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Issue #477 
April 31, 2016 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Sell in May and go Away Adage Likely to have Started!
DOW Friday closing price - 17773
The DOW gave the first sign that a top to this rally at 18167 has been found, having gone below the previous week's low for the first time in the past 10 weeks.
The DOW closed in the lower half of the week's trading range, suggesting that further downside below last week's low at 17651 will be seen this week.
The DOW is now showing the following reasons for thinking that further upside is not likely to be seen:
1) The bulk of the important earnings reports for the quarter are now out.
2) The most overbought condition seen since January 2014.
3) The "sell in May and go away" adage beginning on Monday.
4) The "Death Cross" of the 50 and 100 week MA's having occurred 4 weeks ago for the first time in the last 8 years.
5) The Fed signaling a slightly more hawkish tone.
6) Failure to continue the uptrend after having broken a strong resistance at 17977 (17910 on a weekly closing basis) the previous week but closing below that resistance this past week.
To the upside and on an intra-week basis, the DOW now shows minor resistance at 17914 and decent at 17977. Above that level, there is minor resistance at 18084 and decent at 18167.
To the downside and on an intra-week basis, the DOW now shows minor support at the 17700 demilitarized zone and at last week's low at 17651. Below that level, there is minor support between 17465 and 17484 and decent, as well as pivotal, at 17399. Further support is found at 17125, which is strengthened by the fact the 200-day MA is currently at that same price.
The bulls in the DOW were able to generate a bit of a late day rally on Friday to close the index near the highs of the day, suggesting further upside above Friday's high at 17814 will be seen on Monday. It is evident the first thing that the bulls will attempt to do this coming week is to repudiate the negatives seen the past week and re-start the recent uptrend. A rally up to the 17914 or even the 17977 level is expected to be seen this coming week, especially considering that the 2 most important economic reports for the month (ISM Index and Jobs report) are scheduled for this week on Tuesday and Friday respectively and the bears are not likely to be aggressive to the downside until those reports are out. Nonetheless, if the bulls fail to get above the 17977 level, the bears will gain further ammunition to push down later on in the week, especially if the reports are not overwhelmingly positive.
The DOW saw an increase in volatility this past week, as well as an increase in the trading range, which was 433 points and the largest seen in the past 6 weeks. Given the 433 point trading range and the decent resistance found at the 17977 level, I would venture an educated guess and say that a 17544 to 17977 trading range might be seen this week, with more of a chance of extension to the downside than the upside.
The probabilities now favor the bears in the DOW and a correction having started. Given the 4 important and clearly defined intra-week support levels between 17000 and 17200 seen over the past 17 months (17067 - Dec14, 17037 - Feb15, 17210 - Nov15, and 17124 - Dec15), it is likely that area will be target/objective for the 5-6% correction that has been expected to occur.
NASDAQ Friday closing price - 4775
The NASDAQ generated a second red weekly close in a row, confirming the successful retest of the gap between 4969 and 4999 that has been in place since the beginning of the year. The failure to close the gap after 5 weeks in a row of rallying above 4900 and 2 weeks in a row of rallying up to 4961 and 4969 (while other indexes were accomplishing breaking of strong resistance levels) has to be strongly disappointing and a damaging chart negative that will now likely require strong and positive fundamental changes to overcome. None of which are likely to be seen until after the summer is over.
The NASDAQ closed near the lows of the week, suggesting further downside below last week's low at 4740 is likely to be seen. With 3 of the 5 big stocks in the index (AAPL, NFLX, and GOOG) having reported disappointing earnings and showing strong and indicative down moves on the chart, the bulls are going to have difficulty in generating any kind of a meaningful rally until those companies are able to show progress, which is not possible until the next earnings reports come out in 3 months.
To the upside and on an intra-week basis, the NASDAQ now shows minor but definitely pivotal resistance up between 4835 and 4845, which is where the 200-day MA is currently located. Above that level, there is minor but also short-term pivotal resistance at 4889 and the minor to perhaps decent resistance at 4921.
To the downside and on an intra-week basis, the NASDAQ shows minor support at 4734 and at 4711 and then nothing until pivotal support is found between 4607 and 4614.
The NASDAQ is definitely the index under the most selling pressure due to weakness being seen in the Tech Stocks at this time. AAPL got down to the 200-week MA on Friday, which if broken would mean the long-term uptrend has been broken, GOOGL is within 3% of a level of support that if broken would generate strong additional selling interest, and NFLX is within $10 of the same kind of support that if broken would bring about another strong drop in price. In addition, AMZN bulls were unable to make a new all-time high on Friday (fell short by 4%) after the "much better than expected" earnings report came out, meaning that if they fail again this week that selling interest/profit taking will also be seen there.
The NASDAQ closed on Friday at the 100-week MA, currently at 4775, and that is a line that has been pivotal for the index for the past 20 years. A close below that line next Friday, especially if the index closes below 4683 (which is an important weekly close support) will open the door for the index to drop down to the 4487/4547 level. A drop down to that level would be a 10% correction from the 4969 high, which is the amount of a correction that is expected to be seen in this index if the overall market is correcting.
Nonetheless, with the important economic reports due out this week, the NASDAQ bulls are likely to attempt a rally at the beginning of the week up to the 200-day MA, currently at 4845. Having seen a 175 point trading range last week, a possible trading range for this week could be something like 4845 to 4670.
Probabilities favor the bears in the NASDAQ this week.
SPX Friday closing price - 2065
The SPX generated a failure to follow through signal, having closed 2 weeks ago above the pivotal daily close resistance at 2081 but failing to get above the November 2016 intra-week high at 2116 and closing on Friday below 2081 once again. In addition and using the weekly closing chart, the bulls failed to make a statement during the past 2 weeks when the DOW closed above its November high weekly close at 17977, but the SPX didn't close above its November high weekly close at 2099, having traded up to as high as 2111 and above 2100 3 days in a row.
The failure signals given in the SPX this past week, especially the close below the pivotal weekly close area at 2081, suggest that a top to this rally has been found at 2011 and that a correction is now likely to begin, especially considering that the important earnings reports for the quarter are now over.
It must also be mentioned that the "Death Cross" in the SPX of the 50-week MA, currently at 2028, under the 100-week MA, currently at 2026, is going to happen this week and that is a negative signal that has not been given since June 2008 and is one that in conjunction with the "sell in May and go away" adage is likely to put a lot of negative selling pressure on the index and stimulate at least a correction if not the beginning of a downtrend.
To the upside and on an intra-week basis, the SPX will now show minor to decent intra-week resistance between 2075 and 2081 and decent daily close resistance at 2081/2082. Above that level, minor to decent intra-week resistance will be found between 2099 and 2104 and decent between 2111 and 2116.
To the downside and on an intra-week basis, the SPX shows minor support at 2052 and again at 2044 and then decent as well as short-term pivotal at 2033. Further support is found at 2019, at 2005 and pivotal at 1993. Daily close support of some importance is found at the 200-day MA, currently at 2015.
The SPX generated a 47 point trading range this past week and given that the probabilities are high that a rally will be seen on Monday due to the close near the highs of the day on Friday, and that the 2081 level is likely to be tested, a possible trading range of 2081 to 2034 might be seen, especially since the 2033 level is pivotal.
The probabilities favor the bears this week.
The first 3 weeks of important earnings reports are now over, meaning that earnings are not likely to be a driving factor from now on. The Fed showed a more hawkish tone this past week and the "sell in May and go away" period begins this week, suggesting that fundamentally there is very little ammunition for the bulls to keep the rally going forward. In addition, the charts gave several failure signals this past week, strongly suggesting that the top to this rally has been found, especially considering the extremely overbought condition that presently exists in the index market.
The bulls do have 1 more fundamental opportunity to turn things around this week, given that the ISM Index and Jobs reports come out. Nonetheless, the probabilities do not favor those reports making a difference and with the summer months unlikely to offer any big positive changes to earnings for the July earnings quarter, the possibilities are now firmly on the side of the bears.
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Stock Analysis/Evaluation
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CHART Outlooks
The indexes gave strong signals that a correction has started and with the "sell in May and go away" adage beginning this week, the probabilities strongly favor the bears. As such, mentions this week are all sales.
SALES
EOG Friday Closing Price - 82.62
EOG is an oil and gas producer that has rallied 33% in value over the past 15 weeks based on the 44% rally seen in crude oil. Nonetheless, the stock is reaching a level of weekly close resistance between 85.39 and 87.50 that when broken to the downside caused the stock to drop down to the January low at 57.15 and that will likely require a resumption of the long-term uptrend in oil to break above and that is not a viable possibility at this time.
EOG closed above the 200-week MA, currently at 80.90, for the first time in the past 6 months and did close in the upper half of the week's trading range, suggesting a high probability that further upside above last week's high at 85.43 will be seen this week. Nonetheless, as the stock approaches the pivotal weekly close resistance mentioned above, the selling interest is likely to increase making a short trade attractive.
To the upside and on an intra-week basis, EOG will show minor resistance at 85.65, very minor at 86.17, and decent between 87.90 and 88.30. Decent to perhaps strong as well as long-term pivotal resistance is found at 89.52.
To the downside and on an intra-week basis, EOG shows minor to decent, as well as pivotal, support at the $80 demilitarized zone (79.70-80.30). Below that level, there is minor support at 7676.64 and then minor to decent at 73.37. Further and stronger support is found between 68.15 and 69.66.
EOG is likely to encounter decent selling interest somewhere between the 86.00 and 88.00 level that should push the stock down to at least test the 200-week MA, currently at 80.60, as that line is likely to become an important pivot point during the summer. Nonetheless, the weekly chart does suggest that there is a high chance that the stock will be using the long term MA line as a pivot point, meaning that excursions downward below the line can be seen and if that is the case, the downside objective will be anywhere between $70 and $73.
Due to the fact that EOG is not presently near the desired entry point, this is a mention that requires the stock to rally this coming week. By the same token, the probabilities are high that the stock will get up to the desired entry point this coming week and if it does it early in the week, it could turn out to be a negative reversal week by Friday.
Sales of EOG between 86.00 and 88.00 and using a stop loss at 89.75 and having a $73 objective will offer a 3.5 to 7-1 (depending on the entry point) risk/reward ratio.
My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
MMM Friday Closing Price - 167.38
MMM is a stock that has rallied mostly straight up since January from a low of 134.64 to the previous week's high at 170.77 (21% rally). Nonetheless, in spite of the strong rally that generated 9 weeks in a row and 11 out of the last 15 weeks of green weekly closes, the best the bulls could do is get the stock back up to the previous all-time high weekly close at 168.65, seen in February 2015, with a close at 168.70 seen 3 weeks ago, followed by 2 red closes thereafter, meaning that an ominous double top is now in place.
MMM made a new all-time intra-week high at 170.77 (above the previous one from Mar2015) at 170.50 but generated a negative reversal that week, having closed in the red. The negative reversal was confirmed last week with another red close, likely meaning that the bulls will need help from the indexes to break the now confirmed double top.
To the upside and on an intra-week basis, MMM now shows resistance at 170.50 and at 170.77.
To the downside and on an intra-week basis, MMM now shows pivotal minor to perhaps decent support between 164.65 and 164.97. Below that level, there is minor support at 163.05 and then nothing until the 160.00 demilitarized zone.
It must be mentioned that during this entire 4-month rally there has not been any retest of the January low at 134.64 and more importantly, the chart is showing that the 50-week MA, currently at 152.90, is presently crossing the 100-week MA, currently at 153.15, meaning that a Death Cross has occurred. Given the double top now in place, the probabilities do favor those MA's getting tested, meaning that a drop down to the $153 level is a decent possibility, if not probability. Such a drop, which could get down to the $150 level intra-week, would be seen as such a retest.
MMM closed near the highs of the week on Friday and further upside above last week's high at 168.77 is expected to be seen, which in turn would work as the required retest of the double top. Nonetheless, the 168.65/168.70 level is highly likely to find strong selling interest, meaning that getting above last week's high is not a given.
Sales of MMM between 168.60 and 169.00 and using a stop loss at 170.87 and having a $153 objective will offer a 7-1 risk/reward ratio.
My rating on the trade is a 3.5 (on a scale of 1-5 with 5 being the highest).
I will also be giving consideration to adding shorts in DOW and CVX, depending on the action and avaliable entry points. Desired entry points will be given in the message board if I decide to add shorts.
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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 2016, as of 4/1 Profit of $9566 using 100 shares per mention (after commissions & losses) Closed out profitable trades for April per 100 shares per mention (after commission)
CLB (short) $113
Closed positions with increase in equity above last months close minus commissions.
CLB (short) $528 Total Profit for April, per 100 shares and after commissions $641 Closed out losing trades for April per 100 shares of each mention (including commission)
LVLT (Short) $159
PHM (short) $65 GPRO (long) $52 CLB (short) $74 ADSK (short) $93 IRS (short) $226 Closed positions with decrease in equity below last months close plus commissions. NONE Total Loss for April, per 100 shares, including commissions $669 Open positions in profit per 100 shares per mention as of 4/30
AMT (short) $132
Open positions with increase in equity above last months close. ENG (long) $108 T (short) $35 Total $2023 Open positions in loss per 100 shares per mention as of 4/30
FSLR (long) $134
Open positions with decrease in equity below last months close.
FCEL (long) $28 Total $1066 Status of trades for month of April per 100 shares on each mention after losses and commission subtractions.
Profit of $929
Status of account/portfolio for 2016, as of 4/30Profit of $10,495 using 100 shares traded per mention.
AAPL reported earnings and they disappointed, causing the stock to generate a gap down from 103.91 to 98.71, as well as a strong spike down drop of 12.7% from the previous week's close. The stock closed on the lows of the week, suggesting further downside below last week's low at 92.51 will be seen this week. On a small positive note, the bears were unable to close the stock below the 200-week MA, currently at 93.20, and an attempt to bounce off of that line is likely to be seen this week, especially since the stock closed in the upper half of Friday's trading range, suggesting a rally above Friday's high at 94.72 will be seen on Monday. Very minor intra-week resistance is found at 96.35 and just a bit stronger at 97.34. Further and slightly stronger resistance is found between 98.71 (gap area) and 98.89 that if broken would likely generate additional buying and a retest of the $100 demilitarized zone. Support is decent and numerous between 92.00 and last week's low at 92.51 but if broken there is a dearth of support until $75 is reached. The stock now shows a possible triple low with a low at 92.00 seen in August, a low of 92.39 seen in January and last week's low at 92.51, meaning that the probabilities favor the bears and a break of that level. Having generated a $13.13 trading range this past week and considering that the bulls are likely to have trouble getting above 98.89, it is possible that this week a trading range between 98.89 and 85.76 will be seen.
ADSK generated what could end up being a spike high retest of the "general" resistance at 63.00 with a high this past week at 62.42 and a close near the lows of the week, suggesting further downside below last week's low at 59.14 will be seen this week. It is likely that the 62.42 high will be the top to this rally but the bears need to take the stock below last week's low at 59.14, as well as break a decent intra-week support at 58.55. A break of 58.55 would open the door for a drop down to the next (but very minor) support at 56.18/56.32. Nonetheless, the stock still generated a green weekly close, meaning that no signal has yet been given that a top to this rally has been found. As such, if the bulls are able to generate a rally above the intra-day resistance at 60.49, it will keep the door open for further upside. The 58.31 level, based on a daily close, seems to be pivotal given that the stock broke out of a bullish flag formation that offered a 75.20 objective and a daily close below that level would negate that breakout. As such, the traders are likely to trade the stock at the beginning of the week in a $2 trading range between 58.30 and 60.30 while they wait for developments in the index market. Probabilities now favor the bears. AMT reported better than expected earnings on Friday and though the initial reaction was to the downside, by the end of the day the stock bucked the index trend and rallied to close near the highs of the day, suggesting further upside above last week's high at 105.34 will be seen this week. By the same token, the bulls were unable to negate the failure to follow through signal given the previous week, given that the stock still closed on Friday below the previous all-time high weekly close at 105.02 (closed at 104.88). The stock had not yet tested the all-time intra-week high at 106.75 and since it is likely the stock will get above last week's high this week (likely on Monday), the probabilities favor it becoming a retest of the highs, suggesting that a top will have been formed and confirmed. Intra-week resistance is found at 105.89 and then at the all-time high at 106.75. Pivotal support is found at last week's low at 102.29. Below that level, there is no previous support found until 98.87 is reached. Probabilities slightly favor the bears, given that the action on Friday "after the earnings report" was both red and green, meaning that the probabilities favor it all being a chart week this week. ARNA continued the recent downtrend with another red weekly close on the lows of the week, suggesting further downside below last week's low at 1.72 will be seen this week. Support is pivotal between 1.67 and 1.73 and given the close on Friday, it is evident this coming week will likely be pivotal. On a positive note, it can be said the stock is still in a long-term downtrend and yet for the past 28 trading days the bears have not been able to accomplish much except to drop the stock from 2.05 to 1.72, meaning that there is not much interest anymore in the downside. Probabilities slightly favor the bulls this week as the 1.67 level of support should not be broken. CLB made a new 18-month high, having broken above the spike high at 134.73 seen in April of last year. The stock closed near the highs of the week, suggesting further upside above last week's high at 135.49 will be seen this coming week. The break above 134.87 means that the 2-year downtrend is over but with the 200-week MA currently at 136.00, it does suggest that the stock remains in a sideways trend for the near future. The 200-week MA has not been broken to the upside since November 2014 and is unlikely to get broken on a weekly closing basis unless oil turns bullish long-term (highly unlikely). The stock has rallied over $33 dollars (about a 33% rally) over the past 4 weeks and has done it without any pauses or corrections, meaning that if the bulls are unable to continue higher that a correction back down to the weekly close breakout point at $120.05 is likely to be seen. Minor intra-day support is found at the $130 demilitarized zone and short-term minor but pivotal support is found at 127.01. Probabilities favor a rally up to the 136.00 level but then selling interest coming in. CVX negated the previous week's breakout of the bullish flag formation, having gone below the flag's bottom on Friday, meaning that new selling interest is being seen at these prices. Nonetheless, the bulls were able to rally the stock enough on Friday to generate a small but green weekly close, suggesting that the bears are not yet in control. The weekly close resistance between 101.62 and 102.53 remains inviolate since the stock closed on Friday at 102.18, which in turn means that the door is still open for either direction this coming week. By the same token, the stock closed slightly in the lower half of the week's trading range which does suggest that the probabilities favor the stock going below last week's low at 100.61 than above last week's high at 104.26. Whichever of those events occur are likely to be indicative of direction from here on in. Pivotal short-term intra-week support is found at 98.88 that if broken would likely take the stock down to the next support at 95.73. Any new high above 104.26 would be a bullish statement. Probabilities favor the bears due to the decent weekly close resistance between 01.62 and 102.53. DOW generated a new 6-month intra-week high this past week but ended up closing unchanged and in the lower half of the week's trading range, suggesting a higher probability of the stock getting below last week's low at 51.64 and above last week's high at 53.98. It also needs to be mentioned that the stock got above 2 decent intra-week resistance levels at 53.77 and 53.80 but the bulls failed to generate additional buying interest, suggesting the 53.98 high was more of a successful retest of those resistance levels than a breakout, especially given the fact that the weekly close resistance at 52.64 and 53.28 were not broken on the close on Friday. Short-term pivotal intra-week support is found at 52.64 and longer term pivotal is found at 50.04. On a negative note, the company reported better than expected earnings on Tuesday, which in turn generated a breakout that day. Nonetheless, the breakout was negated with 3 red close days thereafter, suggesting that last week's high is likely the top to this rally. Probabilities favor the bears. ENG had a strong week, having closed above the 200-week MA, currently at 1.38, and also giving a failure to follow through signal having closed above an important low weekly close at 1.31. Nonetheless, another green weekly close (confirmation of the breakout) is required to be seen next week or this breakout will simply end up being a retest of the line and of the previous low weekly close. On a negative note, volume did not pick up this week, suggesting that confirmation may be iffy this week. Minor resistance is found at 1.42 and minor but short-term pivotal support is found at 1.29. Probabilities slightly favor the bulls, but the key word is "slightly". FCEL had a very negative week, having made a new 2-month low but also closing on Friday below the weekly close breakout level at 6.16. The stock closed on the lows of the week and further downside below last week's low at 5.81 is expected to be seen. The stock shows no support below until the 5.23 level is reached, meaning that the bulls need to turn the stock around on Monday and close above 6.17 or further selling interest will be seen. There was no news to cause the selloff, meaning that it was mostly technical in nature and as such, a technical rally is required to negate the break. Probabilities favor the bears. FSLR made a new 6-month intra-week and weekly closing low on Friday and closed near the low of the week, suggesting further downside below last week's low at 55.19 will be seen this week. On an additional negative note, the stock closed below the 200-day MA, currently at 57.40, for the first time since October 29th (7 months), suggesting that if the bulls are unable to negate the break within the first couple of days of the week, that further downside will be seen with a $50 target in mind. Pivotal daily close support is found at 54.35 that if broken would give an additional sell signal. Resistance on a daily closing basis is now decent at the 200-day MA and on an intra-week basis, resistance is decent at 59.85. Probabilities favor the stock going below Friday's low but then turning around to rally and test the 200-day MA before heading lower. Nonetheless, the chart is now looking more negative and as such, consideration should be given to liquidating positions on a rally back up to the 57.00 level. T generated a positive reversal week, having made a new 7-week low but then turning around to close in the green and near the highs of the week, suggesting further upside above last week's high at 38.91 will be seen this week. The positive reversal came after the company reported better than expected revenues on the earnings report, though they also reported slack customer growth. The stock has built a bullish flag formation that if the 38.91 is broken by more than 10 points, a rally up to 39.66 would be the objective. By the same token, such a rally could end up being the required retest of the recent multi-year high at 39.72, which in turn if no new highs are made would be a decent negative. Support is now found at last week's low at 37.73. Probabilities favor the bulls for the beginning of the week but are 50-50 thereafter.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .491 (new price 5.90).
2) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.39.
3) AMT - Averaged short at 102.79 (3 mentions). No stop loss at present. Stock closed on Friday at 104.88.
4) T - Averaged short at 39.085 (2 mentions). No stop loss at present. Stock closed on Friday at 38.82.
5) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.72.
6) ADSK - Averaged short at 55.895 (2 mentions). No stop loss at present. Stock closed on Friday at 59.82.
7) AAPL - Shorted at 109.10. No stop loss at present. Stock closed on Friday at 93.74.
8) LVLT - Covered shorts at 54.84. Shorted at 53.49. Loss on the trade of $135 per 100 shares plus commissions.
9) FSLR - Purchased at 57.18. No stop loss at present. Stock closed on Friday at 55.84.
10) GPRO - Liquidated at 12.80. Purchased at 13.18. Loss on the trade of $38 per 100 shares plus commissions.
11) CLB - Shorted at 135.25. No stop loss at present. Stock closed on Friday at 133.66.
12) CVX - Shorted at 102.70. No stop loss at present. Stock closed on Friday at 102.18
13) DOW - Shorted at 52.62. Stop loss at 55.06. Stock closed on Friday at 52.61.
14) ADSK - Shorted at 60.11. Liquidated at 60.90. Loss on the trade of $79 per 100 shares plus commissions.
15) IR - Shorted at 63.88. Covered shorts at 66.00. Loss on the trade of $212 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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