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Issue #528 
May 21, 2017 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Volatility Spikes up. Wake up call for the Bears?
DOW Friday closing price - 20804
The DOW had a wild down week, having generated a 1-day drop of 378 points and a weekly trading range from high to low of 480 points. These kinds of numbers to the downside have not been seen since June of last year and do suggest that a correction might have started since in the last 4 years they have foretold 6 out of the last 8 corrections. Nonetheless, on the 2 occasions that no correction occurred, the first time the index traded sideways for 16 weeks and the second time (the most recent) the index resumed the uptrend the following week.
The DOW closed just slightly (11 points) in the upper half of the week's trading range, suggesting a slightly higher probability of the index going above last week's high at 21033 than below last week's low at 20553. The recovery back up to slightly above the midpoint of the week's trading range does not give the bears the kind of chart ammunition they need to be aggressive to the downside this week, meaning that they will be depending more on news than on charts for direction.
To the upside and on an intra-week basis, the DOW now shows minor resistance at 20887 and minor to perhaps decent resistance at the 20000 demilitarized zone (20970-21030) and decent between 21046 and 21070. Above that level there is decent to perhaps strong resistance at the all-time high at 21169.
To the downside and on an intra-week basis, the DOW now shows minor support at 20578 and again at 20517. Below that level, there is minor to decent support at 20553 and again at 20412/20379, which is also pivotal.
The DOW this past week closed the most recent breakaway/runaway gap formation that had no reason to stay unclosed, meaning that there are no chart magnets to the downside left. As such and if there are no new negative news about the Trump administration (which was the catalyst to the downside drop seen last week), the resumption of the uptrend could occur. In fact, if the index gets above last week's high at 21033 it should also take out the previous weeks high at 21070 and if that happens, only the all-time high at 21169 would be left. As it is and based on what happened in 1999 when the index first broke the 10000 level, the objective all along has been to make another new high, likely around the 21250-21300 level.
The level to watch in the DOW this week is 20932 as a rally up to that level would close the gap created last Wednesday and that might be enough to annul the negatives from last week.
SPX Friday Closing Price - 2381
The SPX generated a negative reversal week, having made a new all-time intra-week high at 2405 and then turning around and going below last week's low and closing in the red at last week's low. Nonetheless, the bears failed to make a clear statement as the index closed very slightly above the midpoint of the week's trading range (by 2 points), meaning there is a slightly higher chance of going above last week's high at 2405 than below last week's low at 2352. If that occurs, the negative reversal will be negated as has happened the last 2 times that a new all-time high and a negative reversal occurred.
The SPX (just like the DOW) closed the previous and unwarranted breakaway/runaway gap formation, meaning that if the negative catalyst (Trump miscues) from this past week go away or are ignored for the short-term, there is a decent chance that the uptrend will resume and new all-time highs made.
To the upside and on an intra-week basis, the SPX now shows minor resistance at 2390, minor to decent at 2400, and decent at 2405. Above that level there is no resistance until psychological at 2500.
To the downside and on an intra-week basis, the SPX now shows minor support at 2379. Below that, there is minor support 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.
Like with the DOW, the gap down that was seen in the SPX this past week at 2396 is likely to be pivotal this week. Closure of the gap could give the bulls enough reason to push the index higher to a new all-time high. Non-closure of the gap would be a negative of consequence, meaning that the traders will be keyed in to the resistance at 2390 and the gap at 2396.
NASDAQ Friday closing price - 6083
The NASDAQ generated a negative reversal week, having made a new all-time intra-week high at 6170 and then going below the previous week's low and generating a red weekly close. Nonetheless, the bulls were able to close the index exactly in the middle of the week's trading range, meaning that the negative reversal is not a clear signal that a top to the rally has been found. In fact, since the Trump win in November, there have been 2 identical negative reversals that were reversed to the upside the following week.
The NASDAQ did generate a red weekly close (the 1st in 5 weeks), a 176 point trading range (the biggest since the last week of October), and a gap down on Wednesday between 6139 and 6122, which does suggest that selling interest has now been uncovered and will likely require some new positive news to overcome.
To the upside and on an intra-week basis, the NASDAQ shows minor resistance at last week's high at 6133 and decent at last week's high at 6170. Above that level there is no resistance until "general" resistance is found at 6300.
To the downside and on an intra-week basis, the NASDAQ show minor support at 6053 and minor to perhaps decent at last week's low at 5996. Below that level, there is no support of consequence until 5805 is reached.
The NASDAQ remains the strong index as the bears failed to close the runaway gap to the upside at 5989 (got down to 5996) when the other indexes this past week closed both the runaway and breakaway gaps that had been created at the end of April. The failure of the bears to close the gap pair further strengthens the idea that this is not only a Tech rally but more importantly that last week's action does not "yet" represent a likely top.
The emphasis of the bulls in the NASDAQ this week will be the closure of the gap to the downside at 6139 that is presently considered a negative sign. Closure of the gap will take away the small amount of ammunition that the bears obtained this past week and will put the bulls in a position to renew the uptrend. Failure to close the gap though, will further strengthen the idea that a top has been formed. There have been 3 gaps to the downside in the past 12 months and the last 2 were closed in less than a week and the uptrend resumed. The only one that wasn't closed within that period of time (in June of last year) resulted in the index correcting 6.7% before resumption of the uptrend restarted.
Probabilities favor the bulls in the NASDAQ but this is likely to be an indicative week for the short term.
The market came to a standstill this past week due to a series of missteps that Trump committed that put his whole agenda on a temporary hold until some resolution is found. Was this a signal that a top to this rally has been found? The probabilities do favor a top having been found but this rally has had a "life of its own" and more than the negative action of one week is needed before the traders can be convinced that no further upside will be seen at this time.
Nonetheless, there are many things working against the rally continuing, starting with the seasonal tendency for the market to slow down going into the summer months, the fact that Congress will be unlikely to be able to pass Tax Reform or Health Care before Fall begins, and the simple fact that the market seems to be oversold and overdone to the upside on just anticipation of changes and not actual changes.
The key index this week is the NASDAQ as the last few weeks it is the Tech sector that has carried the market up. Evidently, a new all-time high above 6170 would re-incite the buying interest. On the other side of the coin, a failure to close the gap created on Wednesday will turn the traders short-term bearish. With no major economic reports due out this week and a low probability that Trump will "put his foot in his mouth again", the traders will strongly key on the charts this week.
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Stock Analysis/Evaluation
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CHART Outlooks
Volatility increased strongly last week, meaning short positions have increased their probability numbers, but shorted stocks got down to minor but short-term pivotal support levels that the bears failed to break, meaning that a bounce was likely to occur and taking profits was the intelligent thing to do. Nonetheless, the bulls have not yet proven that the bounce that occurred is anything more than a bounce, meaning that shorting stocks (in most cases the same stocks as last week) makes sense again, especially since these stocks can be shorted at the same or higher levels than seen last week (after profits were taken).
Two of the 3 short mentions I gave last week are here again and at the same or higher prices than seen last week. There is 1 new short mention.
SALES
KMX Friday Closing Price - 64.75
KMX was in a strong uptrend from November 2008 up until March 2015 with a rally from 5.76 to 75.40. At 75.40 a top was found and from which a drop back down to 41.25 (45%) occurred over a period of 10 months. The stock then got back on a recovery peaks and valley uptrend (3 peaks and 3 valleys) that took the stock back up to 69.11, with the last peak having been based on the Trump win in November.
During the last 30 months, KMX has shown a strong and repeated tendency to pivot at the $60 level, having rallied up to 75.40 when it first broke it to the upside, down to 41.25 when it first broke it to the downside, back up to that level (without breaking it to the upside) on 3 occasions between September 2015 and September 2016 and then once again above that level when Trump won the election. Each and every time that level has been broken (to the upside or downside) or held, a 20%+ move has ensued.
KMX made a new 8-week high last week as the bulls were able to get above the $60 level that has been so pivotal over the years. The breakout generated a strong short-covering rally of 8.4% (from low to high) and an eye-popping trading range of $5.40. Nonetheless, there was no fundamental news to generate such a rally, suggesting it was mainly chart oriented and not likely to mean that a new uptrend has begun.
The rally in KMX, especially if the indexes don't renew the uptrend, is highly suspect and will likely run into some strong selling resistance between the $67 level and the high seen in February at 69.11. Drops back down to the pivot point at $60 would then likely occur and if the $60 level would then be broken, last week's mention of a $45 objective would then be "on" again and with a higher profit potential.
KMX did close near the highs of the week and further upside above last week's high at 64.96 is likely to occur. Nonetheless and just like what happened in December when the stock spiked up $9.50 to 67.43, and also closed on the highs of the week, the following week there was minor follow through (from 67.43 to 68.71), which was then followed by 6 weeks of down movement back to 60.83. The possibilities of that scenario occurring again are high.
Using the weekly chart, intraweek resistance in KMX is found between 68.41 and 68.71 but using the daily chart, resistance is also found at 66.44, at 67.60 and at 68.04. On a weekly closing basis, there is decent resistance at 66.84 as that represents the 2-point downtrend line that started in March of 2015. Unless, the indexes renew their uptrend, it is highly unlikely that the stock will break the downtrend line and get above 69.11.
To the downside and on an intraweek basis, KMX has no support of consequence until 60.83, meaning that a failure to get above 69.11 would suggest the $60 pivot point support would be visited again.
Sales of KMX above 66.84 and using a stop loss at 69.31 and having a minimum drop down to 60.83 would offer a 2.4-1 risk/reward ratio. Nonetheless, if the $60 level breaks and the $45 level becomes a viable objective again, the risk/reward would be 8.8-1.
My rating on the trade is a 4.25 (on a scale of 1-5 with 5 being the highest) on the drop back down to 60.83. The rating will drop down to 3 on a potential drop down to $45.
NFX Friday Closing Price - 34.53
NFX for the past 6 years and using weekly closing prices, has been trading mostly between $25 and $45 with 1 slight incursion to the upside to 47.84 and 2 slight incursions to the downside to 20.04 and 22.31. During this entire period of time, the 200-week MA, currently at 34.75 (where the stock closed on Friday) has been the arbiter of direction, with 50% of the time trading above the line and 50% of the time trading below the line.
Since February of last year, NFX has been trading above the line but 8 weeks ago the stock got down to the line and bounced up, suggesting that the trading above the line would continue. Nonetheless, after a 1-week rally back up to 37.50, the stock proceeded to generate 5 red weekly closes and a drop back down to the line where it now is awaiting a decision on direction.
With a high probability that the index market is ready to go into a corrective phase and the stock failing to generate any buying interest of consequence once the line was reached 8 weeks ago, the probabilities now favor the bears and a break of the MA line.
The most recent intra-week low in NFX is 33.00 but below that level there is no intra-week support of any consequence until 26.78 is reached and even then it would not be surprising to see the stock head down to the $25 level that has been the area seen often during the past 6 years.
Last but not least, NFX chart is showing a bearish inverted flag formation with the flagpole being the drop from 43.74 to 33.00 and the flag being the trading range seen the past 9 weeks up to 37.61. A break of the bottom of the flag would offer a 26.87 objective.
NFX was a mention last week that was shorted at 35.66 and covered at 33.46. The short was covered because the action suggested the stock was not yet ready to break down and a profit was available to be taken. Nonetheless, the same trade will be attempted again this week.
Sales of NFX above 35.50 and using a stop loss at 37.72 and having a 26.87 objective will offer a 4-1 risk/reward ratio.
My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the highest).
PHM Friday Closing Price - 23.13
Since 2012 (5 years), PHM has been in a well-defined trading range between 24.47 and 14.21, having visited both highs and lows on 2 different occasions. The stock got up to 24.43 five weeks ago (4 points below the 10-year high at 24.47) and immediately saw strong selling that generated a key reversal week as well as an ominous double top and dropped 12.4% in less than 4 days, suggesting that new positive fundamental news (or help from the index market) is needed for the stock not to go back down to test support.
Four months ago, PHM tested successfully the 200-week MA, currently at 19.50 and the 200-month MA, currently at 18.00 and was likely the cause for the rally up to 24.43. Now that the stock has failed to breakout, a retest of those lines is once again highly probable and if the indexes do get into a summer correction, it is possible the stock could break those lines and head back down to the double bottom at 14.23/14.61.
For the past 3 weeks and since the low seen at 21.41, immediately after the stock failed to break out, PHM has been recuperating the losses seen. The stock closed near the highs of the week last week and further upside above last week's high at 23.21 is expected to be seen. The rally is expected to become a retest of the 24.43 high and if successful, it would suggest the traders would key back on the downside.
Intra-week resistance in PHM is found at 23.36 and then nothing until 23.72/23.87. To the downside, support is found at the recent low at 21.41 and then nothing until 19.70, which includes the 200-week MA, currently at 19.50. Below that level, support is found at 18.21, which includes the 200-month MA, currently at 18.00) which is the objective of the mention.
Sales of PHM between 23.35 and 23.87 and using a stop loss at 24.53 and having an 18.21 objective offers 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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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA generated a positive "key" reversal, having made a new all-time low at 1.13 and then turning around to close in the green and above the previous week's high. The stock closed near the highs of the week and further upside above last week's high at 1.39 is expected to be seen. The reversal came off of an upgrade from a new company covering the stock that offered a $5 objective. Upgrades are not changes of fundamentals and as such can cause false moves to occur. A mini buy signal was given this past week on the daily chart but since it did not occur on the weekly chart (needed to close on Friday above 1.34 - closed at 1.33), more is needed. Intra-week resistance is found at 1.41 and likely pivotal at 1.50. A weekly close above 1.65 would be a strong positive as that is a resistance that if broken on a weekly closing basis would clearly signal that a bottom has been found. Likely pivotal support is now found at 1.20 that if broken would suggest the 1.13 level would be tested and given the reaction to the upgrade, a drop back down to 1.13 would be strongly disappointing. Probabilities favor the bulls but with questions still needing to be answered. CLF made a new 13-day intraweek high and close near the highs of the week, suggesting further upside above last week's high at 6.60 is expected to be seen. The green weekly close broke a string of 6 red weekly closes in a row and does suggest that the recent low at 5.97 uncovered some buying interest. Minor resistance is found at 6.66 and at 6.87 but if those levels are broken, there is no intraweek resistance on the weekly chart until 8.45 is reached. On the daily chart, there is minor resistance at 6.66 but above that level there is nothing until 7.35 is reached. The 200-day MA is currently at 7.78 and will act as decent resistance on a daily closing basis. Likely pivotal intraweek support is now found at 6.22. It is evident that the 6.66 level is pivotal resistance this week even though it is considered minor resistance. A break above that level (which only requires a rally of $.17 cents above Friday's close) would be a clear indicator that at least a short term rally up to the $7 level will occur. Probabilities favor the bulls. CNX generated a negative reversal week, having gone above last week's high and below last week's low and then closing in the red. Nonetheless, the stock closed near the highs of the week, suggesting a stronger probability of going above last week's high at 16.77 than below last week's low at 15.14, meaning that the negative reversal is not as indicative as it would otherwise be. More importantly and using the daily chart, the stock spiked down on Thursday to decent support at 15.16/15.17 with the drop down to 15.14 and then went above Thursday's high on Friday, suggesting the drop down was a successful spike up. Intra-week resistance is found at 16.45 and then pivotal at 16.77. Support is now important between 15.41 and 15.66. Probabilities slight favor the bulls. ENG generated a positive reversal on the weekly chart, having made a new 24-week low and then closing in the green. On the daily chart though, the stock generated a "key" reversal, having made a new 24-week low on Friday and then closing above Thursday's high. More importantly, the stock got down to the decent intra-week support at 1.28-1.31 with the drop down to 1.30 and then turned around, suggesting strong buying interest is "still" found there. The stock closed near the highs of the week and further upside above last week's high at 1.42 is expected to be seen this week. Minor to perhaps decent intraweek resistance is found at 1.55 and on a weekly closing basis at 1.63 (200-week MA). Above that level, there is minor to decent resistance at 1.79 that includes the 200-day MA, currently at 1.77. Support remains strong at 1.28-1.31. With the positive reversal, the probabilities have increased that the retest of the 3.10 high (which has been seen on the previous 3 occasions the stock got up to the 8-year trend line and then fell back) has begun. The upside objective of such a retest would be the 2.50-2.72 level. Probabilities favor the bulls this week and a rally up to the 200-week MA. FCEL made a new all-time low this past week, having broken below $1 (dropped down to $.80 cents). The stock did generate a small bounce on Friday to close just slightly in the lower half of the week's trading range, meaning that there is no clear clue as to whether the stock will go above last week's high at 1.10 or below last week's low at .80 cents. It does need to be mentioned that before the 12-1 reverse split occurred, the $.80 level had become decent support, meaning that the probabilities favor it being once again "decent support". Nonetheless, the fact the stock has dropped below $1 means that the same problems that existed about the NASDAQ keeping the stock in the index will resurface again. The bulls need to do something now or face new problems. Resistance is now short-term pivotal at 1.15. X got down to the support between 17.67 and 18.85 (dropped to 18.55) that stopped the downtrend for 17 months between Oct 2011 and Mar 2013 and from which 2 rallies up to 32.52 and then up to 26.29 occurred. The stock bounced up to close in the middle of the week's trading range, meaning that the chances are 50-50 that the stock will either go below last week's low at 18.55 or above last week's high at 20.63 this coming week. On a "small" positive note, for the first time in 4 weeks the stock did "not" close on or near the lows of the week, suggesting that some buying interest is being seen at this level. Very minor resistance is found at 20.28 and then minor at 20.93. Above that level, there is minor resistance at 21.90 and then nothing until the gap area at 24.37. To the downside, there is minor support at last week's low at 18.55 and then at 17.67. A break below 17.05 would be an additional negative. Probabilities very slightly favor the bulls 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 0775. (new price .93). 2) GE - Covered shorts at 27.41. Shorted at 29.85. Profit on the trade of $244 per 100 shares minus commissions. 3) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at 1.40. 4) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.33. 5) GS - Covered shorts at 214.66. Averaged short at 227.65. Profit on the trade of $2598 per 100 shares (2 mentions) minus commissions. 6) FSLR - Liquidated at 36.46. Averaged long at 37.62. Loss on the trade of $348 per 100 shares (3 mentions) plus commissions. 7) CLF - Averaged long at 8.96 (3 mentions). No stop loss at present. Stock closed on Friday at 6.49. 8) CNX - Averaged long at 19.17 (3 mentions). Stop loss now at 14.66. Stock closed on Friday at 16.08. 9) X - Purchased at 18.80. Averaged long at 29.765 (4 mentions). No stop loss at present. Stock closed on Friday at 19.59. 10) LVS - Covered shorts at 56.96. Shorted at 59.23. Profit on the trade of $227 per 100 shares minus commissions. 11) NFX - Shorted at 35.66. Covered shorts at 33.46. Profit on the trade of $220 per 100 shares minus commissions. 12) KMX - Shorted at 61.38. Covered shorts at 61.56. Loss on the trade of $18 per 100 shares plus commissions.
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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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