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Issue #409 
January 11, 2015 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Volatility Reigns, but Bulls and Bears at an Impasse!
DOW Friday closing price - 17832
For the past 5 weeks, the volatility in the DOW has increased, having now shown 2 spike down correction moves of 5% in that period of time. The increase in volatility and trading ranges suggests that the battle between the bulls and the bears is now on an even keel with no one side having a decisive edge.
The DOW dropped down 3% this past week but the bulls were able to rally the index to close in the upper half of the week's trading range, suggesting that further upside above last week's high at 17916 will be seen this week. By the same token, the bulls were unable to follow through on Thursday's strong move up, having failed to get above Thursday's high and then closing in the red and on the lows of the day, meaning the first course of action for the week is likely to be to the downside and that the bulls will probably need some fundamental help from earnings for further upside of consequence to be seen.
To the upside, the DOW will now show resistance at 17991 and at the all-time high at 18103 (17958 and 18053 on a daily closing basis). To the downside, the DOW will show minor intra-week support at 17603, and at 17508. Further support and a bit stronger will be found at 17278 but mostly on a closing basis.
The earnings quarter will go a long way is determining what the DOW will do for the next few months. Nonetheless, it should be mentioned that there is a seasonal tendency to generate a correction in the first quarter of the year, with corrections over the past 14 years starting as early as the second week of January or as late as the first week of March.
This week the DOW is likely to be in a trading range between 17600 and 18000 as the earnings quarter starts to unfold. The probabilities favor the week being mostly technical in nature, at least until such a time that some important earnings report comes in better or worse than expected. Lower oil prices have probably been factored in already and not likely to have much of an effect this week. Russia and Greece are still on the horizon but not likely that much will happen on that front this week. Probabilities favor more volatility but will backing and filling as the likely objectives.
NASDAQ -Friday closing price - 4704
The NASDAQ generated another red weekly close on Friday but only 22 points below the previous week's close, meaning that on a weekly closing basis very little was accomplished by either side. Nonetheless, the index did close in the upper half of the week's trading range, suggesting that further upside above last week's high at 4744 will be seen this week.
The NASDAQ though, finds itself in the same situation as 4 weeks ago when it gapped up between 4651 and 4697 and the unclosed gap worked as a magnet to keep the bulls from renewing the uptrend, having only been able to make a new 14-year high by 4 points before being drawn back to close the gap. The index gapped up on Thursday between 4652 and 4688 and the probabilities of the gap being a magnet once again are likely to keep the uptrend in check.
To the upside, the NASDAQ shows intra-week resistance between 4788 and 4814 with weekly close resistance at 4791 and 4806. The daily closing chart shows identically the same resistance levels as the weekly chart but has one added but minor resistance at 4780. Some resistance is found on the intra-day at the 200 60-minute MA, currently at 4727.
To the downside, the NASDAQ will show minor support at 4774 and then nothing until 4653 that if seen would mean the gap has been closed. Should that support be broken on a weekly closing basis, the index would likely get down to the 4547 level that if broken on a daily closing basis would give a failure to follow through signal that would likely be a confirming sign that the index has found a major top.
The NASDAQ closed near the lows of the day on Friday, suggesting the first course of action will be an attempt to close the gap at 4652. The index does show some minor support at 4774 that is likely to be pivotal for the very short-term. If the 4774 level is broken, the probabilities will favor the gap being closed and further downside seen with 4600-4610 as a viable objective.
Based on the action and close seen this past week, the chart suggests that the NASDAQ will trade this week between 4600 and 4800, while the traders wait for further economic news.
SPX Friday closing price - 2044
The SPX mimicked the other indexes this past week, with the spike low and close near the highs of the week. In addition, on a weekly closing basis, neither the bulls nor the bears accomplished anything of consequence. Nonetheless, the SPX is likely to be the index the traders will be keying on this week since most of the earnings reports of consequence due out are in the financial sector (JPM, WFC, BAC, C and GS). As such, the first indication of earnings direction, if there is any, will likely be reflected in the index rather than anywhere else.
The SPX, like the other indexes, closed in the upper half of the week's trading range but near the lows of the day on Friday, suggesting the first course of action is likely to be to the downside but that at some point during the week, last week's high at 2064 will be broken.
To the upside, the SPX shows intra-week resistance at 2079 and decent resistance at the all-time intra-week high at 2093 (2075 and 2090 on a daily closing basis). To the downside, the index will show minor support at 2024 and the nothing until the 2000-2010 level is reached. Pivotal longer term support is found at the low seen 3 weeks ago at 1972.
The probabilities favor a trading week with no longer-term decisions of consequence being made. A trading range between 2024 and 2079 has a high probability of being seen. Earnings reports on SPX stocks have not generally been catalytic. In fact, during the past few years, financial stocks have reported better than expected earnings but more often than not, they were unable to generate much of a rally in the stock or in the index.
Volatility now seems to be commonplace as over the past 5 weeks the market has moved strongly up and strongly down from one week to the next. Volatility is likely to continue for the next couple of weeks as the earnings quarter gets under way this week. Bulls and Bears seem to be evenly matched with the bulls holding on to the uptrend while the bears have tried to capitalize on the economic woes being seen worldwide. Neither has a strong edge at this point.
Earnings reports will likely dominate the market this week but on the economic front there are a few reports due out that could have some impact, with Retail Sales, Industrial Production/Capacity Utilization, Michigan Sentiment, PPI and CPI all scheduled to be released this week.
There is a seasonal tendency for a correction in the first quarter of the year to occur but corrections in the past have started anywhere between the second week of January all the way to the end of March, meaning that timing is the issue right now, likely dependent on what the economic and earnings reports say. Probabilities do not favor any decisions being made this week, meaning the traders are likely to wait until the bulk of the important earnings reports have come out.
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Stock Analysis/Evaluation
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CHART Outlooks
I researched over 60 stocks this weekend and generally found the same situation as with the indexes, with stocks that might be considered possible purchases being too far above the support/stop loss points to chase and also and without enough of a probability number to make it a a doable trade.
On the opposite side with possible sale positions, I also found risk/reward ratios being unattractive and even lower probability numbers, meaning that I was not able to come up with anything truly worthwhile for trading consideration.
I did find one stock (mentioned below) that does have a chart formation that favors the upside as well as a decently close support/stop loss point that makes the trade worth considering. By the same token, the upside objective does not offer the kind of reward that could turn into a home run and the chart also suggests the upside will be labored, even if achieved.
I do believe that next weekend, the chart situation with the indexes and stocks will be clearer and that more mentions can be made.
PURCHASES
IGT Friday Closing Price - 16.94
IGT is a company that designs, develops, manufactures, and markets casino-style gaming equipment systems technology and game content for land-based and online markets worldwide. The company has been trading in a sideways pattern for almost 6 years between $13 and $20 with one mid-term excursion to $23 and one short-term excursion down to $11.
IGT tested successfully the excursion to 10.92 that was seen in August 2012 with a drop down to 12.12 in May of last year and since the retest was successful, buying interest was seen, causing the stock to generate a spike high rally to 17.55 as well as getting into a bullish flag formation between 15.93 and 17.55 that suggests the probabilities favor a breakout with an immediate objective of 18.43 and a longer term objective of 21.44 that also reaches the level that the chart suggests the stock will rally to.
To the upside, IGT shows minor resistance at 17.30, a bit stronger at 17.55 and then mostly open air until the 18.17 to 18.59 area where resistance becomes minor to perhaps decent. Further resistance above 18.59 is found at 19.14 and then nothing until the $20 demilitarized zone.
To the downside, IGT shows minor support at 16.89, a bit stronger at 16.71 and at 16.18 and the pivotal support at the flag low of 15.93
IGT closed on the lows of the week and further downside below last week's low at 16.92 is expected to be seen. Nonetheless, support of some consequence on the weekly chart is found at 16.34, suggesting a low probability that further downside below that level will be seen. By the same token, the intra-day chart does offer support at 16.70 that has a high probability of being reached but not broken.
The bullish flag objective of 21.44 has a decent chart of being achieved but rallies up to the $18-$19 level are highly probable and the psychological magnet at $20 is also likely to draw buying support due to the chart action seen the past 6 months.
Purchases of IGT between 16.70 and 16.80 and using a stop loss at 15.65 and having a 21.14 objective will offer 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).
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AKS had a mostly negative week but nothing was accomplished by either side. The stock did close on the lows of the week and further downside below last week's low at 5.40 is likely to be seen. The recent double low at 5.08/5.14 has not yet seen a confirmed successful retest so as long as those lows are not seen or the stock close below the 3-year low weekly close at 5.20, the possibilities of this move down becoming that retest remain. Support on a daily closing basis is found at 5.36/5.38 and pivotal support at 5.20. Resistance is now found at 5.90 (last week's high) and if the bulls are able to rally the stock above that level this week, it will be a signal that the lows are set and successfully tested. AREX had a mostly negative week but nothing was accomplished on the weekly chart, as far as resolving the issue as to whether the intra-day downtrend low at 4.28 has been set. The stock closed near the lows of the week and further downside below last week's low at 5.10 is likely to be seen. Nonetheless, on the daily chart the stock did generate a successful retest of the daily closing low at 4.57, having closed on Thursday at 5.29 and then generating a green close on Friday and near the highs of the day, suggesting the first course of action for the week will be to the upside. Last week's high at 6.33 is now pivotal as a rally above that level this week, in conjunction with a green close next Friday, would suggest that a bottom to this downtrend is set. By the same token, the stock still needs to generate a daily close above 7.09, or a weekly close above 6.99, to give a buy signal for the longer term. Probabilities are evenly matched for this week, with 5.10 and 6.33 being the levels the traders will be keying on. ARNA announced a successful Phase 1 clinical trial on a new drug they have been working on and the stock made a new 7-month high and in the process, proceeded to give buy signals on all charts. The stock closed above the 200-day MA, currently at 4.95 and also above 200-week MA, currently at 5.25, strongly suggesting that the downtrend is over and that the stock is at least in a sideways pattern. On the other side of the coin, the bulls failed to establish that the news was strong enough to start an uptrend, having been unable to close above the 5.81 to 6.02 level where all the downside selling pressure came after that area first got broken in July. As such, the probabilities favor the stock trading sideways for the time being until new news comes out. Daily close support will now be found at 4.70, which is the high daily close seen between July and this past week. Daily close resistance is found between 5.85 and 6.01 but on an intra-week basis the stock could get generate an intra-week rally to as high as 6.47-6.59 before selling of consequence is found. Probabilities favor the downside at the beginning of this week as the 200-day and 200-week MA's, as well as the breakout area at 4.70 are tested. Probabilities also favor a 4.70 to 6.50 trading range for the next few weeks and/or couple of months. ENG has been trading totally sideways for the past 6 weeks without much of a clue as to what direction will be chosen for 2015. By the same token, the fact the stock has closed "below" the 200-week MA, currently at 1.90, for the same period of time does suggest the bears have a slight edge. The stock generated a spike rally the previous week above the line but the bulls were unable to maintain the rally and the stock closed below the line and near the lows of the week, suggesting that further downside below last week's low at 1.80 will be seen this week. The traders seem to be waiting for further news before committing to anything. A break below the recent low at 1.71 would be considered a strong negative. By the same token, a rally above the previous week's high at 2.09 would suggest the traders have decided to become buyers. FB got down near a pivotal support at 74.59 with a drop down to 75.36 but the bulls were able to turn it around and close in the upper half of the week's trading range, suggesting a rally above last week's high at 79.24 will be seen this week. The action seems to suggest that what is happening is simply backing and filling and testing of support and resistance levels while waiting for news, likely to be the next earnings report on January 28th. Resistance is found at 80.81 and 82.17. Probabilities favor another trading range week but this week between 76.53 and 80.81. FCEL continued to deteriorate slowly, having generated a new 11-month weekly closing low at 1.43. The stock did close on the lows of the week and further downside below last week's low at 1.41 is expected to be seen. On a possible positive note, the stock closed at the 200-week MA, currently at 1.44, and if a green close is seen next Friday, it will mean that line has been tested successfully and such action would likely bring in new technical buying interest. Unfortunately for the bulls, for the last 8 weeks there has been very little buying interest and with the earnings report not due out for another 2 months, the buying interest will need to come from other sources other than from the fundamentals of the stock, at least at this time. Minor but likely pivotal resistance is found at 1.77. Support is found between 1.28 and 1.30. FSLR made a new 16-month intra-week low but on a weekly closing basis, the stock maintained itself above the same 16-month weekly closing low at 42.12. On a daily closing basis though, the stock did generate a double bottom at 40.90/40.86 that will be confirmed as a double bottom if the bulls can generate a daily close above 45.21 this coming week. Having been in a strong downtrend for the past 4 months, a confirmed double bottom would suggest that the downtrend is over and that the $50 level will be seen. Intra-week resistance is found between 45.39 and 45.70. On an intra-day basis, the 200 60-minute MA, currently at 44.45, seems to be a pivot point for this week. Support is likely to be found between 42.25 and 42.50. Probabilities are evenly split but the double bottom on the daily closing chart does suggest the bulls might be close to getting the edge. GIGM made a new 16-week low at .86, below the support at .87 that has been considered pivotal. Nonetheless, the bears were unable to generate any follow through on the break and the stock turned around to close in the middle of the week's trading range and on the highs of the day on Friday, suggesting that if the bulls are able to get above last week's high at .92, that the selling pressure seen will abate. The stock has generated 7 red close weeks in a row but with only minor gains and that has not happened for the past 4 years. The last time the stock had a similar situation with 6 red close weeks, the end result was a spike up rally. With the bears having been so adamant to the downside but the gains having been so limited, the probabilities seem to favor the bulls having a positive week this week. PACB has now generated 2 red close weeks in a row and having closed once again near the lows of the week, further downside below last week's low at 7.36 is likely to be seen this week. Nonetheless, the bulls have been able to maintain the stock above the previous 41-month weekly closing high at 7.16 and the action suggests that the negative action seen is likely to turn out to be simply a retest of the previous high breakout level than anything else. Minor intra-week support is found at 7.36 and 7.30 and then at the gap area between 6.99 and 7.06. Probabilities favor further downside this week but some new buying interest seen as the stock gets down near the 7.16 level. Longer term, the probabilities still favor the bulls. QRVO chart has a very short history with the stock having been in existence only for 7 days. As RFMD, the stock is still in a strong uptrend and therefore the probabilities still favor the upside. Minor support is found at 66.61 and a bit stronger at 64.36. Strongest support is found between 63.02 and 63.51. Minor resistance is found at 67.48 and a bit stronger at 69.69. Strongest resistance is found at between 71.30 and 71.99. The 200 10-minute MA is currently at 66.90 and seems to be working as a pivot point right now.
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1) PACB - Averaged long at 6.535 (2 mentions). Stop loss now at 6.15. Stock closed on Friday at 7.56.
2) AKS - Averaged long at 7.44 (3 mentions). No stop loss at present. Stock closed on Friday at 5.40.
3) FCEL - Averaged long at 2.227 (4 mentions). No stop loss at this time. Stock closed on Friday at 1.43.
4) QRVO - Averaged long at 52.52 (2 mentions) Stop loss now at 55.6. Stock closed on Friday at 67.11.
5) GIGM - Averaged long at 1.225 (2 mentions). No stop loss at present. Stock closed on Friday at .89.
6) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.80.
7) FSLR - Averaged long at 59.404 (4 mentions). No stop loss at present. Stock closed on Friday at 44.20.
8) FB - Purchased at 75.50. Averaged long at 74.316 (3 mentions). Stop loss is now at 74.49. Stock closed on Friday at 77.74.
9) VHC - Purchased at 4.98. No stop loss at present. Stock closed on Friday at 5.24.
10) AREX - Averaged long at 6.36. No stop loss at present. Stock closed on Friday at 5.54.
11) ARNA - Averaged long at 3.965 (2 mentions). No stop loss at present. Stock closed on Friday at 5.43.
11) ARNA - Purchased at 4.38. Liquidated at 5.66. Profit on the trade of $228 per 100 shares minus 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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