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Issue #479 
May 15, 2016 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls Fail, Indexes Likely in a Correction Phase!
DOW Friday closing price - 17535
The DOW produced a classic negative reversal week, having gone above the previous week's high and then closing below the previous week's low. In addition, the index generated a sell signal on the weekly chart, having made a new 7-week weekly closing low below the previous one seen the 1st week of April at 17576. The index closed on the lows of the week and further downside below last week's low at 17512 is expected to be seen.
The DOW underperformed the other indexes, having fallen 1.2% in value, compared the .6% for the SPX and .4% for the NASDAQ. The underperformance is indicative, given that the DOW has outperformed the other indexes over the past 9 weeks, having rallied 4.4% compared to 3.3% and 3.9% respectively, likely meaning that traders are unwinding their long positions in the "safe" index prior to a correction.
To the upside and on an intra-week basis, the DOW now shows very minor resistance at 17568 and at 17629 and minor between 17670 and 17730. Further and stronger resistance is found between 17797 and 17811.
To the downside and on an intra-week basis, the DOW now shows minor support between 173decent support at 17579 and minor but short-term pivotal between 17465 and 17484. Further and short-term pivotal support is found 17399. Below that level, there is nothing of consequence until minor support is found at 17210 and then decent support is found between17037 and 17126.
Based on the action and weekly close, the DOW seems to be in a correction. Many analysts have expected a correction of 5-6% to occur and that would put the index down to somewhere between 17076 and 17258. With already a 3.6% correction having been seen, further downside is likely limited but also likely to be reached.
This coming week in the DOW is likely to be all technical as the economic reports for the week are minor in nature and not likely to generate any kind of positive or negative fundamental catalyst that would give the bulls or bears ammunition to turn things around. In addition, the Death Cross is still hanging over the index and that suggests that at the very least the index will drop down to one of the other MA lines, with the 100-week MA presently at 17355 and the 50-week MA, presently at 17225.
The probabilities strongly favor the bears in the DOW this week. Possible trading range could be something like 17210 to 17632, based on last week's trading range and support levels below.
NASDAQ Friday closing price - 4717
The NASDAQ extended its recent downtrend, having closed for the 4th week in a row in the red, and having closed on the lows of the week, further downside below last week's low at 4708 is expected to be seen.
On a small positive note, the NASDAQ was the best performer this past week, having only dropped .4% from the previous week's close (compared to 1.2% in the DOW and .6% in the SPX) and generating an inside week where no new sell signal on the weekly closing chart was given. By the same token, the likely reason for the outperformance with the other indexes was the additional rally in AMZN that made a new all-time high, having closed $34 above the previous all-time high, suggesting that the outperformance was only based on the strength of 1 stock.
To the upside and on an intra-week basis, the NASDAQ will show very minor resistance at 4762 and minor at 4785. Above that level, resistance is decent at 4811 and pivotal (on a daily closing basis) at 4825, which is where the 200-day MA is currently located.
To the downside and on an intra-week basis, the NASDAQ shows minor but likely pivotal support at 4685 and then nothing of consequence until minor to decent support is found between 4607 and 4614. Below that level, support is decent and pivotal between 4547 and 4580.
With the help from AMZN, the NASDAQ bulls got up to the week's upside objective at 4811 but failed to get above it, meaning that the index remains until bear control. By the same token, the index is already in a correction, having dropped 5.8% from the high seen in April, meaning that it is going to take a lot more than just 1 stock moving higher to prevent further downside from being seen.
The weekly chart of the NASDAQ, going back 18 months, strongly suggests that a drop down to the 4547-4580 level will be seen. Nonetheless, this coming week the bears must first break the "general" resistance at 4700 level before the downside objective can be worked on. If the recent low at 4684 is broken, especially on Monday or Tuesday, further downside is likely to come rapidly.
Probabilities favor the bears.
SPX Friday closing price - 2046
On an intra-week basis, the SPX did not do much this past week, having gone above the previous week's high by 1 point and staying above the previous week's low by 4 points. Nonetheless, on a weekly closing basis, the index generated a sell signal having closed below the most recent low weekly close at 2047 and then closing on the lows of the week, suggesting further downside below last week's low at 2043 will be seen this week.
The bulls in the SPX have a very tough chart job to do this week as a break of the 2039 level of support will likely generate new chart selling interest and with no economic reports of consequence scheduled for this week and the stock closing on Friday just 7 points from the pivotal support, it seems highly likely that the bears will "get it done".
In addition, the Death Cross of the 50-week MA, currently at 2026, under the 100-week MA, currently at 2029, has now occurred and having closed weakly and on the lows of the week, testing of those MA lines will be beckoning strongly this week.
To the upside and on an intra-week basis, the SPX now shows very minor resistance at 2056, minor 2067 and minor to perhaps decent at 2075/2076. Above that level, decent resistance is found between 2081 and 2084.
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 2013.
The SPX is the index that will be watched the closest this week, given the amount of important intra-week supports close by below (at 2039, at 2033, and at 2019) and the correction objectives (5% at 2005 and 6% at 1984). With the other indexes not showing such a big array of support levels, it is the SPX that will be a determining factor on how much is accomplished by the bears and how much is not.
Nonetheless, with the probabilities favoring the bears this week and based on last week's trading range, the SPX is likely to see a trading range this week between 2019 and 2057/2060.
The bulls have used every bit of positive news that has come out over the past few weeks in an attempt to keep the uptrend heading higher but the reality is that there are too many fundamental and chart obstacles at this time to overcome, meaning that the bulls are likely fighting a losing battle, at least as far as getting the indexes back down to levels where cheaper prices can stimulate new buying interest.
The indexes gave sell signals this past week, in spite of one of the key stocks (AMZN) going on a rampage to the upside, and that suggests that the bears are now in control. Key levels of support are much closer than key levels of resistance and with no economic news of consequence due out this week, those chart levels of support are likely to act as magnets. In addition and without any negative catalytic piece of news, the bears were successful in turning the indexes around at midweek, meaning that it seems that the bulls have run out of ammunition and are ready to accept an expected and overdue correction happening.
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Stock Analysis/Evaluation
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CHART Outlooks
As stated on the message board, the indexes are likely in a corrective phase that suggests that sales is the "way to go". Nonetheless, and also as stated in the message board, short positions have not been all that successful, meaning that only trades with a high degree of probability should be considered. There is 1 short mention on this newsletter and it fulfills the parameters stated.
Nonetheless, in looking at about 80 charts this weekend, I did find 1 stock that has very attractive chart features for a purchase, features that could offer a high profit potential. As such, I am including a buy mention on this newsletter, though the probabilities do not necessarily favor the stock getting down to the desired entry point this week. Nonetheless, the mention is good for the next few weeks, until the desired entry point is reached of the formation is dissolved.
SALES
ORCL Friday Closing Price - 39.61
ORCL is a stock that fulfills all the parameters/objectives that are presently being seen in the indexes for the short term. It is a stock that is sensitive to the index market, broke an important short-term weekly close support at $40 two weeks ago and is a stock that does not yet have a successful retest of the January lows. In addition, it is a stock that has a clearly defined downside objective that should be reached within the next few weeks.
ORCL made a new 26-month low in January at 33.13 but like the indexes the stock rallied almost straight up to 42.00 over a period of 10 weeks. Nonetheless, 8 weeks ago, the stock generated a negative reversal and since then the stock has been heading lower. Having broken the generally pivotal $40 support level 3 weeks ago and the indexes now in a correction, it seems highly likely that further downside will be seen.
To the upside and on an intra-week basis, ORCL shows resistance at the $40 demilitarized zone and then short-term pivotal resistance at 40.60 that includes the 100-week MA, currently at 40.30.
To the downside and on an intra-week basis, ORCL minor support at 38.97, minor to perhaps decent between 37.30 and 37.38, including the 200-week MA, currently at 37.40. Further and stronger support is found between 35.14 and 35.82, which will be the prime objective of the trade.
The short-term downside objective for ORCL has to be the 200-weeK MA, currently at 37.40, that was broken to the downside in January but re-broken to the upside in February. It is evident that on a longer-term basis, as well as on a weekly closing basis, that line is considered pivotal. By the same token, there is important and also pivotal support (previously resistance) between 36.00 and 36.40 that will act as a magnet if the line is broken intra-week or even on a short-term basis.
With the indexes presently in a corrective phase and ORCL having decent short-term resistance between 40.30 and 40.60, a short position with an objective of $35-$37 seems like a safe bet at this time.
Sales of ORCL between Friday's close and up 40.00 and using a stop loss at 40.75 and having a 36.00 objective will offer a 4-1 risk/reward ratio.
My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
PURCHASES
FCX Friday Closing Price - 10.41
FCX made a new all-time intra-week and weekly closing low in November, having broken the previous all-time weekly closing low at 8.40 seen in December 2008 and continuing downward to 3.52 which was the low seen in January. The stock had been on a major 5-year downtrend from 61.34 to 3.52 that was evidently caused by some fundamental problem with the company.
Nonetheless, FCX evidently found a major bottom at the 3.52 level as the stock negated the major break of support in February and has continued upward to the recent high at 14.06 that was reached 3 weeks ago. The 4-month rally has caused the stock to quadruple in value (from 3.52 to 14.06), strongly suggesting that whatever fundamental problem caused the 5-year downtrend has now been eliminated.
FCX convincingly broke above the 200-day MA in February, currently at 9.20, for the first time in 17 months and continued higher to 14.06 (seen 3 weeks ago) which is an area of decent intra-week resistance as it represents the 10-month high seen in October of last year. The bulls were unable to break through that level the first time around, likely meaning that the break of the 200-day MA is likely to be tested.
It does need to be mentioned that the chart of FCX seems to be in the process of building an inverted Head & Shoulders formation with the right shoulder being the drop down to 7.76 (9.52 on a weekly closing basis), the head at 3.52 (3.94 on a weekly closing basis) and the right shoulder being in the process of being built. The necklines are the 14.20 high seen in October and the 14.06 high seen 3 weeks ago. When the right shoulder is built and the neckline broken, the objective of the flag would be 24.74.
To the upside and on an intra-week basis, minor resistance is found between 11.94 and 12.12 and then minor to perhaps decent at 12.64. Decent resistance is found between 14.06 and 14.20.
To the downside and on an intra-week basis, very minor support is found at 9.52, minor at 9.10, minor to perhaps decent between 8.47 and 8.76 and decent at 7.76.
FCX closed on the lows of the week last week and further downside below last week's low at 10.29 is expected to be seen. It is highly likely that the 200-day MA, currently at 9.20, is the main target but given that the line is only important on a daily closing basis, intra-week drops could be seen that would take the stock down to at most the 7.76 level. Such action would be considered the construction of the right shoulder of the H&S formation.
I would venture an educated guess that FCX will find strong buying interest somewhere between 8.47 and 9.33 with a higher probability of support being found near the high of that range than the low of that range.
Purchases of FCX between 8.48 and 9.34 and using a stop loss at 7.65 and having a 24.74 long-term objective will offer a 9-1 risk/reward ratio.
My rating on the trade is a 4 (on a scale of 1-5 with 5 being the highest).
This is a standing mention, meaning that if the desired entry points are not reached this week but no rally of consequence is seen, it will be just as good the following week or the week after.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AMT generated a negative reversal week, having made a new all-time high at 107.24 and then closing in the red and near the lows of the week, suggesting further downside below last week's low at 105.37 will be seen this week. Minor but short-term pivotal support is found at 105.24 that if broken would likely push the stock down to at least 103.74/103.95. Further but minor support is found at 103.15 and then decent and likely short-term/mid-term pivotal is found at 102.29. Resistance is found at 106.75 and at the all-time high at 107.24. Probabilities favor the bears this week and a drop down to the 103.95 level. Nonetheless, the stock is starting to show a reluctance to go higher, given that the previous all-time high at 106.30 from November 2014 was broken in April by only 45 points and broken again in May by only 49 points (above April's high). With the stock likely to see selling interest this week and not likely to make a new high by the end of May, it does suggest that the stock is "tired" and ready for a decent correction, which has not happened since February when the stock got down to 83.07. The big key this month (the next 2 weeks) is the 102.29 level that if broken in May would mean a key negative reversal on the monthly chart, which in turn would suggest a drop down to at least $97 but probably down to the $91 level. ARNA generated yet another red weekly close, the 6th in a row) and closed near the lows of the week, suggesting further downside below last week's low at 1.49 will be seen this week. Nonetheless and on a small positive note, the bulls were able to prevent a weekly close below the support at 1.50, suggesting that the selling interest at this price is strongly limited. Support is found at 1.49 and at 1.45 and resistance at 1.57, 1.61 and at 1.69. The stock is trading with a very slight downward bias but there is no conviction in either direction, suggesting that the traders will wait for some news to move the stock indicatively. After 6 weeks of red weekly closes and now being at an important short-term support, the possibilities of a small positive reversal is high. CVX confirmed the successful retest of the 100-week MA, currently at 102.55, seen 3 weeks ago, with a second red weekly close in a row. In addition, the stock got up to the 100-week MA intraweek, having rallied up to 102.42 and then closing in the lower half of the week's trading range, suggesting further downside below last week's low at 99.08 will be seen. Short-term pivotal intra-week support is found at 98.88 that if broken would open the door for a drop down to 95.73. Minor but likely short-term pivotal resistance is found at last week's high at 102.42. In fact, if a sensitive stop loss is desired, it can now be placed at 102.52. Probabilities favor the bears this week. ENG fell 16% from the previous week's high after the bulls failed over a period of 3 weeks to convincingly break above the 200-week MA, currently at 1.37. The stock closed on the lows of the week, suggesting further downside below last week's low at 1.18 will be seen this week. Nonetheless, it was not expected that the bulls would be successful in breaking above the 200-week MA the first time around, especially after being below the line for the past 19 months, meaning that the bulls are still in the base support building scenario. On a positive note, the bulls were able to keep the stock above the weekly close breakout level at 1.20, meaning that the drop was mostly chart/technically oriented and if the bulls are able to generate a green close next Friday, a new attempt at breaking the MA line will occur, likely with a bit more success the second time around. Intra-week support will be found between 1.10 and 1.12 and given the continued intra-day volatility/trading ranges being seen, the bulls remain mostly in control. Probabilities favor a drop below 1.18 this week (likely to 1.12) and a green close next Friday. FCEL had an inside week but a green weekly close near the highs of the week, not only suggesting that further upside above last week's high at 6.01 will occur but that the bears have begun to fail in taking the stock lower, which was expected due to the close near the lows of the week last week and the selling pressure on the indexes. On a daily and weekly closing basis, resistance is decent and pivotal at 6.17. Nonetheless, on an intra-week basis there minor resistance at 6.40 (200 60-minute MA) and then stronger at 6.73. Probabilities are now favoring the bulls but slightly. FSLR made a new 7-month low and below the 200-week MA, currently at 49.50, and closed on the lows of the week, suggesting further downside below last week's low at 48.49 will be seen this week. The break of the 200-week MA is worrisome but it must be mentioned that in the period between July and September 2015 the stock broke the MA line 3 times by as much as $4 but reversed the break the very next week on each occasion. Intra-week support is decent at 47.00 and given the magnetism of the $50 level and the general support $3 lower at 47.00, it is likely that the stock will trade around the $50 for the next few weeks. Minor resistance is found at 51.97 and decent as well as pivotal at 53.63. Probabilities favor the bears for the beginning of the week and a possible drop down to 47.00 and then a reversal and a green close next Friday. IBM had an uneventful week, based on the weekly close, but did generate a spike rally up to 151.09 that will be viewed as a needed retest of the recent 8-month high at 153.52 if the stock goes below last week's low at 147.01. The fact the stock closed on the lows of the week, suggests that will occur and if it does, new selling interest is likely to be seen. Minor but short-term pivotal support is found at 147.11 and then stronger between 142.61 and 142.90. The 200-day MA is currently at 141.70 and with decent intra-week support at 140.56/140.62, it does seem that if the 147.00 level is broken that the 200-day MA will be the target. It must be mentioned that the stock has an open gap between 151.49 and 151.09 that the bulls have attempted to close on 3 occasions over the past 4 weeks and have failed, meaning that now that the indexes seem to be heading lower, the failure to close the gap will begin to weigh heavily on the stock. Probabilities now favor the stock heading down to the $140.60 level, especially if the $147 level is broken this week. Closure of the gap at 151.49 would likely negate that scenario. MMM generated a negative reversal week, having made a new all-time intra-week high at 171.27 but then reversing to close in the red and near the lows of the week, suggesting further downside below last week's low at 167.69 will be seen this week. Minor support is found at 167.00 and at 166.26 and then decent as well as pivotal at 164.97. A break of 164.97 would suggest a drop down to at least the $160 level, if not down to 154.35/154.55, which is where the 50 and 100 week MA's are currently at. It must be mentioned that a Death Cross of those 2 MA's occurred 5 weeks ago and a retest of that level is highly likely to occur, especially since the stock has not seen any type of correction or retest of the January low at 134.64. Probabilities now favor the bears. T made a new 8-year weekly closing high on Friday but on an intra-week basis the bulls were unable to break above the previous high seen 7-weeks ago at 39.72, suggesting that if the stock goes below last week's low at 38.83 that a double top will have been built on the weekly chart. By the same token, a double top has already been built on the daily closing chart, having generated a multi-year high daily close at 39.45 on 3/29 and a high daily close at 39.55 on Thursday, followed by a red close below the previous day's low on Friday. Pivotal support is found at 37.73, minor support is found at 36.43 and then nothing until the 200-week MA, currently at 35.00, is reached. A new high above 39.72 would now be considered a positive for the bulls. Probabilities favor the bears this week and if the 37.73 level is broken, it is likely $35 will be seen soon thereafter, with a decent possibility of the $32 level being targeted as the ultimate downside objective.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .498 (new price 5.98).
2) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.21.
3) AMT - Averaged short at 102.79 (3 mentions). No stop loss at present. Stock closed on Friday at 105.70.
4) T - Averaged short at 39.085 (2 mentions). No stop loss at present. Stock closed on Friday at 39.15.
5) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.53.
6) IBM - shorted at 149.33. Stop loss at 153.62. Stock closed on Friday at 147.72.
7) GPRO - Purchased at 9.78. Liquidated at 8.95. Loss on the trade of $83 per 100 shares plus commissions.
8) MMM - Shorted at 169.83. Averaged short at 169.39. Stop now at 171.37. Stock closed on Friday at 168.32.
9) FSLR - Purchased at 49.39 and at 48.74. Averaged long at 51.77 (3 mentions). Stop loss is at 46.65. Stock closed on Friday at 48.56.
10) AMZN - Liquidated at $1017. Purchased $690 May 20th put option at $1765. Loss on the trade of $758 plus commissions.
Previous Newsletters
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Encyclopedia of Chart Patterns. A must have for chart aficionados! |
The opinions and commentaries by Mr. De Vito are not a recommendation to buy or sell, but rather
a charting guideline, based on his own knowledge and experience, regarding the stocks he is following or
that are brought to him by others. Mr. De Vito does not presently offer a track record of his trading experiences.
No inference of success and/or failure should be assumed. The
information enclosed above, regarding his background, length of trading, and experience, is correct
but is not meant to suggest, state, or infer any future success in trading, based on his opinions. The information herewith included should only be used by investors who are aware of the risk inherent in securities trading. Mr. De Vito accepts no liability whatsoever for any loss arising from any use of the information and/or comments he supplies. |
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