the DOW will outperform the other indexes as money will likely swing more to the safety of Blue Chip stocks than go into more speculative companies, especially given that the summer months are usually the slowest of the year for growth.
There are 2 buy mentions and 1 sell mention this week. The buy mentions are both in DOW stocks and the sell mention is geared to the idea that oil prices may have found their recent short-covering high.
PURCHASES
BA Friday Closing Price - 144.67
BA has been on a strong uptrend since March 2013 when it broke out from a 5-year high at 80.65 but then accelerated even more after it made a new all-time high in September of that year, above the previous all-time high at 107.83. Just 2 months ago the stock got up to 158.83 but then received a disappointing earnings report where it was mentioned that the company had a short-term cash flow problem and off of that report the stock has dropped back down to the most recent previous all-time high seen in January of last years at 144.57 (141.90 on a weekly closing basis).
BA closed near the lows of the week and further downside below last week's low at 142.75 is expected to be seen. Nonetheless, the fundamental outlook for the company remains strongly positive as is stated in a standing buy mention given by Sterne Agee that offers an objective of $196. Sterne Agee analyst Paul Ausick stated today (May 3rd): We reiterate our view that the Free Cash Flow profile of BA should remain robust through peak production levels in 2018. Yesterday's reiteration of the 2015 outlook for >$9.0 billion in cash from operations despite the soft start to cash generation in 1Q15 gives us confidence in robust 2H15 for [free cash flow].
From purely a chart point of view, it can be said that BA has strong support at the $140 level, which was the breakout point from a 1-year sideways trading area between $120 and $140 that lasted all of 2014. With no reason at this time to believe the DOW is ready to generate a strong correction or that the fundamental picture of the company has changed to the negative, it seems highly unlike that the bears will have any success in taking the stock below the $140 level and may have trouble taking the stock below the previous all-time high from last year at 141.90.
To the upside, BA shows minor intra-week resistance at 148.25 and just a little bit stronger at the $150 level, mostly because of 2 previous lows of some consequence at 149.79 and at 149.44, as well as from the psychological resistance that can be expected at the $150 level. Further but likely decent as well as pivotal resistance is found between 154.09 and 155.50 that if broken would suggest the all-time high at 158.83 would be tested and probably broken as well.
To the downside, BA shows minor support at 142.75/143.04 and then nothing until the previous weekly closing high at 141.90, that must be only considered support on a weekly closing basis. Intra-week support in the stock below 142.75 is not found until the gap area at 135.92 that was generated after the January earnings report came out.
Even though BA did close near the lows of the week, there is a decent chance that the stock will not go below last week's low at 142.75 as there is support at 143.04, which was the first low seen after the breakout above the previous all-time high at 144.57.
The long term outlook for BA suggests the stock will continue higher at some point this year and attempt to get up to the Sterne Agee objective of $196. Nonetheless, for the sake of this mention, the objective will be the $150-$153 level, which is a level with a "high" probability of being reached before any long term decision on the stock is made.
Purchases of BA between 141.90 and 143.04 and using a stop loss at 139.65 and having a $150-$153 objective will offer a 4-1 risk/reward ratio.
My rating on the trade is a 3 if using the stop loss mentioned and a 4 if not using a stop loss (on a scale of 1-5 with 5 being the highest).
MMM Friday Closing Price - 157.68
MMM has been on a sideways trading range between $155 and $170 for the past 6 months and there doesn't seem to be any reason to think the stock will be breaking that trading range anytime soon. With the stock trading near the $155 level, the stock fits in well with the trading strategy that supposes the DOW will continue trading sideways but will be the leader and have a slight bias to the upside and that trading the range is the thing to do for the next few weeks.
MMM has been mimicking the DOW almost to a tee for the past few years, suggesting that what the index does the stock will do. In addition, the stock shows strong chart reasons to believe the downside is extremely limited at this time, given that the 50-week MA (currently at 153.60) and the 200-day MA (currently at 155.35) have held firm since January 2012 (3+ years), having broken the 50-week MA only once and then only by 1 week and the 200-day MA by 7 days, all in October of last year, meaning those lines are dependable. As such, it seems unlikely either of those lines will be broken at this time, unless some negative news comes out. With the earnings report already out for this quarter, it is likely the stock will move more on what the index does than on anything else, with a high probability of trading up to the top of the trading range.
To the upside, MMM shows minor resistance at 160.86 and again at the bottom of the gap area between 161.45 and 162.47, which was created when the stock reported earnings on April 23. Further minor to perhaps decent resistance is found at 162.90 and at 165.70, in which the latter also shows the 50-day MA, currently at 164.70. Decent resistance is found at 164.70 and strong at 170.50.
To the downside, MMM shows decent support at 155.59, which does include the 200-day MA, currently at 155.35. Below that level there is no support until psychological support is found $150 that includes the previous high at 147.67.
MMM closed in the lower half of the week's trading range and further downside below last week's low at 156.01 is likely to be seen. Nonetheless, it is highly unlikely the stock will get much below the 155.59 low seen in December, especially since the 200-day MA is currently at 155.35.
Purchases of MMM between 155.35 and 155.75 and using a sensitive stop loss at 154.65 and having an upside objective of $165, will offer a 10-1 risk/reward ratio.
My rating on the trade is a 3 if using the sensitive stop loss and a 3.5 if going without a stop loss.
I will also be considering adding positions in the held stocks (CBRL, BWA, and FSLR).
SALES
NFX Friday Closing Price - 38.99
NFX is an oil exploration company that due to oil rallying over the past 4 months from $42 to $60 has also rallied from a 22.31 to last week's high at 40.27. Nonetheless, there is still a glut of oil in the world and the probabilities of higher oil prices being seen diminishes every day.
In addition, NFX has now reached a level of resistance at $40 that has proven to be pivotal during the past 10 years (since 2005), having been either support or resistance on 11 occasions during that period of time, suggesting that further upside will require additionally positive news to break the level.
NFX is now strongly overbought on all technical oscillators and it is important to note that other than the 3 weeks the stock closed in the red since January 5th, (16 weeks) the stock had closed near or on the highs of the week every green week except this last one, which the stock closed in the middle of the week's trading range, suggesting that selling interest is now being seen.
To the upside, NFX shows "general psychological" resistance at the $40 demilitarized zone. Minor to perhaps decent resistance is found at 42.67 and at 44.09 and then decent to perhaps strong resistance at the 3-year high at 45.43.
To the downside, NFX shows minor support at 37.84, at 36.79, and at 35.97. A bit stronger intra-week support is found at 34.42 and then nothing until the 200-day MA, currently at 33.80, is reached. Further support is found at the 200-week MA, currently at 32.80.
If the $40 level does become resistance once again (as shown in the past), NFX is likely to "at least" test the 200-day MA at 33.80 or the 200-week MA at 32.80, given that those lines were recent breakout levels from the downtrend and have not yet been tested.
NFX is likely to rally at the beginning of the week, giving the bears a chance to short the stock at a higher price than the close on Friday. Some intra-day resistance has been built at the 39.46-39.50 level. Additional resistance should be found at the $40 demilitarized zone.
Sales of NFX above 39.45 and using a stop loss at 40.35 and having a 33.80 objective will offer a 6-1 risk/reward ratio.
My rating on the trade is a 2.75 if the sensitive stop loss at 40.35 is used but a 4.25 if a 44.97 stop loss is used (on a scale of 1-5 with 5 being the highest).
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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 4/1 Profit of $5620 using 100 shares per mention (after commissions & losses) Closed out profitable trades for April per 100 shares per mention (after commission)
NONE
Closed positions with increase in equity above last months close minus commissions.
OSK (short) $47 Total Profit for April, per 100 shares and after commissions $271 Closed out losing trades for April per 100 shares of each mention (including commission)
NFLX (short) $45
CBRL (long) $371 PCLN (put option) $2574 Closed positions with decrease in equity below last months close plus commissions.
GS (short) $2749 Total Loss for April, per 100 shares, including commissions $6131 Open positions in profit per 100 shares per mention as of 4/30
TOL (short) $398
Open positions with increase in equity above last months close. AREX (long) $654 Total $1052 Open positions in loss per 100 shares per mention as of 4/30
CBRL (long) $417
Open positions with decrease in equity below last months close.
BWA (long) $128 Total $616 Status of trades for month of April per 100 shares on each mention after losses and commission subtractions.
Loss of $5424
Status of account/portfolio for 2015, as of 4/30Profit of $196 using 100 shares traded per mention.
AREX made a new 3-week low but then generated a positive reversal as well as a close near the highs of the week, suggesting the stock may be ready to resume its recent uptrend. The positive reversal made the previous weeks close at 7.98 into a successful retest of the previous high weekly close at 8.15, which in turn caused the stock to rally to 9.57. Intra-week resistance is found at 9.15 and at the recent high at 9.57. Support is found at 7.61/7.74 but will also be found at 8.30 if the stock rallies on Monday above Friday's high at 8.83. Probabilities once again are favoring the bulls, at least for a rally up to the $10 demilitarized zone.
ARNA made a new 8-week low this past week but the bulls were able to generate a close in the upper half of the week's trading range, suggesting the probabilities favor the bulls taking the stock this week above last week's high at 4.52. The close on Friday at 4.34 makes this coming week a pivotal one, inasmuch as the 4.32/4.33 is considered an important weekly close support level. The bulls need to generate a green close next Friday if they don't want the stock to continue to be under selling pressure for the short to mid term. Resistance on a daily and weekly closing basis is found between 4.70 and 4.80 and support on a daily closing basis is now found at 4.19. Probabilities continue to be on the bear side until such a time that the bulls can make a statement. BWA reported less than expected earnings on Thursday and the stock gapped down (between 60.29 and 59.59) and made a new 11-week low off of it. Nonetheless, the bears were unable to generate a sell signal, having closed on Thursday above the previous 11-week low daily close at 58.62, in spite of the fact the stock got as low as 57.18. On Friday, the bulls were able to generate new buying and the stock closed in the green and into the gap area with a high seen at 59.70. The stock closed on the highs of the day and further upside above 59.70 is expected to be seen on Monday. If the gap is closed, it will negate the break and likely bring in new speculative buying. Daily close resistance is found at 61.23 that if broken would negate the long-term downtrend that has been in place since July 2014, as well as negate the short-term sideways trend that has been in place for the last 2 months. Having had a negative fundamental report but the bears unable to generate any kind of sell signal, suggests the stock is a strong buy. Intra-week support of consequence is found at 58.33, which does include the 200-day MA, currently at that same price. A drop down to that level should be used as an opportunity to add long positions. Any daily close 58.62, or more importantly below the line, would be a negative. Probabilities favor the bulls. CBRL took an additional fall this week, likely because the bulls failed to generate buying the previous week in spite of the close on the highs of the week. The stock closed near the lows of the week and further downside below last week's low at 131.60 is likely to be seen. Nonetheless, the stock is now reaching and area of support between $129 and $132 that is decent and likely to generate buying interest, especially since there was been no fundamental news/reason for the stock to fall this past week, other than the continuing chart correction. Minor resistance is found at 137.57 and then slightly stronger at 142.87. Purchases should be considered between $129 and $132, using a stop loss at 128.19. ENG generated an inside week but a green weekly close, suggesting the agreement of the company to purchase back $2 million dollars of its own stock is keeping the stock supported. Nonetheless, the bulls have not yet been able to make any kind of definitive positive statement, having still closed on Friday below the 200-week MA, currently at 1.72. Nonetheless, the stock did close on the highs of the week and further upside above last week's high at 1.71 is likely to be seen this week, suggesting the bulls will have another opportunity to make a statement. A daily close above 1.73 would be a positive but the bulls need a weekly close above 1.80 to generate new buying interest. Support is now found at 1.62 and then nothing until 1.50. Probabilities slightly favor the bulls. FCEL finds itself in "no man's land" with the chart giving no clue as to direction at this time. 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 9-week low on Friday after the company reported lower than expected earnings. The stock closed on the lows of the week and further downside below last week's low at 56.60 is expected to be seen this week. The intra-week support at 57.80 was broken and there is no support found until the gap generated from the previous but positive earnings report is reached, down at 54.63. The bulls were able to generate a close on Friday above the 200-day MA, currently at 56.80 but did break slightly the 50-week MA, currently at 57.95. Those 2 lines have proven to be extremely important to the stock and as such will be pivotal this week. Any green daily close above 56.80 will be seen as a positive and a green weekly close next Friday above 57.95 will be seen even more positively. Nonetheless, there is a decent chance the gap will be tested this week on intra-week basis. Probabilities favor the bears this week but the bulls still have the longer term edge. TOL generated another red weekly close, the 4th in a row, as well as a close near the lows of the week, suggesting further downside below last week's low at 35.45 will be seen this week. Nonetheless, the stock is reaching a level of support between $34 and $35 that is unlikely to get broken without a retest of the recent 40.33 high being seen. The 200-day MA is currently at 34.80 and the intra-week support is mostly found between 34.50 and 35.20, meaning that a drop down to that area would be a reason to consider taking profits. Minor intra-day resistance is found at 36.10 and stronger at 37.18.
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1) AXP - Covered shorts at 77.52. Averaged short at 83.65. Profit on the trade of $1226 per 100 shares minus commissions.
2) FCEL - Averaged long at 2.227 (4 mentions). No stop loss at this time. Stock closed on Friday at 1.24.
3) KMX - Covered shorts at 69.31. Averaged short at 69.366. Profit on the trade of $17 per 100 shares (3 mentions) minus commissions.
4) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.68.
5) FSLR - Averaged long at 59.404 (4 mentions). No stop loss at present. Stock closed on Friday at 57.34.
6) AREX - Averaged long at 6.08 (3 mentions). Stop loss now at 5.99. Stock closed on Friday at 8.66.
7) ARNA - Averaged long at 4.30 (3 mentions). No stop loss at present. Stock closed on Friday at 4.34.
8) ORCL - Covered shorts at 44.35. Shorted at 43.08. Loss on the trade of $127 per 100 shares plus commissions.
9) OSK - Covered shorts at 48.54. Averaged short at 48.08. Loss on the trade of $138 per 100 shares (3 mentions) plus commissions.
10) TOL - Averaged short at 37.45 (2 mentions). Stop loss now at 39.11. Stock closed on Friday at 35.81.
11) COF - Covered shorts at 81.13. Shorted at 79.32. Loss on the trade of $181 per 100 shares plus commissions.
12) GS - Covered shortst at 197.04. Averaged short at 189.625. Loss on the trade of $1482 per 100 shares (2 mentions) plus commissions.
13) BWA - Purchased at 60.38. No stop loss at present. Stock closed on Friday at 59.50.
14) RHT - Covered shorts at 76.59. Shorted at 75.00. Loss on the trade of $159 per 100 shares plus commissions.
15) PCLN - Liquidated July 1200 put option at 33.40. Purchased at 59.00. Loss on the trade of $$2560 per 100 shares plus commissions.
16) CBRL - Purchased at 140.37. No stop loss at present. Stock closed on Friday at 133.83.
17) CBRL - Purchased at 137.79. Liquidated at 134.22. Loss on the trade of $357 per 100 shares plus commissions.
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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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