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Issue #530 
June 11, 2017 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| DOW/NAZ Spread Hits Brick Wall. Seasonal Correction Started?
DOW Friday closing price - 21271
The DOW made a new all-time intra-week and weekly closing high and closed near the highs of the week, suggesting further upside above last week's high at 21305 will be seen this week.
For the first time since the November election, the DOW outperformed both of the other indexes, having gone up .3% in value while the SPX dropped .4% and the NASDAQ dropped 1.6% from the previous week's closes. The fact that it was the only index having generated a green weekly close suggests that it was more an unwinding of the long NAZ and short DOW spread than it was about new buying interest in Blue Chip stocks.
It does need to be pointed out that the DOW continues to follow the script seen in 1999 when the index first broke above the 10,000 level. The first high weekly close before a minor correction occurred was 11,031 (this time it was 21,005) and it took 11 weeks to make the second all-time high weekly close at 11209 (204 points above the previous high) before a correction occurred. On Friday and after 14 weeks, the index made a new all-time intra-week high at 21305 and closed at 21271, meaning that the similarities between both events continue.
To the upside and on an intra-week basis, the DOW has no resistance other than "general" at 21,300/21,330.
To the downside and on an intra-week basis, the DOW now shows minor but likely pivotal support at 21,113 and very minor at 20,942. Below that level, there is minor support at 20,847 and at 20,777 and decent at 20553. Below that level, there is important and pivotal support at the double bottom at 20412/20379, which is also pivotal.
It is highly unlikely that Blue Chip stocks will lead the way to the upside, meaning that the probabilities do not favor the DOW continuing higher unless the rest of the market does the same. Nonetheless, with the spread between the indexes likely to continue to unwind, it is unlikely that even if the overall market heads lower that the DOW will see much selling interest this week. Traders are more likely to buy Blue Chip stocks as a safety net against the rest of the market than be overall sellers.
By the same token and having reached an upside objective based on what happened in 1999, as well as it also being a "general" resistance, I would expect to see a negative reversal week, meaning a new all-time intra-week high but a red weekly close on Friday. Nonetheless, once again the DOW should outperform the other indexes as it did this past week.
SPX Friday Closing Price - 2431
The SPX generated a negative reversal week, having made a new all-time intra-week high at 2446 and then going below the previous week's low and closing in the red. Negative reversals from all-time highs on the weekly chart have occurred a couple of times over the past 2 years and have generated additional but limited downside thereafter but it is important to note that the index also generated a negative reversal on the daily chart on Friday and that is the first time that has happened in the last 12 months, suggesting this one may have a bit more meaning.
The SPX closed exactly in the middle of the week's trading range, leaving the door open for either a rally above last week's high at 2446 or below last week's low at 2415. Nonetheless, the index has usually followed the action of the NASDAQ and given that that index is likely to see further downside, the probabilities favor the SPX will head lower.
To the downside and on an intra-week basis, the SPX now shows minor but likely short-term pivotal support at 2403. Below that level, there is minor support at 2379 and at 2354, minor to perhaps decent at last week's low at 2351, minor again at 2336, minor to perhaps decent at 2328 and decent as well as short-term pivotal at 2322.
The red weekly close in the SPX makes last week's close at 2439 into the 3rd point on the uptrend line that started in December 2014 at 2088, followed by the February 2015 close at 2096 and the 2339 close seen the previous week. On an intra-week basis, that line now has 4 points on it, starting with the the 2092 high seen in December 2014, the 2119 high seen in February 2015, the 2400 high seen in February of this year and the 2446 high seen last week. Another red weekly close next Friday would confirm the trend line has been tested successfully. As such and keeping in mind the previous high points on the trend line, a correction of somewhere between 3.5% and 5.4% is expected to be seen, meaning that a drop to somewhere between 2314 and 2360 is likely to occur.
Probabilities slightly favor the bears in the SPX this week.
NASDAQ Friday closing price - 6207
The NASDAQ generated a negative reversal, having made a new all-time high at 6341 and then going below last week's low and closing in the red. This is the same type of negative reversal after making an all-time high seen on 4 previous occasions over the past 2 years, all of which were reversed the following week, meaning that it is not something the traders may pay close attention to. By the same token, this negative reversal was the biggest (3.3% from high to low with the others being from 1% to 2.4%) and included 4 of the big 5 stocks in the index (AMZN, GOOGL, FB, and NFLX) doing the same key reversals, which is not something that had happened before.
The NASDAQ closed in the lower half of the week's trading range, suggesting that further downside below last week's low at 6127 will be seen this week.
It should be mentioned that the last 2 key reversals on the "daily chart" (new all-time high and a close below the previous day's close), which occurred on March 21 and April 6th, generated follow through to the downside the next day but then also generated a green daily close, meaning that what the NASDAQ does and where it closes on Monday will have some bearing on how the traders view this last reversal day/week.
To the upside and on an intra-week basis, the NASDAQ has minor to perhaps decent resistance at 6310 and then decent at the all-time high at 6341.
To the downside and on an intra-week basis, the NASDAQ show minor support at 6164 and then nothing until minor again at 6074 and 6053. Below that level, there is minor to perhaps decent support at 5996 and then nothing until minor to perhaps decent at 58.05.
The NASDAQ generated a 1 day correction on Friday of 3.3% and considering that it is the largest correction seen since October/November (7 months) when the index corrected 5.8% but did it over a period of 4 weeks, it does suggest that the traders are now very reluctant to hold on to their shares (pulled the trigger very fast on Friday) and see a very low probability of the index continuing to make new all-time highs. Simply stated, there is now a high likelihood that for at least the summer period (until the next earnings quarter begins in July = 4 weeks) that the index has seen at least a temporary top at 6341 and that a correction phase will continue with the 6000 level as the minimum downside target.
Probabilities favor the bears this week in the NASDAQ, but volatility should continue and both red and green should be seen this week.
The bears woke up from hibernation this week, having come into the market on Friday and generating not only a 3.5% drop from high to low in the NASDAQ but a strong unwinding of the spread between that index and the DOW. The increase in volatility that day was indicative and bearish for the index market as the VIX went from an 11-year low at 9.37 to a 13-day high at 12.11 and gave a buy signal on the daily closing chart, having closed at 10.70, above the 13-day high daily close at 10.45.
This coming week the bulls will be on the defensive, especially considering that on Tuesday the PPI number comes out and on Wednesday the CPI number as well as the FOMC rate decision is announced. Both of the inflation reports are expected to come in at 0% or even a minus, meaning that if any inflation is reported it will be seen as a negative. In addition, the Fed might also be announcing another rate cut on Wednesday as the probability number of that occurring is at 78% (up from 57% after last week's Central Bank announcement). Evidently, if the Fed raises interest rates it would be seen as a negative to this overbought market.
With 2 of the 3 main indexes and 4 of the 5 big NAZ stocks all generating negative reversals this past week, traders seem to be announcing that they are ready for the summer correction to occur, especially considering that the start of the next earnings quarter is still 4 weeks away.
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Stock Analysis/Evaluation
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CHART Outlooks
The action last week suggests that the seasonal tendency to correct in the summer is likely to occur once again. Nonetheless, given that the NAZ was the leader to the upside and most overbought of all indexes, probabilities favor the same index and its tech stocks receiving the most selling or profit taking as the case may be.
As such, mentions this week will all be sales but will be keyed on NAZ stocks.
SALES
AAPL Friday Closing Price - 148.98
AAPL made a new all-time high in February after spending 24 months trading below the previous all-time high weekly close at 132.54 that was made in May 2015.
In the subsequent 17 weeks after the breakout, AAPL appreciated in value 18%, having moved up to an all-time weekly closing high at 156.10 (156.42 on an intra-week basis), seen 6 weeks ago. After that high was made, a fast 3-day correction of 4.3% occurred and then a retest of the high was seen with a rally up to 155.98 that happened last week on Wednesday.
AAPL generated a negative reversal week last week, having gone above the previous week's high and then closing below the previous week's low. In the process, a sell signal was given on the daily and weekly closing chart, having closed on Friday below the 5-week low daily close at 150.25 and below the low weekly close at 153.06. In addition, the reversal also generated a successful retest of the all-time high with an intra-week high at 155.98 and a weekly closing high at 155.45, meaning that the chart is fulfilled to the upside at this time.
To the downside and on an intraweek basis, AAPL shows some minor to perhaps decent support between 138.62 and 140.06 (141.05 on a weekly closing basis) but not enough time or action was spent at that support for the traders to feel comfortable that the support will hold up if a profit taking binge is occurring. As such, the probabilities favor the stock heading down to the previous all-time high weekly close at 132.54 to retest that breakout level before considering a new attempt to renew the uptrend. In addition, there is a small chance that on an intra-week basis that the stock could drop all the way down to the 200-day MA, currently at 127.20, which is a line that has not been tested since September 2016 and could be tested again if the correction gains momentum.
To the upside and on an intraweek basis, AAPL does not show any resistance until minor resistance at 154.90 and decent at last week's high at 155.98. Nonetheless, on a daily closing basis, the previous low daily close at 150.25 and the previous low weekly close at 153.06 will both offer resistance. In addition and in looking at the 60-minute chart, resistance will be found at the 200 60-minute MA, currently at 152.70, which is a line that had not been broken to the downside for the previous 7 weeks but that got broken convincingly on Friday. A retest of that line is expected to be seen at some point this week.
Sales of AAPL above 150.20 (up to 152.70) and using a stop loss at 155.00 and having a downside objective of 132.54 will offer a risk/reward ratio of anywhere between 3.6-1 and 8.6-1 (depending on the entry point).
My rating on the trade is 3.25 (on a scale of 1-5 with 5 being the highest).
NFLX Friday Closing Price - 158.03
NFLX generated a key reversal last week, having made a new all-time intra-week high at 166.78 and the closing below the previous weeks low. Unlike the NASDAQ and its repeated key reversal weeks seen over the past couple of years, the stock only shows one other key reversal made in December of 2015 and from which 9 red weekly closes in a row occurred and a 41% correction seen.
NFLX did not generate a sell signal on the weekly chart and only a minor one on the daily closing chart and did not break the intraweek support made in May at 153.07, but on the other side of the coin, it did close the runaway gap between 158.48 and 160.55, meaning that the breakaway gap between 144.50 and 146.22 will now likely be targeted.
Like with AAPL, NFLX also broke the 200 60-minute MA, currently at 159.90, which was a line that had not been broken to the downside for 7 weeks. The probabilities favor the stock testing that line before renewed selling interest is seen. In fact, the daily closing chart shows no resistance above until 160.81 is reached, which is also a level that could be retested, especially since it also represents the low hourly close for the past 11 days.
To the downside and on an intra-week basis, NFLX shows pivotal support at the 6-week low at 153.00. Nonetheless, below that level there is no support of consequence until the $140 demilitarized zone is reached. The 138.26 to 140.30 level represents 8 weeks of base building support that will be difficult to break. Nonetheless, like with AAPL, the previous all-time weekly closing high at 130.93 that stood up for 14 months will beckon, especially if the $140 level of support is broken.
Sales of NFLX between 160.00 and 161.00 and using a stop loss at 166.97 and having an objective of $140 will offer a 3-1 risk/reward ratio. Having a $130 objective will offer a 4-1 risk/reward ratio. By the same token, it is likely that sometime this coming week, the stop loss will be able to be lowered to somewhere around 162.00, which in turn would make the risk/reward ratios much better.
My rating on the trade is a 3 (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 generated a buy signal on the weekly closing chart, having made a new 11-week high and above the previous high weekly close at 38.96. The stock closed near the highs of the week, suggesting further upside above last week's high at 40.00 will be seen this week. In addition, the stock opened on Friday at the 200-day MA, currently at 39.00, and moved up from there throughout the day, meaning that the bears will need to push down just as hard on Monday to negate the breakout and that is unlikely to happen. By the same token, in spite of the positives seen on Friday, the bulls were unable to break the decent intra-week resistance at the $40 demilitarized zone, meaning that they were unable to make a clear statement on Friday. Resistance is found at the $40 demilitarized zone and minor but likely pivotal at 40.74, meaning the bulls will need to break above 40.74 to bring in new buying interest. To the downside, there is very minor support at 38.60 and minor at 37.90. Minor to decent support is found at 37.06. With such a big spread between support and resistance, the probabilities favor volatility being seen, meaning that the onus is still on the shoulders of the bulls. Probabilities are about even this week, mostly because of the weakness expected to be seen in the indexes. ARNA made a new 8-week high at 1.42 (above the previous one at 1.41) but the breakout did not generate any new buying interest. As such, the stock remains in the bull flag, which means in a trading range between 1.27 and 1.41. The stock closed in the middle of the week's trading range, meaning that both last week's high at 1.42 and last week's low at 1.31 are at risk of being broken. The stock closed on the lows of the day on Friday, suggesting the first course of action on Monday will be to the downside. Minor intra-week support is found at 1.34. The chart is still angled positively for the bulls, suggesting that after some early week weakness that the stock will end up rallying by the end of the week and that a break out of the flag formation will either happen this week or the next. Probabilities favor the bulls. AXP made a new 22-month weekly closing high, above the 2 previous weekly closing highs at 79.59 and at 79.88. The stock closed near the highs of the week, suggesting further upside above last week's high at 80.73 will be seen this week. On a weekly closing basis, the stock is still showing resistance at 80.91 and at 81.25 and on an intra-week basis, there is still resistance at 81.39 and decent between 81.65 and 82.00, meaning that the bulls still have more to do if they want to generate "new" buying interest. The stock has generated 6 green daily closes out of the last 7 days but still finds itself in a 2-point downtrend using the March 1st high at 82.00 and the April 25th high at 81.39. The line connects this week at 80.94, making that level a likely upside objective for this week. It should also be mentioned that the second point on the downtrend line at 81.39 was also arrived at with a swift rally from 75.51, much like what has been seen during the past 7 days. It all means that the bulls have not yet done enough to suggest that much more will be seen. With the index market likely to head lower, the probabilities slightly favor the bears for a red weekly close on Friday. CLF generated an inside week but a green weekly close and near the highs of the week, suggesting further upside above last week's high at 6.33 will be seen this week. The green weekly close means that the previous week's close at 5.69 is now considered a successful retest of the decent weekly close support between 5.34 and 5.52 that has held up to stock for the past 50 weeks. Nonetheless, the bulls have more work to do as they need to generate a weekly close above 6.49 in order for a buy signal to be given and new buying interest seen. The stock did close on the lows of the day on Friday and the first course of action for the week is likely to be to the downside, below Friday's low at 6.00, which would not be a bad thing since the double bottom on the daily chart at 5.61/5.63 still needs to be retested successfully. A drop below Friday's low would be an opportunity for a retest to occur. Intraweek support is found at 5.97 and then nothing until 5.69. To the upside, short-term pivotal resistance is found at last week's high at 6.33, which if broken would also cause the 200 60-minute MA to be broken, currently at 6.22, which is a line that has only been broken once during the past 16 weeks and then only for 4 hours. A break of the line in conjunction with a break above 6.33 would suggest the downtrend is over. Probabilities slightly favor the bulls this week. ENG generated a spike up rally on Friday, having made a new 10-day high at 1.40, suggesting the recent low at 1.16 is now considered support. Nonetheless and on a possible negative note, he stock closed in the lower half of the week's trading range, suggesting that the probabilities favor more a drop below last week's low at 1.16 than a rally above last week's high at 1.40. By the same token, with such small volume being seen (around 18k per day), it is doubtful that there is much "chart trading" going on, meaning that the spike rally is probably more indicative than where the stock closed on Friday. By the same token, the bulls still need to generate a failure signal with a weekly close above 1.29, meaning that not enough was done this past week to say that the worst is over. FCEL generated an uneventful week, at least as far as the weekly close is concerned, but the stock did get down to .95 on Thursday and then closed in the upper half of the week's trading range on Friday, suggesting that not only further upside above last week's high at 1.15 will occur this week but that the all-time low at .80 has now been tested successfully and that a bottom has been built. Resistance remains decent at 1.20. Closure of the gap up at 1.55 would be a strong positive signal. A break below .95 would give the edge back to the bears. Probabilities favor the bulls this week. GS has been in a zig-zag downtrend for the past 11-weeks with the stock generating alternating red and green weekly closes either every week (the last 5 weeks ) or every 2 weeks but with lower highs and lower lows. Nonetheless, the stock generated a green week (5 green daily closes in a row) after testing successfully the 200-day MA, currently at 214.80, meaning that the bounce this past was more chart oriented than fundamental. The stock did close near the highs of the week, suggesting further upside above last week's high at 223.85 will be seen this week but there is important and pivotal intraweek resistance at 225.45 that the bulls need to break to generate new buying interest. The stock is now at an important pivotal area given than it closed 2 weeks ago at 213.31 and with the green close on Friday, that close is now a successful retest of the previous 9-year high weekly close from June 2015 at 213.17. As such and on a weekly closing basis, a close next Friday above 223.53 or below 213.31 would be strongly indicative of what to expect for the next 4 weeks or more. A close above 223.53 next Friday would suggest a recovery phase with $247-$250 as the upside objective. A close next Friday below 213.17/213.31 would suggest further downside with perhaps the 200-week MA, currently at $184, as a possible downside target. A stop loss needs to be placed at 225.55. KO generated a negative reversal week, having made a new 13-month high and then going below the previous week's low and closing in the red, near the lows of the week, suggesting further downside below last week's low at 44.97 will be seen this week. More importantly, the red weekly close made last week's close at 45.89 into a successful retest of the decent weekly close resistance between 45.83 and 45.99, meaning that there is now a confirmed brick wall at that level that will require a positive fundamental change to break. The stock gapped down on Tuesday between 45.78 and 45.70 after a downgrade of the stock occurred. With the stock having closed on the highs of the day on Friday, the first course of action is likely to be a retest of the gap area with a rally up close to 45.70. Nonetheless, if the bulls fail to close the gap the selling interest is likely to increase and with no support of consequence below until 43.94 is reached, the stock could end up having another strong spike down week. Intra-week resistance remains strong at 46.06. Stop loss should remain at 46.11. RIG generated another red weekly close, the 5th in a row and the 9th out of the last 10 weeks, meaning that the selling pressure remains. Nonetheless, on Friday the stock generated a key reversal, having made a 52+week low and then closing above Thursday's high. In addition, it did it with a spike in volume (largest in 2 months), suggesting that a major low has been made. It does need to be mentioned that the all-time weekly closing low is 8.00 and the 23-year weekly closing low is 8.33 (seen in February of last year) and having gotten down to 8.38 this past week, it does suggest that the fundamental picture of the company needs to be the worst ever in order for the bears to be successful in taking the stock any lower. The stock did close near the highs of the week (first time in the last 9 red weekly closes), suggesting further upside above last week's high at 9.21 will be seen this week. Intra-week resistance is found at 9.21 and at 9.35 but they are both minor and then nothing above until minor again resistance is found at 9.72. A daily close above 9.10 will give a minor buy signal but one that would also generate a failure to follow through signal for the bears. A close above 9.10 would suggest that the stock will get up to at least the $10 demilitarized zone (9.70-10.30). Nonetheless, on the weekly closing chart, a close above 9.10 would open the door for a rally to 10.66 as there is no resistance between those 2 levels on that chart. Chart does suggest that if a bottom has been found that a short-covering rally would occur with a upside objective of at least 12.70, based on a weekly close. Any break below last week's low at 8.38 would now be considered a negative, given the key reversal seen on Friday. Probabilities now favor the bulls. X generated the third green weekly close in a row and once again closed near the highs of the week, suggesting further upside above last week's high at 22.65 will be seen this week. The upside target is highly likely to be getting back to the 200-week MA, currently at 23.55, to retest the line to see how much strength the bears still have. The stock made a new 27-trading day high on both Thursday and Friday but on Friday a reversal day occurred, suggesting the first course of action for the week will be to the downside. Intra-week support is found at 19.99 that is not likely to be broken, meaning that it is likely the traders will be targeting the 200 60-minute MA, currently at 20.60, which is a line that had not been broken to the upside until Thursday (stock had traded below that line for at least the past 10 weeks) but that is likely to be tested before further upside occurs. Probably trading range for this week based on the chart and last week's trading range is 20.65 to 23.30. The gap between 30.06 and 24.47 remains a major obstacle, though if the bulls can get above 24.47 there is no resistance above until 27.64. ZIOP made a new 19-week low this past week and closed near the lows of the week, suggesting further downside below last week's low at 5.53 will be seen this week. In addition, a sell signal was given on the weekly closing chart when the stock closed on Friday below the low weekly close for the past 5+ months at 5.88.On another negative note, the stock broke an 11-month uptrend line, which was also considered the side of an inverted pyramid pattern, meaning that the bulls have lost their edge and that the stock is now in a clearly defined sideways trend between 4.50/5.00 and 7.50. Nonetheless and in spite of the negatives mentioned above as well as the fact the stock has generated 4 red weekly closes in a row, the bears were only able to get the stock 6 points below the previous week's low, suggesting that there is some buying interest at these levels. Intra-week support is presently found between 5.26 and 5.34 and resistance will now be decent between 6.15 and 6.25. Probabilities favor the stock trading sideways for the next couple of weeks between 5.30 and 6.25 and then generating a new small leg down. I will be looking to liquidate my positions this week, hopefully around the entry point at 5.80 or slightly higher.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .09 (new price 1.10). 2) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at 1.24. 3) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.36. 4) CLF - Averaged long at 8.96 (3 mentions). No stop loss at present. Stock closed on Friday at 6.09. 5) GS - Shorted at 222.88. Stop loss at 225.55. Stock closed on Friday at 222.44. 6) X - Averaged long at 29.765 (4 mentions). No stop loss at present. Stock closed on Friday at 21.82. 7) AXP - Liquidated at 78.74. Averaged short at 77.10. Loss on the trade of $328 per 100 shares (2 mentions) plus commissions. 8) RIG - Averaged long at 9.22 (3 mentions). Stop loss now at 8.28. No stop loss at present. Stock closed on Friday at 8.81. 9) AMTD - Shorted at 38.97. Averaged short at 38.275. Stop loss now at 37.58. Stop loss now at 40.84. Stock closed on Friday at 39.76. 10) KO - Shorted at 45.48. Stop loss at 46.11. Stock closed on Friday at 45.32. 11) AXP - Shorted at 80.03. Stop loss at 81.49. Stock closed on Friday at 80.31. 12) ZIOP - Purchased at 5.80. No stop loss at present. Stock closed on Friday at 5.59.
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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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