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Issue #517 
Mar 05, 2017 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Top to Rally in View!
DOW Friday closing price - 21005
The DOW made another new all-time intra-week and weekly closing high and closed in the upper half of the highs of the week, suggesting further upside above last week's high at 21169 will be seen this week. The index has now made a new all-time intra-week and weekly closing high on 13 out of the last 17 weeks and has rallied 3286 points (a 18.3% rally) since Trump got elected.
The DOW did start to falter this past week as the index barely closed in the upper half of the week's trading range and that is the first time it has happened in the past 9 weeks. Every other week for the past 9 weeks, the index either closed on the highs or near the highs of the week. On Friday, the index traded below 21972 (midpoint of the week's trading range) for at least an hour and had to rally late in the day to close above it. It does suggest that the bulls are running "out of fuel" to keep the runaway freight train moving forward.
In 1999, when the DOW punched through 10,000 the first time, the index rallied straight up 1130 points to 11130 and in the process generated a high weekly close at 11007. The index saw the 1130 intra-week high the week after the weekly close, meaning that the week when 11130 was seen turned out to be a negative reversal week. This time, the index has so far rallied 1169 points above 20,000 and closed on Friday at 21005 (which is almost exactly the rally seen in 1999, based on the weekly close). If the scenario is duplicated, it would mean the index would make a new intra-week high this week (above 21169) and generate a red weekly close on Friday. In 1999, the index then corrected 721 points over the next 3 weeks before once again resuming the uptrend and making another new all-time high at 11365.
To the upside and on an intra-week basis, the DOW now shows minor resistance at 21169 and perhaps some "general" resistance again 21,300.
To the downside and on an intra-week basis, the DOW now shows very minor but possibly short-term pivotal support at 20733. Below that level, there is minor support at 20532 and then nothing until the 20000 demilitarized zone (19970-20030) is reached. Further support is found at 19831 and minor to perhaps decent as well as pivotal at 19784.
The momentum to the upside in the DOW has started to ebb as the index seems to have overrun the present fundamental picture and with a Fed interest rate hike likely to occur on March 15th (now a 90% probability) the chances of the rally to new all-time highs continuing have dropped considerably. With the index having reached the same point rally that was seen the first time it got above 10000, the probabilities have increased that either the top to this rally has been found or will be found this coming week. With the bulls having been successful in rallying the index on Friday to close in the upper half of the week's trading range and with no economic reports of consequence due out the first 2 days of the week, probabilities favor the bulls getting above last week's high at 21169 at the beginning of the week (perhaps up or close to the general resistance at 21300) but then generating a red close on Friday.
SPX Friday closing price - 2383
The SPX made a new all-time intra-week and weekly closing high and closed on the upper half of the week's trading range, suggesting further upside above last week's high at 2400 will be seen this week.
The SPX has now gotten to within 28 points of its upside flag objective at 2428 but the hesitancy seen in the action on Friday and the looming anticipation of the Fed raising interest rates in 10 days suggests the bulls may fall short by a few points of reaching that goal.
To the upside and on an intra-week basis, the SPX shows minor resistance at 2400 and possibly "general" resistance at 2430.
To the downside and on an intra-week basis, the SPX will now show very minor but possibly pivotal support at last week's low at 2358. Further minor but likely short-term pivotal support is found at 2352 and then minor again at 2322. Below that level, there is minor support at 2285 and likely short-term pivotal at 2267/2271. On a daily closing basis though, important support will be found at 2298 (top of the flag).
The SPX generated a gap last week between 2367 and 2375 and there is no valid reason for the gap to stay open, meaning that a drop down to 2367 is likely to be seen either this week or the following. With the index having had a trading range last week between 2358 and 2400, if the gap is closed this week, the trading range could be something like 2367 to 2409. If not closed this week, it would probably be closed the week after and that scenario would suggest that a top to this rally has been found.
NASDAQ Friday closing price - 5870
The NASDAQ made yet another new all-time intra-week and weekly closing high last week and closed in the upper half of the week's trading range, suggesting further upside above last week's high at 5911 will be seen this week. Nonetheless, the index once again showed a bit of weakness, having made the new all-time intra-week high on Wednesday and then failing to go higher the rest of the week and trading below the midpoint of the week's trading range for all but 40 minutes on Friday.
The NASDAQ once again let the DOW lead the market this past week, suggesting the traders are turning conservative (rather than speculative) in their purchases.
To the upside and on an intra-week basis, the NASDAQ now shows minor resistance at 5911. Above that level there is no resistance until psychological resistance is found at the 6000 demilitarized zone.
To the downside and on an intra-week basis, the NASDAQ now shows very minor support at 5817 and minor but short-term pivotal support at 5800. Below that level, there is very minor support at 5649 and again at 5616 and minor to perhaps decent but short-term pivotal at 5576.
The NASDAQ is now showing that the 5800 level is a pivotal support level that if broken would likely push the index down to at least the "general" support at 5700. Nonetheless, the fact that the bulls were able to rally the index on Friday to close in the upper half of the week's trading range suggests that the bulls will try to keep the momentum going this week and generate another new all-time high. By the same token and like with the other indexes, the action does suggest that the NASDAQ is now close to a top to this rally, meaning that a new high would probably be used by the traders to take profits and possibly institute new short positions.
The "runaway freight train" continued but the speed started to slacken considerably, given that all the indexes struggled this week to close in the upper half of the week's trading range, unlike what has happened the past 7 weeks. The looming interest rate hike that is likely to happen on March 15th is certainly one of the factors causing the slowdown. Nonetheless, it also can be said that from a chart perspective, upside objectives have been reached and with no fundamental changes having occurred yet, the bulls may have run out of ammunition to keep the uptrend moving forward.
The Jobs report is the big economic report due out this week but it doesn't come out until Friday and even then it is unlikely that there will be any big surprises in either direction, meaning that it is not likely to have a strong effect. By the same token, with the PPI and CPI reports due out early next week and the Fed likely to raise interest rates on Wednesday, March 15th, the probabilities favor the indexes generating a negative reversal week and a red close next Friday.
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Stock Analysis/Evaluation
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CHART Outlooks
The indexes are nearing upside objectives and when reached the market is likely to experience a correction of some consequence, especially considering that there has not been any pullback (not even 2%) for the last 3 months. The only question being is "how soon will those objectives be reached? Will it be this week or next, or the one after?" The probabilities now favor this coming week being the top to this rally and a small correction occurring. As such, all mentions this week will be sales, albeit short-term sales.
SALES
CAT Friday Closing Price - 95.12
CAT broke out of a bullish flag formation 6 weeks ago but a failure signal was given the very next week, suggesting that the bulls have run out of ammunition, especially considering that the index market continued higher.
Over the past 5 weeks, CAT has traded sideways between 92.11 and 99.46 but 3 weeks ago a new attempt was made to get the uptrend moving forward with a rally to 99.07 and that rally also met with failure as the stock has shown 2 red weekly closes since. As such, a failure signal was given and now a successful retest of the breakout high has been made, suggesting the traders will now try the downside, especially if the indexes start a correction.
To the upside and on an intra-week basis, CAT shows resistance at 98.97, at 99.20 and at 99.46. Above that level, there is no resistance until minor at 102.47 and decent at 107.12.
To the downside and on an intra-week basis, CAT shows 92.84, at 92.11, and pivotal at 91.00. Below that level, there is no previous intra-week support until 80.00 is reached.
CAT gapped up on November 9th (due to the Trump win) between 85.00 and 89.36 and that gap has been successfully tested twice. Nonetheless, with the recent failure to follow through and the news that came out this week about a Federal raid regarding its off-shore tax practices, the stock now finds itself likely to test the gap again and perhaps close it if the indexes generate a correction.
Downside objective for CAT could be as much as the 80.00 level but the bears will have trouble getting below the 200-day MA, currently at 86.25 and generating a weekly close below 88.63, a level that was the high weekly close for 2 years between December 2014 and November 2016 that when broken generated the rally up to 99.46. By the same token, if the Federal raid that occurred last week finds some fundamental negative that causes the company some fine or worse, that level would likely be broken, meaning that a drop down to $80 is not beyond the scope of reality.
CAT did close in the lower half of the week's trading range but did generate an inside green close day on Friday, suggesting the first course of action for the week will be to the upside, with the 97.00 level as the likely objective. Such a rally will likely be used by the traders to short the stock
Sales of CAT above 96.70 and using a stop loss at 100.35 and having an 86.25 objective will offer a 3-1 risk/reward ratio.
My rating on the trade is a 3.5 (on a scale of 1-5 with 5 being the highest).
CVX Friday Closing Price - 113.55
CVX broke above the 200-week MA, currently at 108.80, a couple of weeks after Trump won the election but the stock had traded below the line for the 2 years prior to its breakout, meaning that this latest part of the rally can be attributed mostly to the change of Administration.
For the past 15 weeks CVX has traded above the MA line, having gotten up to a long term established resistance level at $120, having rallied 11 weeks ago to $119. Evidently though, the fundamentals did not support such a price since the stock has generated a drop back down to the MA line and 9 red weekly closes in the process in spite of the indexes continuing to make new all-time highs every week during that period of time. This scenario was borne out when the company reported less than expected earnings on January 26th and gapped down between 116.50 and 114.70.
CVX generated a bounce last week off of the 200-week MA, and closed in the green for the first time since the 3rd week of December and closed near the highs of the week's trading range, suggesting further upside above last week's high at 114.39 will be seen this week. Nonetheless, selling interest was seen as the stock neared the gap and the stock generated a red close on Thursday and an uneventful day of Friday. The bulls are likely to try to close the gap again this week if the indexes rally but closure of the gap is the big question.
To the upside and on an intra-week basis, minor resistance is found between 114.39 and 114.70 and then nothing until minor resistance at 116.99 and pivotal resistance at 117.82. Above that level, resistance is found at 119.00 and at the $120 demilitarized zone.
To the downside and on an intra-week basis, CVX minor support at 110.84 and decent as well as short-term pivotal at 109.27. Further support is found at 108.40, both intra-week and on a weekly closing basis (from the 200-week MA). Below that level, it is open air until the $100 level is reached.
Last week's bounce off of the MA line and spike up rally and green close is likely to end up being the retest of the 119.00 level, which has not been tested since it was made in November. The only question this week is whether the gap will be closed or not. Either way though, there are good reasons for shorting the stock, especially if the gap is not closed.
Sales of CVX above 114.39 and using a stop loss at 117.92 and having a 100.00 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).
DD Friday Closing Price - 79.60
Two weeks ago, DD got up to the 19-year intra-week high (made in March 2015) at 80.65 with a high of 80.66. The stock closed near the highs of the week but failed to follow through last week, having generated an inside week and a red close, meaning that a double top on the intra-week chart is now in place.
It is evident that this price level ($80) in DD is a major obstacle, given that the previous all-time intra-week high made in 1998 was at 80.21, suggesting that for the past 20 years the $80 level has been the top for this stock.
DD closed near the highs of the week on Friday and further upside above last week's high at 80.14 is likely to be seen this week. Nonetheless, if the stock does get above 80.14 but not above 80.66, the double top will have been tested successfully and a strong profit taking binge is likely to occur.
To the upside and on an intra-week basis, DD shows resistance at 80.21 and then stronger at 80.65/80.66. Above that level, there is no resistance.
To the downside and on an intra-week basis, DD shows pivotal support at last week's low at 78.30. Below that level, there is minor to perhaps decent support at 76.81 and then decent at 75.00. Further decent support is found at 72.23 and then again at the $70 demilitarized zone that includes the 200-day MA, currently at 70.50.
The resistance at $80 in conjunction with a high probability that the indexes will begin a correction within the next 10 days, makes this an attractive short even though DD has been on a tear to the upside, having rallied 18% since Trump got elected.
Sales of DD above 80.12 and using a mental stop at 80.75 and having a downside objective of 70.00 will offer a 15-1 risk/reward ratio. I do suggest using a mental stop as the stock could make a new all-time high (like the indexes are expected to do) before turning down. As it is, the risk/reward ratio is so good that an additional $2 could be risked to the upside and still 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).
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Updates
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| Monthly & Yearly Portfolio Results
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Closed Trades, Open Positions and Stop Loss Changes
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Status of account for 2007: Profit of $9,758 per 100 shares after losses and commissions were subtracted. Status of account for 2017, as of 2/1 Loss of $2621 using 100 shares per mention (after commissions & losses) Closed out profitable trades for February per 100 shares per mention (after commission)
CNX $8
Closed positions with increase in equity above last months close minus commissions. NONE Total Profit for February, per 100 shares and after commissions $8 Closed out losing trades for February per 100 shares of each mention (including commission)
DIOD (long) $71
XOM (long) $113 HON (short) $54 CLB (long) $446 Closed positions with decrease in equity below last months close plus commissions. XOM (long) $177 Total Loss for February, per 100 shares, including commissions $861 Open positions in profit per 100 shares per mention as of 2/28
BWA (long) $46
Open positions with increase in equity above last months close.
CLF (long) $378 MT (long) $495 ARNA (long) $16 X (long) $601 BWA (long) $272 FSLR (long) $2500 FCEL (long) $1 Total $4998 Open positions in loss per 100 shares per mention as of 2/28
NONE
Open positions with decrease in equity below last months close.
LVLT (long) $221 Total $740 Status of trades for month of February per 100 shares on each mention after losses and commission subtractions.
Profit of $3405
Status of account/portfolio for 2017, as of 2/28Profit of $784 using 100 shares traded per mention.
ARNA generated a positive week in which the stock spiked up and got up close to the recent high at 1.66 with a rally up to 1.63. Nonetheless, the bulls accomplished nothing other than to set up the stock for some clarity of direction after the earnings report that comes out Monday after the close. The chart remains the same as the previous week with 1.34 and 1.66 being the levels that if broken would likely see follow through in that direction. Probabilities slightly favor the bulls but then the decision is based on an earnings report and as such, somewhat unpredictable.
BWA made a new 15-month intra-week and weekly closing high and closed near the highs of the week, suggesting further upside above last week's high at 43.43 will be seen this week. The down move seen the previous week was negated and the stock seems to be continuing the uptrend off of the break of the bullish flag that offers an objective of 46.44 this week and a 47.74 objective within 3 weeks. Support is now pivotal at 41.23, meaning that the stop loss can be raised to 41.13. Probabilities strongly favor the bulls this week. CCJ generated a small negative week and a close near the lows of the week, suggesting further downside below last week's low at 10.79 will be seen this week. Nonetheless, the overall action seen the past 8 weeks has been positive, suggesting the end result of the backing and filling being seen right now will be resumption of the recent uptrend. Intra-week support is minor to perhaps decent at 10.41 and decent at 10.31/10.34. The chart suggests that the stock will get down this week to the 10.40-10.70 level but then turn around with the bulls targeting the recent high (and triple top) at 13.36 for breakage and thereafter attempt to reach the 200-week MA, currently at 15.65. In fact, any drop down to 10.50 should be bought with a stop loss at 10.21. Probabilities favor the bears this week but only for a drop below last week's low. CLF generated a failure signal this past week, having closed below the 200-week MA, currently at 10.65. The stock closed near the lows of the week and further downside below last week's low at 9.76 is expected to be seen. Nonetheless, the failure signal was not unexpected, given that the break of the MA line 4 weeks ago was the first break in 58 months and its unusual for such an important long-term trend line to be broken and stay broken the first time around (usually takes 2-3 attempts before it becomes a fact). The stock got into the gap area between 9.52 and 9.95 that was created when the last earnings report came in better than expected, with a drop down to 9.76. Nonetheless, the stock generated a positive reversal day on Friday, having made a new 16-day low but then closing in the green and near the highs of the day, suggesting the first course of action for the week will be to the upside and above Friday's high at 10.23. There is minor to perhaps decent intra-week resistance at 10.90 and then pivotal at 11.23 that if both get broken, it would suggest no further downside will be seen. The failure to close the gap on Friday is a positive as it was a gap created off of a good earnings report and could be considered a breakaway gap. This week will be all about the gap and the resistance at 11.23. Probabilities do not favor the gap being closed. CNX generated another negative week in which the break of the weekly close support at 16.41 seen 2 weeks ago was confirmed with a second red close in a row and the decent 8-month intra-week support at 15.41 was broken as well. The stock closed near the lows of the week and further downside below last week's low at 15.22 is expected to be seen. The break of all recent supports has put the bears in control and the bulls on the defensive, trying to find a level of support where they can attempt to turn this short-term downtrend around. Psychological support will be found at the $15 level but previous weekly close support is not found until 13.38 is reached (12.69-13.36 on an intra-week basis). If the bulls are not able to generate a positive reversal week or the 14.70 level of general support is broken, a drop down to the low 13's is likely to be seen. On a possible positive note, this stock should be positively sensitive to inflation and the PPI and CPI numbers come out the following week on Monday and Tuesday. In addition, the stock rallied from 4.54 to 22.34 without any correction of consequence and that means that the probabilities favor this move down simply being a correction in a mid-term bull run rather than a sign of overall weakness. Due to the risk/reward ratio for the longer term strongly favoring the bulls, I will continue to hold the long positions for now. ENG did not follow through to the downside off of the previous weeks fall and close near the lows of the week and generated a non-eventful inside week but with a green weekly close which suggests the worst of the recent short-term downtrend is over. The stock closed near the lows of the week and further downside below last week's low at 2.25 will be seen this week. Nonetheless, the chart suggests that if that does occur that it would simply be a retest of the recent 2.07 low and from which a rally to test the recent highs at 3.10 would occur. Intra-week support is found between 2.16 and 2.21 and pivotal intra-week resistance is found at last week's high at 2.52. The chart scenario is for the stock to get down to somewhere between 2.16 and 2.21 and then rally to close in the green next Friday, above Friday's close at 2.28 and the following week generate a strong rally with a 2.89 objective. FCEL generated a small buy signal on both the daily and weekly closing charts, having closed on Friday above the most recent high weekly close at 1.60 and above the high daily close for the past 6 weeks at 1.67. The stock closed on the highs of the week and further upside above last week's high at 1.75 is expected to be seen this week. Minor intra-week resistance is found at 1.80 and then nothing until minor to perhaps decent at 2.05 and decent as well as pivotal at 2.30. The stock has now successfully tested the all-time low at 1.25 on the daily chart (not the weekly chart), suggesting that this rally does have some legs, at least for a rally up to 2.05. Intra-week support is now minor to decent at 1.50 and strong at 1.25. Probabilities favor the bulls this week. FSLR received another downgrade this week and the bulls were unable to follow through on last week's strong rally, giving up 90% of the rally seen the previous week. The stock closed near the lows of the week and further downside below last week's low at 34.28 is expected to be seen this week. The downgrade company offered a $21 downside objective and therefore what the stock does this week is pivotal. Short-term pivotal support is found at 33.49 that if broken would suggest further downside to 31.94. Decent and definitely longer term pivotal support is found at 30.34 that if broken would suggest new lows below November's low at 28.60 would be seen. Intra-week resistance is again found at 35.52, at 36.41 and at 36.86. The move down this past week was not totally unexpected given that the stock got up close to the 200-week MA, currently at 39.05, as well as up to the gap between 38.60 and 40.32 that was created in November when the previous earnings report was negative. The chart suggests that either this week or next week some type of decision will be made, either to resume the downtrend or to stay in this $10 sideways trading range between 28.60 and 38.60. The bulls will have the onus on their shoulders this week and must defend the 33.49 level. Consideration can be given to partially liquidating some of the held positions if the stock rallies back up near the $37 level as the longer term chart seems to continue to favor the bears, especially with the downgrade given. LVLT made a new 3-month low last week and broke the bottom of an inverted flag formation that offers a 54.79 objective. The stock closed near the lows of the week and further downside below last week's low at 56.62 is expected to be seen this week. The stock did rally enough on Friday to close slightly in the upper half of the day's trading range, suggesting the bulls may try to negate the break this week (perhaps as early as Monday) and if they do, new buying will likely occur. The bulls need to generate a rally above 57.48/57.59 and a daily close above 57.30 to negate the break. Probabilities favor the bears but given that the indexes are expected to rally at the beginning of the week, the bulls have a "fighting chance" to undo the negative action seen last week. MT had a puzzling inside week, given that it did not go below the previous week's low as was expected but also did not go above the previous week's high. The stock generated a green weekly close that suggests that last week was mostly a chart building week in which weekly close support and resistance are now set at 9.11 and 8.64 that will dictate the short-term direction. The chart is starting to suggest that a correction of some consequence may be in the making but given the fundamental picture for inflation rearing up and the fact this stock would likely react positively to inflation, the traders are mixed as to what the immediate short-term direction will be. Upside objective is the 200-week MA, currently at 10.30, that is unlikely to be broken unless inflation becomes a problem. Downside objective is likely to be the 7.00 level though further downside down to 5.00 could occur if the 7.00 level does not hold up on a weekly closing basis. With the stock closing at 8.90 on Friday, there is more risk than reward, meaning consideration should be given to liquidating the positions if any new weakness is seen. A stop loss at 8.48 should now be considered. X had a non-eventful inside week but did generate a green weekly close that suggests that the previous week's low at 35.71 (37.01 on a weekly closing basis) is now a pivot point for short-term direction. The action seen in the stock the past 3 weeks points to confusion among the traders. Trump's assertion that U.S. steel will be used exclusively for American projects is in doubt given that about 40% of the steel being used on the Canada-U.S. pipeline is Chinese. The chart now has support/resistance levels at 41.83 and 35.74 that when broken will likely generate at least a $5 additional move in whatever direction is broken. Due to inflation, Trumps support of U.S. Steel, as well as 14-month uptrend, the probabilities favor the bulls. Nonetheless, if the indexes do get into a corrective mode as I believe they will, the stock could drop down to the $30 level before new buying interest is seen. As such, a stop loss at 35.64 should now be in place.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .145 (new price 1.75). 2) CCJ - Averaged long at 10.47 (2 mentions). Stop loss at 9.65. Stock closed on Friday at 10.87. 3) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 2.28. 4) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.54. 5) MT - Averaged long at 6.244 (5 mentions). Stop loss now at 8.48. Stock closed on Friday at 8.90. 6) FSLR - Averaged long at 39.938 (6 mentions). No stop loss at present. Stock closed on Friday at 34.61. 7) LVLT - Purchased at 59.11. No stop loss at present. Stock closed on Friday at 56.84. 8) CLF - Averaged long at 9.06. Stop loss at 9.52. Stock closed on Friday at 10.12. 9) CNX - Averaged long at 20.05. No stop loss at present. Stock closed on Friday at 15.45. 10) X - Purchased at 33.03. Stop loss now at 35.61. Stock closed on Friday at 37.74. 11) BWA - Averaged long at 40.856 (3 mentions). Stop loss now at 41.13. Stock closed on Friday at 42.96.
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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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