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Issue #478 
May 8, 2016 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Traders in a Quandry. Adage to Work this Year?
DOW Friday closing price - 17773
The DOW generated a red weekly close on Friday, the second red weekly close in a row, suggesting that the "sell in May and go away" adage has started to inflict its influence. By the same token, the bears were unable to break the decent intra-week support at 17579 (low last week was 17580) and that is a level that held up for 14 weeks between March and July of last year, meaning that last year the "sell in May and go away" adage did not work as expected.
The DOW closed in the middle of the week's trading range leaving the door open for either direction to the seen this week and suggesting that a rally above last week's high at 17912 or below last week's low at 17580 could be a signal as to what the traders are expecting the index to do this summer, as far as the adage is concerned. This is especially true given that there are no catalytic earnings or economic reports due out this week that would likely tip the scales in one direction or the other.
The fundamental and chart situation in the DOW is leaning toward the bear side for the following reasons:
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 5 weeks ago for the first time in the last 8 years.
5) The Fed signaling a slightly more hawkish tone.
Then again, if the bears are unable to "make it happen" this week, strong doubts will arise in spite of the clear favoritism among analysts that the market/index is tired and likely to head lower for a correction or even worse, the beginning of a downtrend/recession.
To the upside and on an intra-week basis, the DOW now shows minor to perhaps decent resistance at 17811 and then minor but likely short-term pivotal at 17914. Further and decent resistance is found at 17977 and minor at 18084 and decent at 18167.
To the downside and on an intra-week basis, the DOW now shows decent support at 17579 and minor but short-term pivotal between 17465 and 17484. Further support is found at 17399 and then nothing until 17125, which is strengthened by the fact the 200-day MA is currently at that same price.
This coming week in the DOW is likely to be all technical in nature as the economic reports for the week (Retail Sales, PPI, and Michigan Sentiment) do not come out until Friday and are not likely to be catalytic enough to make a difference. Oil prices are more likely to have some effect but with oil having generated a red weekly close last Friday and suggesting that the recent rally has paused, the probabilities do not favor oil being catalytic this week. As such, the week will be all about 17579 and 17912 levels and which one gets broken.
Probabilities slightly favor the bears.
NASDAQ Friday closing price - 4736
The NASDAQ generated a negative week, having closed in the red for the third week in a row and closing below the 100-week MA, currently at 4775, for the first time since March 4th. The index closed in the lower half of the week's trading range, suggesting that further downside below last week's low at 4684 will be seen this week.
The NASDAQ will likely be the index the traders key on this week, considering the lack of intra-week support nearby and the overall short-term bearish outlook. The index could end up being the deciding factor in the "sell in May and go away" adage since the bears in the other indexes failed to make a statement this past week.
To the upside and on an intra-week basis, the NASDAQ will show minor but short-term pivotal resistance at 4746/4748. Above that level, there is minor resistance at 4821 and minor to perhaps decent but definitely short-term pivotal resistance at 4835, which does include the 200-day MA, currently at that same price. Above that level, minor resistance is found at 4889 and then nothing until 4921.
To the downside and on an intra-week basis, the NASDAQ shows minor as well as general support at the 4700 demilitarized zone, minor at 4657 and then minor to decent but also likely pivotal between 4607 and 4614.
The NASDAQ generated a positive reversal day on Friday, having made a new 8 week low and then closing in the green and on the highs of the day, suggesting further upside above Friday's high at 4736 will be seen on Monday. Closure of the breakaway gap between 4746 and 4749 will be the first objective and if closed, the target will then become testing the break of the 100-week MA, currently at 4775. Since that is a weekly close resistance and not important intra-week, the traders will then be looking at whether last week's high and minor resistance at 4821 can be reached and broken or not. If the bulls are unable to make any inroads above 4775 during the week, the traders will likely turn bearish and take the index back down and likely below last week's low.
The chart of the NASDAQ suggests that the bears are in control. Below last week's low at 4684 there is no support until the 4607/4614 level is reached and even then that support is minor in nature.
It does seem evident, based on the chart, that the 4821 level to the upside and the 4684 level to the downside will be the key levels this week in the NASDAQ.
Probabilities favor the bears.
SPX Friday closing price - 2057
The SPX is mimicking the DOW chart, inasmuch as the index got down to same intra-week support found in March of last year (in the index at 2039) and bounced to close just slightly in the lower half of the week's trading range, meaning that both last week's highs and lows for the week (2083 and 2039) will likely decide what happens this year regarding the "sell in May and go away" adage.
The SPX has now also mimicked the DOW, inasmuch as the Death Cross of the 50 and 100 week MA's has now occurred, which does suggest that the probabilities favor the bears.
To the upside and on an intra-week basis, the SPX now shows minor resistance at 2067, minor to decent resistance at 2075/2076 and decent at 2081/2083. 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 decent support at 2039 and minor but definitely 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 positive reversal day on Friday, having made a new 4-week low and then closing in the green and on the highs of the day, suggesting further upside above Friday's high at 2057 will be seen on Monday. A rally back up to at least 2067 but likely up to 2075 will probably be seen this week. By the same token, the week will be all about 2039 and 2083 as a break of either of those 2 levels will be indicative.
The probabilities favor the bears this week.
No new signals were given this past week in spite of the fact that important and pivotal economic reports came out. The failure to generate a definite direction suggests that the traders are not yet clear on whether the "sell in May and go away" adage will work this year or not. It did not work last year as the indexes traded sideways between March and August, meaning that the bulls are hoping the same situation as last year occurs. Nonetheless, the market is showing strong signs of being "tired", meaning that the probabilities favor the bears. By the same token, based on the charts it does seem that this coming week will be strongly pivotal as far as the adage is concerned.
There are no "helpful" economic or earnings reports due out this week, meaning that the traders will be looking mostly on charts to help them decide what to do. Last week's highs and lows are therefore highly pivotal this week.
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Stock Analysis/Evaluation
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CHART Outlooks
The indexes gave mixed signals last week, meaning that entering this week traders do not yet have a set strategy for the summer. The "sell in May and go away" adage was supposed to start last week, especially after the fundamental picture was mostly negative, but the result at the end of the week left more questions than answers, meaning this coming week is likely to be used to decide whether the indexes will mimic last years sideways action or whether the market will begin to act on the seasonal trend.
As such, there are no new mentions on the newsletter this week, other than the one given during the week on the message board regarding a stock (FSLR) that is not market sensitive. By the same token, if at any point during the week the charts give any clear clues as to what the traders will do for the next few months, mentions will be given on the message board.
PURCHASES
FSLR Friday Closing Price - 51.80
FSLR has seen a 31% correction over the past 8 weeks based on lower earnings and change of management leadership. Nonetheless, earnings still painted a rosy guidance figure for the future and with the stock reaching a level of strong support at $50, the probabilities favor that some buying interest will be seen no matter what the index market does.
FSLR closed on the lows of the week and further downside below last week's low at 51.32 is expected to be seen.
To the upside and on an intra-week basis, FSLR will show very minor resistance at 52.75 and minor to perhaps decent at 53.63. Above that level, resistance is not found until the 59.41 to 59.85 levels are reached, which include the gap between 61.03 and 59.41 and the spike high rally from November at 59.85. On a daily closing basis, resistance will be found at the 200-day MA, currently at 57.70 and then decent at the $60 demilitarized zone.
To the downside and on an intra-week basis, FSLR shows very minor support at 49.73, a little bit stronger at 49.01 and a bit more stronger at 48.58. Below that level, decent support is found at 47.04.
FSLR is now highly likely to reach the $50 demilitarized zone because there is no history of support prior to that level. In addition, the $50 level is a major psychological support level that will draw the stock down simply because of the magnetism of it. More importantly, the 200-week MA is currently at 49.35 and that is a line that has not seen a confirmed break to the downside on a weekly closing basis since February 2015 and that does represent the long term health of the company and of the industry. Given that Solar Energy continues to be the future of energy, it is highly unlikely that line will be broken at this time, especially with a now oversold condition and a big correction having occurred.
For the time being and likely for the summer months, FSLR is probably going to get into a general trading range between $50 and $60, meaning that $60 will be the objective of the mention at this time. By the same token, trading back up to the $60 level is not likely to happen until the bulls have been able to re-establish the $50 level as support and that is likely to take at least a few weeks of backing and filling before confidence in the upside is built again.
Purchases of FSLR between 47.30 and 49.75 and using a stop loss at 46.65 and having a $60 objective will offer a risk/reward ratio of anywhere between 3.5-1 to as much as 20-1 depending on the entry point.
My rating on the trade is a 4.25 (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 |
| AMT made a new all-time weekly closing high on Friday and closed on the highs of the week, suggesting further upside above last week's high at 106.72 will be seen this week. The stock is also likely to make a new all-time intra-week high above 106.75 this week, suggesting that a "new" leg to the uptrend may be starting. The chart suggests that the bulls are "committed" to higher levels without any pullback, meaning that a daily close below the previous all-time high daily close at 106.23 would be seen as a negative, especially if it happens on Monday. Minor but short-term pivotal support is found at Friday's low at 105.24 and decent as longer term pivotal support is found at the double low at 102.38/102.29. Probabilities strongly favor the bulls. AMZN extended its recent uptrend having generated the second green weekly close in a row since the much better than expected earnings report came out. Nonetheless, the bulls have not yet been able to make a new all-time weekly closing high, having fallen short of that goal by $1.94 (weekly closing high at 675.98). The stock closed in the upper half of the week's trading range and on the high of day on Friday, suggesting further upside above Friday's high at 676.95 and above the week's high at 685.50 will be seen this week. The chart remains strongly short-term bullish, especially considering that the gap seen after the earnings report between 599.20 and 654.00 was tested successfully this week with a drop down 656.00 on Thursday and green close on Friday. Resistance is found at 685.50 and at the all-time high at 696.44. Support is found at 656.00 and at 654.00. Probabilities favor the bulls but if they fail to make a new all-time high this week, the traders are likely to turn short-term bearish. ARNA gave a small failure to follow through signal on Friday, having closed below the mini breakout weekly close resistance from February at 1.61. The stock closed near the lows of the week and further downside below last week's low at 1.52 is expected to be seen this week. Pivotal weekly close support is found at 1.50 that if broken would suggest the all-time low weekly close at 1.25 would be tested. Minor intra-day support is found between 1.45 and 1.47 and a bit stronger and more pivotal at 1.36. Intra-week resistance is minor at 1.65 and minor to decent, as well as likely short-term pivotal at 1.76. Probabilities favor the bears this week. CVX generated a red weekly close on Friday, making last week's close at 102.18 into a successful retest of the 100-week MA, currently at 102.65. The stock closed slightly in the lower half of the week's trading range, suggesting a higher probability of going below last week's low at 100.38 than above last week's high at 103.85. Minor but repeatedly-tested-this-past-week resistance is found at 102.80. Above that level, resistance is minor at 103.85 and decent, as well as longer-term pivotal, at 104.26. Probabilities favor the bears. ENG had a somewhat uneventful week based on the weekly close (unchanged from last week) but the bulls were able to generate enough buying late in the week to rally the stock 8% from the week's lows (1.27) and close at the same price as the previous week but still above the 200-week MA, currently at 1.37, suggesting that the bulls are starting to make a statement. Unfortunately, the bulls were unable to make a new multi-month intra-week high or close convincingly above the MA, meaning that there are still chart questions that need to be answered. Resistance is decent and pivotal at 1.54 and support is minor to decent but also likely short-term pivotal at 1.27. Probabilities favor the bulls. FCEL had a disappointing week, having received positive news on Thursday (agreement with XOM to pursue novel Carbon capture technology) and opening substantially higher but then falling to close in the red and near the lows of the week, suggesting further downside below last week's low at 5.38 will be seen this week. Nonetheless, the news is a positive that could start to offer some buying support in spite of the failure to follow through signal that was given when the stock closed the previous week below 6.16. Minor support is found at 5.38 that if not broken this week would likely generate new buying interest. Further but minor support is found at 5.23 and then decent at the $5 demilitarized zone. Likely decent and pivotal resistance is found at 6.73 and then minor to perhaps decent at 7.05. Probabilities favor the bears but due to the news and action seen thereafter, this coming week could be pivotal. FSLR continued its downward fall with another spike down week and a close near the lows of the week, suggesting further downside below last week's low at 51.32 will be seen. Nonetheless, the probabilities are high that the stock will reach this week an important support at the $50 level that does include the 200-week MA, currently at 49.30, which is a line that represents the long term outlook for the stock and is highly unlikely to get broken on a weekly closing basis at this time, given that fundamentally the stock remains positive and in an uptrend. On an intra-week basis, support is found between 47.05 and 49.26. Resistance is minor to decent at 53.67. Probabilities favor the bears and the stock getting down to 49.26-49.70 and generating a bounce up to 53.67 within a week or two. MMM generated a new all-time high weekly close on Friday, above the previous seen 4 weeks ago at 168.78, and closed on the highs of the week, suggesting further upside above last week's high at 169.05 will be seen this week. Nonetheless, the bulls have had a tough time with new all-time highs since the stock made the first new all-time high in February of 2015 and 168.65, especially since the 2 new all-time weekly closing highs have only been by 5 points and 10 points. The previous all-time intra-week high from last year was at 170.50 and the most recent one was at 170.77 and given the slow economic scenario presently in place, it is more likely that this past week's rally will turn out to simply be a retest of the 170.77 level than resumption of the uptrend, especially because of the now established resistance at the $170 level for the past 15 months. Minor support is found at 167.00, a bit stronger at 164.97 and short-term pivotal support is now found at 164.67. Below that level, there is no support until the $160 demilitarized zone is reached. Probabilities favor the bulls for the beginning of the week and a rally up to 169.70-170.00 but weakness at the end of the week. T followed through on the previous week's close on the highs of the week with another green close and once again on the highs of the week, suggesting further upside above last week's high at 39.15 will be seen this week. The stock closed within 6 points of the 8-year high weekly close at 39.05 (seen 6-weeks ago), meaning that another green weekly close next Friday would suggest that the weekly closing resistance area from 2008 at the $40 demilitarized zone would be tested. Minor resistance is found at 39.25 and decent at 39.72. Minor but likely short-term pivotal resistance is found at 38.47. Further support is found at 38.18 and decent, as well as longer term pivotal, at 37.73. Probabilities favor the bulls, especially since a bull flag is presently in place and if the top of the flag at 39.15 is broken it would offer a 39.91 objective.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .474 (new price 5.68).
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 106.57.
4) T - Averaged short at 39.085 (2 mentions). No stop loss at present. Stock closed on Friday at 38.99.
5) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.56.
6) ADSK - Covered shorts at 58.71. Averaged short at 55.895. Loss on the trade of $381 per 100 shares (2 mentions) plus commissions.
7) AAPL - Covered shorts at 94.44. Shorted at 109.10. Profit on the trade of $1466 per 100 shares minus commissions.
8) MMM - Shorted at 168.95. Stop loss at 170.87. Stock closed on Friday at 168.89.
9) FSLR - Purchased at 57.18. No stop loss at present. Stock closed on Friday at 51.80.
10) AAPL - Purchased at 93.10. Liquidated at 92.29. Loss on the trade of $81 per 100 shares plus commissions.
11) CLB - Covered shorts at 125.12. Shorted at 135.25. Profit on the trade of $1013 per 100 shares minus commissions.
12) CVX - Shorted at 103.27. Averaged short at 102.985 (2 mentions). Stop loss now at 104.36. Stock closed on Friday at 101.86
13) DOW - Covered shorts at 51.40. Shorted at 52.62. Profit on the trade of $122 per 100 shares minus commissions.
14) AMZN - Purchased $690 May 20th put option at $1765. Stock closed on Friday at 673.95.
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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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