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Issue #518 
Mar 12, 2017 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Correction Started? Fed Rate Decision Might be Catalyst!
DOW Friday closing price - 20902
The DOW generated the first red weekly close in the past 5 weeks, seemingly stalling the "runaway freight train" momentum that the index had been in. Nonetheless, the index did not receive any negative catalytic news and did close in the upper half of the week's trading range, suggesting that it may have been more of a temporary pause to see what the Fed is going to do next Wednesday than any clear sign that the index has found a top to this rally and is ready for a correction.
On the other hand, the DOW generated a 1135 point rally above 10,000 the first time it broke that psychological barrier and the intra-week high seen last week was 21,169 (1169 points above 20,000), meaning that the index has rallied slightly more than it did then, giving support to the idea that further upside will be labored and time consuming and that it will occur with peaks and valleys being seen (rather than straight up).
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 minor but likely short-term pivotal support at last week's at 20,777. 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 DOW was under some sell pressure all week, given that on Monday it started the trading week breaking the 200 10-minute MA, currently at 20910, and that break was maintained all week. That line had not been broken for the previous 13 trading days and therefore had some short-term meaning. The index closed "on the line" on Friday, suggesting that the action tomorrow could determine the mood of the traders for the beginning of the week.
Chart-wise, the bulls in the DOW must maintain the upside momentum or face a corrective phase. In 1999, the index dropped down 722 points over a period of 3 weeks once the momentum stopped. Based on the close in the upper half of the week's trading range, last week's low at 20,777 will be short-term pivotal support this week. A break of that low will be a clear sign to the traders that the index is now in a peaks and valleys (backing and filling) scenario rather than in the runaway freight train track it has been on.
On the other side of the coin, should the DOW make a new all-time high above 21,169, especially if it occurs after Wednesday's interest rate decision, the upside momentum will return and with no resistance above, the index could be looking at the runaway train gathering new strength.
Probabilities favor the bulls this week but given that there is an important event occurring (FOMC meeting), nothing of consequence or indicative power is likely to happen until Wednesday.
SPX Friday closing price - 2372
The SPX generated the first red weekly close in the past 7 weeks but the bears were unable to make it a statement, given that the index closed near the highs of the week and further upside above last week's high at 2378 is expected to be seen this week.
The SPX rallied 194 points after the Trump election win and has now rallied 167 points since the mini-pause low at 2233 was made in December. The index still has a 2428 objective based on a bullish flag formation that was broken in January, which if reached would make the index rally the same 194 points that was seen at the beginning of the Trump win rally.
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 now shows short-term pivotal support at 2352/2354. 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 will likely be the key index this week, given that the FOMC interest rate decision on Wednesday will be best evaluated by the financial industry/stocks. A rate hike is the expected action but since it has likely been factored into the price already (market sees it as a 90% probability), the action immediately thereafter will determine if the traders see it as a positive (economy improving and banks to make more profits) or as a negative (more costly to borrow and therefore restrictive to growth).
The chart is now clearly defined, at least for the short-term with last week's low at 2354 as pivotal support and the all-time high at 2400 as pivotal resistance.
Probabilities favor the bulls in the SPX but with the likely catalyst being a fundamental report, it could go either way.
NASDAQ Friday closing price - 5861
The NASDAQ generated the 2nd red close in the last 10 weeks but like with all the other closes during that period of time, closed in the upper half of the week's trading range, suggesting further upside above last week's high at 5872 will be seen this week.
The NASDAQ slightly outperformed the other indexes having only dropped .2% compared with 1% for the DOW and .5% for the SPX. The outperformance was minor but given that the opposite has been happening during the past 3 weeks, it does suggest that the traders are leaning bullishly toward the overall market continuing higher this week.
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 minor support at 5812 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 a possible Head & Shoulders formation on the daily chart with the left shoulder at 5867, the Head at 5911, and the possible right shoulder at Friday's high at 5872 (or whatever high is seen this week if no new high above 5911 is made). The neckline is the line drawn between the 2 most recent lows at 5800 and at last week's low at 5812. In addition, the index has traded for the past 16 days in a mostly sideways trading action with a trading range of 111 points between 5800 and 5911, meaning that it is the only index that has built a clearly defined chart pattern that includes a meaningful support level. As such, it is the one the traders will be closely monitoring this week, especially if the support level (H&S neckline) is broken.
The H&S formation in the NASDAQ also offers a downside target if the neckline is broken, which is contrary to what the chart of the other indexes offer. A break of the neckline will give a 5700 objective, which is also where the "general" support is found. In fact, the formation in place not only offers a probable downside target but also a probable upside target, given that a break of 5911 would offer the 6000 demilitarized zone as a viable target/magnet. Simply stated, a break below 5800 or above 5911 would likely generate a 100 point move in whatever direction is broken.
Probabilities in the NASDAQ actually slightly favor the bears given the inability of the bulls to make new highs the last 9 days, the bearish H&S formation which has not yet been confirmed as one but is 95% built already, and the support level (neckline) that is clearly defined (unlike the other indexes).
The indexes paused this past week as the traders decided not to continue buying until the Fed rate decision is known (due out on Wednesday). Nonetheless, other than a pause week the bears were unable to accomplish anything of consequence, meaning that the runaway freight train slowed down but did not come to a full stop. By the same token, it has been expected that a correction would begin soon and there is a possibility that it has begun, if and when last week's lows are broken this week.
The FOMC rate decision on Wednesday is likely to dominate the attention of the traders but not so much as to whether the Fed will raise interest rates (already a 90% probability) but how much of that has already been factored into the price and what an interest rate rise this month will affect how many more raises there will be this year.
In addition, traders have already begun to have some doubts about the Trump Presidency, given that what they have already tried to do has run up again legal issues and what they have talked about doing (Obamacare replacement) is running into resistance from within their own party. Those issues will also be in play this week.
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Stock Analysis/Evaluation
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CHART Outlooks
This week the Fed will decide if a rate increase occurs in March and though it is anticipated that it will happen (90% chance) it is not known how the market will react to it. With the indexes and stocks generally heading lower last week it does not make sense to chase anything on the short side and purchasing at these lofty levels is also difficult to support because any negative catalyst could generate a strong move down.
I do have 2 buy mentions this week that are mostly based on inflation continuing to rise (which is something almost dependable now) and not on what the market does. Simply stated, they are not likely to be affected either way by the Fed rate hike.
PURCHASES
CLB Friday Closing Price - CLB
CLB is more sensitive to the price of oil than it is to the index market and the price of oil took a tumble last week due to the weekly inventory report that showed more oil is available than anticipated. Oil dropped about 10% in value from $54 to $49, gave a failure signal, and closed on the lows of the week, suggesting further downside will be seen this week. Nonetheless, OPEC has an agreement to cut oil production in order to maintain prices at these levels or higher and is not likely to let oil prices go much lower.
CLB reacted negatively to the oil fall, dropping from last week's close at 114.20 to 107.55 and has now dropped $12.33 cents over the past 2 weeks, which is also a 10% drop. The stock did see a late week bounce from 107.55 to close 2% above the lows of the week, though still in the lower half of the week's trading range, suggesting further downside below 107.55 will be seen this week but that there is some buying interest being seen as well as the stock nears the $107 level.
To the downside and on an intra-week basis, CLB shows minor to decent support at 106.92, at 105.49, at 102.50 and at 102.29. On a weekly closing basis though, there is minor to decent support at 104.76 and decent between 103.56 and 104.11.
To the upside and on an intra-week basis, CLB shows minor resistance at 116. 49, minor to perhaps decent between 118.03 and 118.87.
It is not likely that oil will fall below $44, meaning that another $5 drop is probably the most that it could drop. Though the probabilities do not favor oil resuming the uptrend at this time, it is probable that it will be trading between $44 and $54 for the next few months with the $50 being a repeatedly seen pivot point. As such, CLB is also likely trade in a similar trading range between $103 and $118, meaning it should be "traded" within those parameters.
CLB has an open gap down at 107.34 that is highly likely to be closed this week as there are no compelling reasons anymore (with oil giving a failure signal) for the gap to stay unclosed. Nonetheless, there is no support found on the chart until 106.15 is reached, meaning that closure of the gap is not likely to stop further selling from occurring. It does need to be mentioned that the support at 106.15 is on a daily closing basis, meaning that on an intra-day basis it might not mean much either. Nonetheless, that support does have some short-term consequences and is not likely to be broken unless there are some additional problems with the oil market. As such, the purchase price will be around that level even though lower levels might be seen intra-day.
Purchases of CLB below 106.30 and using a stop loss at 102.15 and having a 118.87 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).
CLF Friday Closing Price - 8.74
CLF is not a new mention since it is presently a held stock. Nonetheless, due to the fundamental picture suggesting that inflation will become a problem under the Trump Administration, this stock being tied to the commodity market and trading at the price where it is presently at, should be considered for adding positions.
CLF has been on a recent downtrend but the likely reason for that is that for the first time in 6 years the stock got up to and slightly above the 200-week MA, currently at 10.55, and it is always highly unlikely that such a long-term trend below the line will be broken the first time it is visited, especially if there has not been a major fundamental change. By the same token, once the line is visited and more importantly broken, as this stock did for 2 weeks in a row, the probabilities favor it being visited again and broken convincingly the second or third time around.
To the upside and on an intra-week basis, CLF shows minor resistance at 9.46, minor to perhaps decent at the $10 demilitarized zone, minor to decent at 10.90, and decent at 29-month high at 12.37 that was seen a few weeks ago.
This week is pivotal for CLF given that if the support at 8.28 is broken, it will be a short-term statement of weakness that should not be seen as long as inflation is a worry. As such and with the stock trading less than $.50cents from that level, it does open the door for a buying opportunity that not only has a very small risk factor but has a decent probability rating.
Purchases of CLF below last week's low at 8.64 and using an 8.18 stop loss and having at least a 10.90 objective will offer a 5-1 risk/reward ratio. If you wait to purchase the stock around the 8.43-8.45 level that has a decent probability of being seen, the risk/reward ratio will climb to over 9-1. In addition and on a longer term basis (6 months to 1 year), this stock has potential to get up to $15 and perhaps even $20, which would make this trade a home run.
My rating on the trade is a 4 (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 |
| ARNA generated an uneventful week in which it once again traded within the same 1.34 to 1.66 trading range it has been in for the past 16 weeks. The company will report earnings on Tuesday after the close (confirmed) and that will likely be the catalyst for movement. BWA bulls were unable to generate any follow through to the previous week's strong rally and close near the highs of the week, having generated and inside week and a red weekly close on Friday. It seems that the stock will follow whatever the index market does and as such, traders are waiting to see what happens after the FOMC rate decision on Wednesday. The previous week's high and low at 43.43 and 41.35 are now likely short-term pivotal resistance and support. A break above 43.43 would likely push the stock up to 44.35 and a break below 41.35 is likely to push the stock down to 39.53. The inability of the bulls to follow through now suggests that the stock is likely to mimic the 9-week trading range between 39.53 and 44.35 that was seen in late 2015. As such, the outlook/chance for a rally up to the $47-$48 level has now diminished. CCJ generated a positive reversal week, having made a new 4-week low and then closing in the green and in the upper half of the week's trading range, suggesting further upside above last week's high at 11.34 is likely to be seen this week. If that does occur, last week's low at 10.71 will become a successful retest of the midterm important support at 10.34. Minor intra-week resistance is found at 11.42 and then nothing until decent and likely short-term pivotal resistance is found at 12.37. Probabilities favor the bulls this week and a rally up to the 12.00 level. CLF has now given up all the gains it accomplished 4-6 weeks ago when the stock rallied from 8.45 to 12.37, having dropped this past week to 8.64. The stock closed on the lows of the week and further downside below last week's low at 8.64 are expected to be seen. The pullback from having reached and temporarily broken the 200-week MA for the first time in 5 years is not unexpected but if the 8.28t low from which the rally began is broken, a short-term sell signal will be given that would give a 7.00 objective. The probabilities do not favor the bears, especially since on Monday and Tuesday the inflation figures come out and that should give support to the bulls. The chart outlook for this week is for a drop down to around 8.58 and then a positive reversal week and a 9.42 high. Consideration can be given to adding positions around 8.60 and using an 8.18 stop loss. CNX generated another negative week in which the break of the 8-month intra-week support at 15.41 was confirmed. On a small positive note though, the next intra-week support on the weekly chart is not found until 13.36 and yet the bears have failed to generate enough follow through selling to take the stock down to that price, as the weekly chart suggests it should. The stock did get to a very minor support area at 14.70-14.78 with a drop on Thursday to 14.76, which was then followed by a positive reversal day, suggesting some buying interest is being seen at this level. The stock spent 9 days in May of last year trading between 14.78 and 15.94 and based on the action seen at the end of the week, probabilities favor that scenario being duplicated this coming week. Below 14.70, the stock shows nothing until the 13's are reached. As far as resistance is concerned, the 16.40 level is presently pivotal resistance that if broken would likely mean the stock would be resuming the uptrend. As such, the potential trading range for the next few weeks could be as low as 13.36 and as high as 16.40 with the trading range for this week likely being 14.70 to 15.94. ENG continued the recent down move and made a new 10-week intra-week low at 1.90. The stock did close near the lows of the week and further downside below 1.90 is expected to be seen this week. The stock did close at a pivotal weekly close support at 2.00 that suggests that this coming week could be a positive reversal week, going below 1.90 but then closing in the green next Friday. The move down to this level was not a big surprise as the 2.00 level of weekly close support was a magnet once the 4-point trendline at 3.10 held up. This support though, is considered strong, if and when the stock has indeed ended its 8-downtrend and is ready to start an uptrend. If the 2.00 weekly close support does not hold up, then the stock is likely to see a drop down to 1.28. As such, this coming week is pivotal, at least on a weekly closing basis. Intra-week support will be found at 1.70. Short-term but possibly longer term indicative resistance is found at 2.38. Probabilities favor the bulls this week. FCEL generated a negative reversal week, having made a new 6-week high but then closing in the red and below the previous week's low. The stock closed near the lows of the week and further downside below last week's low at 1.35 is expected to be seen. It is evident that the stock is facing an important week because the bears are attempting to resume the downtrend after 6 weeks of a pause period to get rid of the oversold condition. Nonetheless, the bulls have a level of intra-week support at 1.25 that if they are successful in defending would generate some "new" buying interest (not just short-covering). Intra-week support is found at 1.25 and intra-week resistance is found at 1.55. A daily close above 1.52 would be a small but positive statement by the bulls. Probabilities favor the bears but this is a pivotal week. FSLR gave a sell signal on the daily chart last Monday when it closed below the previous low daily close of consequence at 33.57. Nonetheless, the bears were not able to confirm that sell signal yet as the weekly close support at 31.48 was not broken. The sell signal on the daily chart does suggest that at the very least the stock is now in a sideways trading pattern with 35.52-36.41 being the top of it. Nonetheless, this coming week is longer term pivotal as a close next Friday below 31.48 would generate new selling interest and a likely resumption of the downtrend. The stock did close near the lows of the week and further downside below last week's low at 32.03 is expected to be seen. Intra-week support is found at 31.94 that if broken would suggest the 31.48 level would at least be visited. Probabilities favor the bears this week. LVLT generated what might end up being a low for the recent downtrend, having gotten down to the psychological support at $55 with a drop down to 55.25 and then a rally to close near the highs of the week, suggesting further upside above last week's high at 56.80 will be seen this week. The important thing to consider is that the stock closed above the previous 9-year high weekly close at 56.42 (closed on Friday at 56.47) and if a green close is made next Friday, it will suggest that the uptrend that started in October of last year remains intact as a successful retest of the previous important high will have been accomplished. Intra-week resistance is found at 57.59 and pivotal as 58.19. Intra-week support is decent at 55.25 and pivotal at 54.70. Probabilities favor the bulls this week. MT generated a small sell signal on the weekly chart, having closed on Friday below the previous low weekly close at 8.64. The stock closed near the lows of the week and further downside below 8.28 is expected to be seen this week. The next weekly close support level is at 7.92 and the probabilities favor the traders looking to at least test that area this week. The stock also gave a stronger sell signal on the daily closing chart, having closed not only below the most recent low daily close at 8.64 but also giving a failure signal by closing below the previous 2-year high daily close at 8.65. Minor intra-week resistance is found at 8.40 and decent as well as pivotal at 8.83. The stock might react positively to the inflation figures that come out on Monday and Tuesday but would likely react negatively to an interest hike on Wednesday, meaning that if the stock rallies at the beginning of the week up near 8.83 that consideration should be giving to taking profits. By the same token and taking into consideration last week's trading range (8.28-8.80), the probabilities do not favor a rally up to 8.80, meaning that "any" rally should be used as consideration for taking profits. Intra-week support is mid-term pivotal at 7.67 but any daily close below 7.92 would suggest that level would be broken. Probabilities favor the bears this week. X continued the recent short-term downtrend, having made a new 4-week intra-week and weekly closing low. The stock closed on the lows of the week and further downside below last week's low at 34.63 is expected to be seen this week. Minor intra-week support is found on the weekly chart at 32.93 and then nothing of consequence until decent and longer term pivotal between 30.57/30.71. Intra-week resistance is found at 39.14 and then decent at 41.83. Chart suggests that a drop down to at least 33.25 will occur. Nonetheless, this stock has long term potential due to inflation and the Trump promise to use U.S. steel for all infrastructure building and chart-wise, a break above 41.83 could happen within a couple of months and when it does, the upside target would become $55. Probabilities favor the bears this week.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .116 (new price 1.40 ). 2) CCJ - Averaged long at 10.47 (2 mentions). Stop loss at 9.65. Stock closed on Friday at 11.06. 3) ENG - Averaged long at 1.92 (3 mentions). No stop loss at present. Stock closed on Friday at 2.00. 4) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.48. 5) MT - Averaged long at 6.244 (5 mentions). No stop loss at present. Stock closed on Friday at 8.37. 6) FSLR - Averaged long at 39.938 (6 mentions). No stop loss at present. Stock closed on Friday at 32.40. 7) LVLT - Purchased at 59.11. No stop loss at present. Stock closed on Friday at 56.47. 8) CLF - Averaged long at 9.06. No stop loss at present. Stock closed on Friday at 8.74. 9) CNX - Averaged long at 20.05. No stop loss at present. Stock closed on Friday at 15.19. 10) X - Purchased at 33.03. No stop loss at present. Stock closed on Friday at 34.84. 11) BWA - Averaged long at 40.856 (3 mentions). Stop loss now at 41.13. Stock closed on Friday at 41.79.
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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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