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Issue #539 
August 13, 2017 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls Fail to Follow Though. Correction Under Way!
DOW Friday closing price - 21858
For the first time in 3 months, the indexes gave notice that a correction is now under way. The DOW and the SPX both generated "key" reversal weeks (a new all-time high and a close below the previous week's low) and the NASDAQ generated a simple reversal week but that could be more indicative given that it will also become a successful retest of the all-time high seen 3 weeks ago at 6460 if the index goes below last week's low at 6214 this coming week (likely). Simply stated, the bears were finally able to make a statement after months of trying but failing.
The DOW and the SPX only show 1 previous "key" reversal since the previous all-time highs (DOW at 14198 and SPX at 1576) were made in February 2013, suggesting that at the very least the same amount of correction seen then (4%) will be seen now. Such a correction would suggest the DOW will have 21300 as the downside objective and the SPX at 2390.
Nonetheless, there is a big difference between 2013 and now inasmuch as the indexes were not as overbought as they are now (DOW - RSI at 50 in 2013 and now at 85) and not as high above the previously established all-time high as they are now (DOW in 2013 was 1% above the previous high and now 4.6% above the previous established high), which in turn suggests this correction could be more than the one seen then.
One additional factor to consider is the VIX/DOW history that I have expounded upon recently (see previous week's newsletter). In 2007, after the VIX made the all-time intra-week low at 8.60 (10.42 on a monthly closing basis), the DOW rallied 1.1% above the previous month's high (12557 and 12795) and with the high seen this month at 22179, it is exactly 1.1% above last month's high at 21929. In 2007, the index then proceeded to correct 6% (from 12795 to 11939), meaning that if the same thing happens now, the index would have a downside objective of 20848.
Either way, the indexes seem to be in a correction phase for a myriad of both chart and fundamental reasons: 1) Congress is on recess for the next few weeks and will not be considering Tax Reform (which is one of the reasons the market has rallied since November), 2) no earnings of consequence until October, 3) no economic reports of consequence due out for another 3 weeks, 4) overbought condition, 5) negative key reversals seen, and 6) no supports of consequence below.
All indexes closed near the lows of the week and further downside below last week's lows are expected to be seen (DOW below 21842, SPX below 2437, and NAZ below 6214). Using the weekly chart, support levels below are as follows: DOW at 21279 and 21197, SPX at 2418 and at 2405, and NASDAQ at 6107 and 6081. A break below all of those support levels would suggest the correction would continue and likely reach the 6% drop target of the DOW at 20848.
To the upside and on an intraweek basis, the SPX shows resistance at 2453 and then nothing until 2477. Based on the negative reversal seen, the index should not get above 2453 this coming week. In the NASDAQ, resistance is found at 6303 and then stronger and more meaningful at the previous all-time high at 6341. In the DOW there is no previous resistance until the all-time high at 22179 is reached. Nonetheless, having broken and closed below the 22000 demilitarized zone, that area 21970-22030 should now become decent resistance.
A correction is now occurring and likely to continue until some positive catalyst happens or the buying interest overcomes the selling interest. Simply stated, the big question mark right now is "how much of a correction will occur?" Charts suggests that at least 4% and perhaps as much as 6% will be seen. For this coming week, the probabilities favor the bears.
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Stock Analysis/Evaluation
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CHART Outlooks
The chart now strongly suggests that a correction is under way and that further downside is to be seen. Pivotal support levels were broken and with nothing on the economic or earnings calendar that could act as a positive catalyst, it looks like everyone (bulls and bears) will welcome a correction. As such, all mentions this week (2) are sales.
The probabilities favor the bulls trying to do something at the beginning of the week to negate all the short-term sell signals given last week but likely failing, meaning that Monday is probably the best day to short stocks if the expected rally occurs.
SALES
GS Friday Closing Price 224.15
GS generated a negative reversal week, having made a new 20-week high but then closing in the red and near the lows of the week, suggesting further downside below last week's low at 222.65 will be seen this week. Nonetheless, the stock spent 90% of the day on Thursday trading at or above the 200-day MA, currently at 226.90, before the bears were able to generate the break in the last 30 minutes of trading. As such and if the bulls attempt an early week rally in the index market and on stocks such as GS, the probabilities would favor that line/break being retested early in the week.
Using the 60-minute chart, resistance of some consequence is found at 228.62, which would also mean that the bulls will have been successful in breaking above the MA line by enough price as to believe further upside will be seen. As such, the stop loss on the trade will be placed at 228.72.
To the downside and on an intra-week basis, GS does not show any support until minor support is found at 220.43. Below that level, there is decent and short-term pivotal support at 218.00 and then nothing until 213.18. Decent to strong and longer term pivotal support is found at 209.62.
The main downside objective of this mention on GS is 213.17/213.31 as that is the previous all-time high weekly close as well as the low weekly close retest of that level that occurred in May. Nonetheless, having generated a breakout of the 20-week weekly close resistance the previous week, there is a decent possibility that if the correction being seen is of some consequence (likely) that the same could occur to the downside, meaning that a 1-week weekly close below 213.17 could be seen. On an intraweek basis, that could mean a drop down to around the 204.00 level.
Sales of GS above 226.70 and using a stop loss at 228.72 and having a 213.17 objective will offer a 6-1 risk/reward ratio.
My rating on the trade is a 3.5 (on a scale of 1-5 with 5 being the highest).
ADSK Friday Closing Price - 108.01
ADSK is a stock that rallied 232% from June 2016 to May 2017 (from 49.82 to 114.68) but now shows not only a double top on the daily chart at 113.89/114.08 but also a failure to follow through signal on the intraweek chart that was given when the stock made an all-time high at 115.25 on July 27th, above the previous one seen 8 weeks before on May 25th at 114.68 on May 25th and then generated an immediate key reversal with a close that day below the previous day's low.
ADSK has now successfully tested that intraweek high with 2 rallies to 112.59 and to 111.00 but also retested that high on the daily closing chart with 2 higher-than-the-previous-day closes at 111.38 and 109.32, suggesting that the stock has now topped out (at least on a short-term basis) and that the traders will explore the downside to see where the buying still resides. In addition, it also means that the stock will find selling interest of consequence starting at 109.30 and up to 111.38.
ADSK closed in the middle of the week's trading range, suggesting a 50-50 chance of going above last week's high at 111.00 or below last week's low at 104.77. Nonetheless, with the indexes under sell pressure and likely to head lower, it does give the bears the edge. By the same token, the stock did close near the highs of the day on Friday, suggesting the first course of action for the week will be to the upside with 109.00-109.30 objective or at most a 111.00-111.30 objective (the former being likely, the latter being unlikely).
The chart of ADSK is set for a test of the support below that is found between 100.70 and 99.22. By the same token, the double top and failure to follow through signal given is a strong reason for the bulls to take profits and a retest of the recent lows seems to be the minimum that could/should happen. The stock is showing a breakaway/runaway gap at 88.88-99.20 and at 90.94 and 91.17, meaning that if the support at 99.22 is broken, it is highly likely that the runaway gap at 91.17 would be tested.
Sales of ADSK above 109.00 and using a mental stop loss at 111.75 and having a 91.17 objective will offer a 6-1 risk/reward ratio. Even if the stock "only drops" down to the support at $100, the risk/reward ratio is still 3.3-1.
My rating on the trade is a 3.75 (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 |
| AMTD continued lower for the 3rd week in a row after the double top got built. The stock closed near the lows of the week, suggesting further downside below last week's low at 45.53 will be seen this week. The stock did generate a daily green close on Friday and near the highs of the week, suggesting the first course of action for the week will be to the upside and above Friday's high at 44.02. Minor intraweek resistance is found at 44.11 and then nothing until 44.73/44.79. Minor intraweek support is found at 43.37 and then nothing until 40.93. Probabilities favor the bears. ARNA reported earnings this week and the reaction was negative as the stock dropped 10% in value after the report came out. The stock closed in the lower half of the week's trading range, suggesting further downside below last week's low at 20.12 will be seen this week. Nonetheless, the stock seems to be mimicking the action seen in March 2012 when the stock spiked up from 17.00 to 34.70 and then over a period of 4 weeks dropped down to 20.00 before embarking on a 9 week rally to 135.00. On this occasion, the spike rally was from 12.20 to 27.86 and this past week was the 4th week the stock has been correcting, suggesting that a drop down to 20.00 will be seen this week and that the stock will then embark on an extended rally. Support is found at the $20 demilitarized zone (down to 19.70) and then nothing until 17.30. There is a breakaway gap at 19.44 that should not be closed as it was based on trend changing news. Short-term pivotal resistance is found at 24.70. Probabilities favor the bulls this week. CLB made a new 18-month low and closed on the lows of the week, suggesting further downside below last week's low at 92.81 will be seen this week. The stock broke below the 30 month 4-point uptrend line, meaning that there has been a change of trend, likely to a sideways trend. On a possible positive note, the stock has generated 8 previous spike low drops over the past 30 months, all of which engendered rallies of anywhere from a minimum of $12 to a maximum $40 once the low was found. There are 3 previous intra-week supports below at 91.63, at 87.27 and at 84.50, any of which could be seen this week. By the same token and considering the high likelihood of the stock being in a sideways trend now, the weekly close support of consequence is at 92.75 and with the stock having closed on Friday at 92.92, the probabilities of a green close next Friday are high. A sideways trend would suggest the stock could be in a 92.75 to 115.50 trading range based on weekly closes. On a negative note, the stock is showing a breakaway/runaway gap formation to the downside with the breakaway gap being between 105.27 and 103.62 and the runaway gap being between 99.82 and 99.75, suggesting that the change of the fundamental picture is valid. By the same token, the drop seen after the breakaway gap was created was $6 and the stock has now dropped at least $7 from the runaway gap, meaning that some kind of recovery is likely to be seen this week with some form of retest of the runaway gap being likely to be seen. On a daily closing basis, resistance will now be found at 96.80 and at 98.11. Probabilities favor the bears at the beginning of the week but the bulls at the end of the week, at least for a green weekly close next Friday. CLF generated a negative reversal week, having gone above the previous week's high and then below last week's low and closing in the red and near the lows of the week, suggesting further downside below last week's low at 7.10 will be seen this week. By the same token, the same almost identical thing happened 3 weeks ago and the bears were unable to generate any follow through to the downside. The stock has been in a sideways trading range between 6.95 and 8.00 for the past 5 weeks and other than the weakness seen in the index market, there is no reason to believe that will change this week. By the same token, there is pivotal support at 6.95 that is broken would likely push the stock down to the next and weaker support at 6.45. The stock has been on a 9-week uptrend based on the weekly closing chart and support on that chart is presently at 7.10. As such, there has yet been no sell signal given in spite of the weakness seen. Probabilities slightly favor the bulls. ENG generated an uneventful week even though the stock almost gave a sell signal, having gotten down to the previous intraweek low at 1.12 that was seen 4 weeks ago. Nonetheless, some buying did come in on Friday to close the stock above the weekly close support at 1.15/1.16 and leave the traders waiting for the earnings report that comes out on Thursday. Intra-week support is found at 1.12 and at 1.07 and resistance 1.40 and 1.46. Probabilities are 50-50 this week, probably all to be decided by the earnings report. FCEL generated the first red close after 11 weeks of green closes. The stock closed near the lows of the week, suggesting further downside below last week's low at 1.33 is expected to be seen. Intraweek support is found at 1.25 and then pivotal at 1.18. It is important to note that the 100-day MA is currently at 1.31 and that it is a line the traders have been clearly pivoting on for the last year, suggesting that on a daily closing basis it is unlikely to be broken. As such, the probabilities do favor a positive reversal week and a new attempt at breaking the 200-day MA, which is currently at the previous intra-week high at 1.63. Possible trading range for the week could be something like 1.31 to 1.61. MNK made a new all-time low this past week and closed near the lows of the week, suggesting further downside below last week's low at 36.02 will be seen this week. The selling interest came in after the company reported worse than anticipated earnings on Tuesday but was likely exacerbated when stop loss orders below the double bottom at 38.80/38.81 were triggered. Three rating companies (BMO Capital, Raymond James, and Deutsche Bank) maintained their outperform ratings but lowered their upside price targets to $65, $58, and $56 respectively. With the stock into all-time lows, the fundamental ratings are the only thing the bulls can use as a positive. There is no support below and simple chart mathematics does offer a potential downside target of $28-$30. Minor but likely pivotal intraweek resistance is now found at 39.00, that if broken would suggest the worst is over. The stock has generated 11 days in a row of red closes and that has not happened all year, suggesting that at some point this week, and likely early in the week, some buying interest will be seen. If the bulls can get the stock above 39.00, it may be worth holding on to the positions. If further downside is seen on Monday in conjunction with another red close, consideration should be given to liquidating the positions. NFX generated another sell signal, having broken the previous 18-week low weekly close at 26.09. The stock closed near the lows of the week and further downside below last week's low at 25.70 is expected to be seen. On a possible positive note for the bulls, the 18-month intraweek double bottom at 25.46/25.51 was not broken this past week, meaning that the bulls do have a slight chance of turning the stock around this week. For that to happen though, they cannot allow the stock to get down more than a couple of points below 25.70 and they do need a green close above 26.09 next Friday. There is some very minor support at 25.11 and then nothing until 22.90. Minor but perhaps pivotal resistance is found at 27.09. Probabilities favor the bears. RIG generated a red weekly close and in the lower half of the week's trading range, suggesting further downside below last week's low at 8.05 is likely to be seen. Nonetheless and on a possible positive note, the bulls were able to generate enough buying interest on Friday to generate a positive reversal day (new 5-week low and a green daily close) as well as a close above 8.33 (the previous all-time low weekly close), meaning that the failure to follow through signal against the bears that occurred 5 weeks ago was not negated, suggesting that the bears need some negative fundamental news to generate much further downside. It is also important to note that the double bottom on the intraweek chart at 7.67/7.66 has not been retested given the 4 green weekly closes in a row, meaning that this drop could be the required/needed retest. A rally above last week's high at 9.08 would make that happen. Intra-week resistance is found at 8.83 and 9.01. There is no intraweek support until the double bottom is reached. Probabilities slightly favor the bulls. |
1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .115 (new price 1.38). 2) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at 1.20. 3) ARNA - Averaged long at 37.25 (4 mentions). No stop loss at present. Stock closed on Friday at 21.03. 4) CLF - Averaged long at 8.96 (3 mentions). No stop loss at present. Stock closed on Friday at 7.19. 5) GS - Covered shorts at 224.15. Averaged short at 225.785. Profit on the trade of $327 per 100 shares (2 mentions) minus commissions. 6) X - Liquidated at 24.37. Averaged long at 29.765. Loss on the trade of $2160 per 100 shares (4 mentions) plus commissions. 7) RIG - Averaged long at 9.22 (3 mentions). No stop loss at present. Stock closed on Friday at 8.35. 8) CLB - Averaged long at 100.11 (2 mentions) No stop loss at present. Stock closed on Friday at 92.92. 9) AMTD - Shorted at 46.01. Stop loss at 47.34. Stock closed on Friday at 43.82. 10) MNK - Averaged long at 42.733 (3 mentions). No stop loss at present. Stock closed on Friday at 36.52. 11) DFS - Liquidated at 60.90. Averaged lown at 62.04. Loss on the trade of $208 per 100 shares (2 mentions) plus commissions. 12) AXP - Covered shorts at 86.35. Shorted at 85.51. Loss on the trade of $84 per 100 shares plus commissions. 13) GS - Purchased at 232.56. Liquidated at 232.75. Profit on the trade of $19 per 100 shares minus commissions. 14) ARNA - Purchased at 20.16. Stop loss at 19.65. Stock closed on Friday at 21.03.
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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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