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Issue #494 
Sep 11, 2016 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Positive Week Ahead!
DOW Friday closing price - 18085
The DOW gave a failure signal on Friday, having closed below the previous all-time high weekly close at 18272, suggesting that the uptrend is over until new positive information comes out. The index closed on the lows of the week and further downside below last week's low at 18085 is expected to be seen this week.
The DOW generated a 465 point trading range last week, (which is the biggest trading range in 10 weeks), suggesting that the spike down selloff is valid and not likely to be negated. By the same token, the selloff was based on the assumption that the Fed may be tightening interest rates twice more this year, as well as of statement from Draghi that there will be no new Stimulus program in Europe at this time. With the Fed announcing on Wednesday September 21st whether there will be an interest rate hike in September or not, there is a slight chance that the selloff will not be confirmed this week.
To the upside and on an intra-week basis, the DOW will now show minor to perhaps decent resistance at the previous 52-week high at 18167 and minor to decent resistance at the previous all-time intra-week high (seen last year in July) at 18351. On a daily closing basis, resistance will now be decent at the previous all-time high daily close at 18312, which is also strengthened by the previous 2-month daily closing low at 18313.
To the downside and on an intra-week basis, the DOW will show minor to perhaps decent support at the 18000 demilitarized zone, very minor at 17855 and minor but also short-term pivotal at 17713. Below that level, there is no support until minor to decent support is found between 17331 and 17476.
It is likely that the DOW has begun the seasonal September to October swoon that was clearly evident the last 4 years. In 2012, the index fell 8.8% between the first week of October and the second week of November, in 2013 the index fell 6.4% between the 3rd week of September and the 2nd week of October, in 2014 the index fell 8.7% between the 3rd week of September and the 2nd week of October and last year (2015) the index fell 6% between the 2nd week of September and the last week of September. Keeping those corrections in mind, the potential downside objectives would be 17547 (6.0%) or 17025 (8.8%). By the same token, last year the index had already fallen 16.3% in the previous months, suggesting this correction will be more than that.
It does need to be mentioned that the DOW also saw September to October corrections in 2004, 2001, and 1997, from a low of 6% to a high of 15%. Keep in mind though, that these seasonal corrections seem to occur only when the index has been on an uptrend or sideways trading (none occurred during downtrends).
It is clearly evident that the Fed rate decision on September 21st will be fundamentally impactful to the DOW and will either cause immediate further downside to occur or some amelioration of what happened this past week. Nonetheless, last week's drop did some damage to the charts that will be difficult (if not impossible) to negate. The news that came out was not as catalytic as the action suggests it was, meaning that the index was probably ready to correct and all it needed was a "slight nudge" in that direction. As such, the announcement of whether the Fed will raise interest rates in September (thus making believe there will be another rate hike in December) or not (making believe there will only be 1 more interest rate hike this year), will not be a "magic wand" that will erase totally what happened this past week, especially considering the September to October swoon that has occurred in the past.
This coming week is difficult to evaluate since there are no economic reports of consequence due out until Thursday. It is possible and perhaps even likely that the 18000 demilitarized zone (17970-18030) will hold up and if it does, the probabilities would favor the DOW having a bit of an uneventful week with 18167 and 17970 as the trading range. The following week, it is possible that the index will rally up to 18351 before the rate announcement is made. After the announcement on Wednesday, September 21st, all bets are off.
Probabilities favor the bears in the DOW this week but with action not as strong as it was last week.
SPX Friday closing price - 2127
Like all the indexes, the SPX sold off last week based on the fear of higher interest rates in the U.S. and less Stimulus in Europe. Nonetheless, the SPX was the least affected chart-wise since the previous all-time high weekly close was not broken (as it was in the other 2 indexes). The reason is simple, the index is mostly all about financial issues and that is what will be decided "this coming week".
The SPX closed on the lows of the week and further downside below last week's low at 2127 is expected to be seen. Nonetheless, the previous all-time high weekly close is 2126, meaning that with the index closing 1 point above that level on Friday, the traders will likely try to close in the green next Friday and leave the big decision for the correction to the following week's Fed rate decision.
On a negative note though, the SPX did close on Friday 3 points below the previous all-time high daily close at 2130 and that means that Monday's close (red or green) will tilt the probabilities of direction for the week.
To the upside and on an intra-week basis, the SPX will show minor resistance at 2134 (previous all-time intra-week high) and then nothing until 2157 (2-month previous low daily close).
To the downside and both on an intra-week and daily closing basis, minor to decent support will be found between 2100 and 2119. Below that level, there is very minor support at 2185 and minor but short-term pivotal at 2074. Stronger support will be found at 2050, which includes the 200-day MA, currently at 2058.
The SPX will be the index the traders watch the closest this week, given that further direction is going to be all about the interest rate assumptions.
As far as the September-October swoon, the SPX corrected 8.9% in 2102, 4.8% in 2013, 10% in 2014 and 7.6% last year (2015). As such, potential downside targets would be 2087 (4.8%) or 1973 (10%).
For the first couple of days of the week, the SPX is likely to trade as low as 2100 (small chance of 2070) and as high as 2134, with a small chance of the following week trading up as high as 2150-2157. After Wednesday September 21st, all bets are off.
Probabilities favor the bears in the SPX.
NASDAQ Friday closing price - 5125
The NASDAQ generated a "key" reversal week, having made a new all-time high at 5287 and then closing below the previous week's low at 5189. In addition, the index gave a failure to follow through signal, having closed below the previous all-time high weekly close at 5210, strongly suggesting that the recent uptrend is over, at least for the September to October seasonal swoon period. The index closed on the lows of the week and further downside below last week's low at 5125 is expected to be seen this week.
It does need to be mentioned that the NASDAQ has actually had a very consistent September-October seasonal correction, given that it has happened every year since 2012, with a 12.4% in 2012, 6.9% in 2013 (minor compared to the other years), 10.8% in 2014, and 9.6% last year in 2015. The downside objectives of this seasonal correction could be as little as 4922 (6.9%) to as much as 4631 (12.4%). By the same token, it is unlikely that it will be 6.9% since that year the correction was simply a small "blip on the radar" and did not start with the kind of volatility and strong statement seen this past week.
To the upside and on an intra-week basis, the NASDAQ will now show minor to decent resistance at 5176 and decent at 5231. On a daily closing basis, resistance will be found at 5156 and at 5213/5218.
To the downside and on an intra-week basis, the NASDAQ will now show minor support at 5109 and then nothing until minor to decent at 5000-5011. Below that level, there is minor support at 4908, minor to decent at 4876 that is additionally strengthened by the 200-day MA, currently at 4975. Further support is found at 4676.
It is clearly evident, based on past September to October seasonal correction, as well as from the fact the NASDAQ has been a leader to the upside, that the index will receive the strongest selling interest should this prove to be the seasonal correction (likely).
It also needs to be mentioned that the NASDAQ got up to the "general 300-point above-an-even-number (5000)" resistance with last week's high at 5287. As such, the probabilities are high that the index will drop all the way down to the same "general 300-point below-an-even-number (5000)" support at 4700.
The NASDAQ is likely to continue to get the bulk of the selling this past week, especially given the strong failure to follow through signal (85 points below the previous one). If the index does not find support at the 5100-5109 level it may continue lower to 5000 this week before bouncing up. Nonetheless, a rally back up to the 5176 level before the Fed rate announcement is made is also likely to happen. After the Fed announcement though, the index is likely to head down to the 4700 level over 2-4 weeks after the announcement is made.
Probabilities favor the bears in the NASDAQ.
The indexes took a nose dive this past week after Draghi stated that they had no intention of offering additional Stimulus to Europe and after one of the Fed Governors stated that the Fed was likely to be more hawkish as far as raising interest rates. With the indexes having mostly stalled over the last few weeks, the comments worked as a catalyst for profit taking and new selling interest.
The September-October swoon has been consistent (every year the last 4 years) and that means that the traders are more likely to sell into the Fed announcement on September 21st than buy, anticipating no Fed rate hike.
By the same token, a no Fed rate hike on September 21st would take some of the ammunition away from the bears, meaning that the bears will likely be a bit conservative this week, suggesting that there is a high likelihood of some 2-way trading during the week (red and green seen). With the probabilities still favoring a no rate hike on September 21st, it would not be surprising to see a green close next Friday.
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Stock Analysis/Evaluation
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CHART Outlooks
There are no official mentions in the newsletter this week as sales are the only thing that should be considered at this time due to the September-October seasonal correction history. Nonetheless, chasing stocks to the downside before the Fed interest rate decision comes out on September 21st is not a good idea. As such, I will give mentions during the week if the indexes and/or stocks of interest to short manage to rally this coming week.
One such stock is GS that I stated during the week I was looking to short around the 172.50-173.00 level. The stock got up to 172.48 this week, meaning the upside objective is fulfilled. If the stock rallies this week up above $170, I will be considering giving the mention.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA made a new 6-month intra-week low and a new 58-month weekly closing low on Friday, suggesting that the all-time weekly closing low at 1.25 may now be tested. The stock closed on the low of the week and further downside below last week's low at 1.48 is expected to be seen. Closest intra-week support is found at 1.36, then at 1.32, and then at 1.30. Further and strong support is found at the all-time low at 1.21. The break of the weekly close support at 1.53 suggests that there is nothing fundamentally positive on the immediate horizon, meaning the buying interest is just not there at this time. An additional negative is the fact that the previous lows seen this year at 1.36, 1.32, and 1.30 can be seen as a triple bottom, meaning that they may be targeted for a break and the all-time low at 1.21 would then become not only a target but a level of support that if broken would bring about a new and stronger round of selling. By the same token, the break of weekly close support needs to be confirmed with a second close in a row below that level, meaning that the bulls will have a chance this week to negate the break if they can generate some new buying interest. Short-term pivotal intra-week resistance is now found at 1.62. Probabilities favor the bears. CLB continued the recent downtrend, having generated another red weekly close (the 3rd in a row and the 7th out of the last 8). The stock closed on the lows of the week and further downside below last week's low at 109.91 is expected to be seen this week. An additional negative is the fact that the stock broke the 200-day MA 7 trading days ago (currently at 113.70) and that line was tested successfully on 2 occasions this past week, suggesting the probabilities favor the bears much more than the bulls. By the same token, support in the stock is decent between 106.92 and the recent low at 107.96 and the expected drop this week might end up being just the required retest of that support area so that the bull traders can buy with more confidence. Pivotal resistance is found at 114.29 and short-term pivotal support is found at 107.96, then at 106.92, then at 105.49 and finally at 102.21, meaning the bears have a lot more work to do to stimulate new selling interest than the bulls have to stimulate new buying interest. Probabilities favor the bears but not overwhelmingly. EBAY generated a negative reversal week, having made a new 55-month high but then closing in the red and on the lows of the week, suggesting further downside below last week's low at 31.85 will be seen this week. The negative reversal puts into question the bullish flag breakout that occurred the previous week as momentum to the upside should have continued this past week. By the same token, no failure signal was given (needs an intra-week break below 31.14 or a daily close below 31.40 to generate one), meaning that nothing was decided this past week. Nonetheless, it is evident this coming week could be pivotal as any daily close below 31.40 would negate the bullish flag and weaken the chart. Probabilities still favor the bulls but slightly. ENG had an uneventful week, trading in a 14-point range and neither the bulls nor bears accomplishing anything. The stock did close on the lows of the week and further downside below last week's low at 1.40 is expected to be seen. Daily close support is found at 1.30 and resistance at 1.50 and 1.55. The weekly closing chart continues to hold the key, with the 200-week MA, currently at 1.41, being pivotal on a weekly closing basis. Probabilities continue to favor the bulls. FCEL generated a negative reversal week, having gone above the previous week's high and below the previous week's low and then closing in the red. By the same token, the negative reversal was not convincing, given that the stock closed just 2 points below the mid-point of the week's trading range, thus leaving the door open for both bulls and bears this week. On a semi positive note, the triple low between 4.98 and 5.02 was broken on Thursday with the drop down to 4.88 but no follow through was seen as the stock reversed that same day to close in the green and 42 points from the low of the day, suggesting that the break was likely more about stop loss fishing than it was a true sign of weakness. The $5 demilitarized zone remains pivotal, meaning that the bulls need to establish themselves above 5.30 and the bears below 4.70 for either party to make a statement. Probabilities this week are about evenly matched, with the bears possibly having a 51-49 edge. FSLR generated a new 3-year weekly closing low, having broken the low weekly close at 37.53 that was made 3 weeks ago. The stock closed on the lows of the week and further downside below last week's low at 37.13 is expected to be seen. On a possible positive note, the 36.72 weekly closing support of importance was not broken and as long as that remains inviolate, the bulls will have the longer term edge. On a negative note though, the probabilities strongly favor that level being seen this week, with perhaps even a drop to the intra-week support at 35.59. It does seem that this week could be pivotal as a green close next Friday would give the bulls new ammunition for a rally and a red close, especially if below 36.72 would give the bears new ammunition for further downside, likely down to the $30 level. Probabilities favor the bears. LNG did not get affected by the selloff in the indexes and ended up closing in the green and in the upper half of the week's trading range, suggesting further upside above last week's high at 46.00 will be seen. By the same token, the stock closed at the same level where it closed 4 weeks ago and only got above the previous intra-week high by 6 points, meaning that if the bulls fail to go higher this week and the stock closes in the red next Friday, that a double top to this rally will have been made and that would be a good reason to consider taking profits. Nonetheless, the ability of the bulls to overcome a falling index market does suggest that further upside is likely to be seen with the 200-week MA, currently at 48.50, remaining as a viable target. Pivotal intra-week support is now found at 42.50, which if broken would suggest $40 would be seen and that the uptrend has paused. Stop loss should now be at 42.40. Probabilities still favor the bulls. KGC made a new 6-month weekly closing low and in the process generated a sell signal, having closed below the previous low weekly close at 4.23. The stock closed on the lows of the week and further downside below last week's low at 4.10 is expected to be seen. By the same token, the previous 6-month intra-week low at 3.93 was not broken and if the bulls are able to keep the stock above that level and generate a green close any day this week, the sell pressure will likely abate. Below 3.93 though, the 3.57 level on a weekly closing basis is considered important support given that it was the level that was broken that generated the rally up to 5.82. Probabilities favor the bears this week. MT generated a negative reversal week, having gone above last week's high and then closing in the red and on the lows of the week, suggesting further downside below last week's low at 5.80 will be seen this week. The stock has now generated 5 red weekly closes out of the last 6 weeks, meaning that the upside momentum that started in June when the stock was at 4.18 has disappeared. It is evident at this time that the stock is seeing a short-term bearish bias and the big question is "how much more will be seen to the downside?". On a daily closing basis, pivotal support is found at 5.43 and pivotal resistance at 6.30. Probabilities favor the stock trading "within" than range for the next few weeks but any daily close above or below that level will be telling. A close below 5.43 would suggest a drop down to the 200-day MA, currently at 4.85, would be seen. A close above 6.30 would suggest a move up to 7.00 would occur. Probabilities favor the bears this week. QQQ needs to be liquidated if the NAZ gets below 5109. Consideration should also be given to liquidation if it gets back up to 115.75, which is now considered intra-week resistance. XOM generated a new 6-month weekly closing low on Friday and the stock closed on the lows of the week, suggesting further downside below last week's low at 86.84 is expected to be seen. Nonetheless, the previous intra-week low at 85.58 was not broken, meaning that the bears have not yet accomplished resumption of the recent downtrend. By the same token, if the bears are able to get the stock below the previous weeks low at 86.09, a new 6-month intra-week low would likely occur and likely cause the stock to drop at least to the 200-day MA, currently at 85.00, if not down to the next decent intra-week level of support at 82.68. Any green close before 86.09 is broken would likely cause a positive reversal.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .431 (new price 5.18). 2) FCEL - Purchased at 5.27. Stop loss now at 4.65. Stock closed on Friday at 5.18. 3) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 1.42. 4) EBAY - Purchased at 32.36. Averaged long at 31.66 (2 mentions) Stop loss now at 31.04. Stock closed on Friday at 31.89. 5) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.48. 6) MT - Averaged long at 5.57 (3 mentions). Stop loss now at 5.23. Stock closed on Friday at 5.85. 7) FSLR - Averaged long at 44.87 (5 mentions). No stop loss at present. Stock closed on Friday at 37.13. 8) LNG - Averaged long at 42.99 (2 mentions). Stop loss now at 42.15. Stock closed on Friday at 45.00. 9) CLB - Purchased at 108.09. Averaged long 113.16 (3 mentions). Stop loss now at 106.65. Stock closed on Friday at 110.20. 10) XOM - Averaged long 86.48 (2 mentions). Stop loss now at 85.65. Stock closed on Friday at 86.84. 11) QQQ - Purchased at 116.71. No stop loss at present. Stock closed on Friday at 114.28.
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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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