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Issue #529 
May 28, 2017 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls in Control? Smoke and Mirrors Perhaps!
DOW Friday closing price - 21080
The DOW made a new all-time weekly closing high on Friday and closed near the highs of the week, suggesting further upside above last week's high at 21112 will be seen this week. The index did fall short of making a new all-time intra-week high by 57 points but given the fact the index closed near the highs of the week and that there are no scheduled economic reports of consequence until Thursday, the probabilities strongly favor the bulls accomplishing that objective this week.
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 12 weeks, the index made a new all-time high weekly close at 21080 (which so far is 75 points above the previous one). If the similarities continue, the index may continue higher for another 100-150 points and perhaps another green weekly close or two but "much" further upside is not likely to be seen.
To the upside and on an intra-week basis, the DOW now shows decent resistance at the all-time high at 21,169. Above that level, there is "general" resistance at 21,300.
To the downside and on an intra-week basis, the DOW now shows minor support at the 20,000 demilitarized zone, minor again 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.
The DOW has not made a new all-time intra-week high for the past 3 months and since there has not been any positive fundamental changes during this period of time it does suggest that if new highs are made they will be limited in nature. In addition, the index gapped up on Thursday of last week between 21,022 and 21,050 and as long as the gap is not closed it will be a magnet to the downside.
Based on the action in the DOW in 1999, the probabilities favor a rally up to somewhere between 21,250-21,300 and then another correction, likely down to the 20,500 level. Nonetheless, if the bulls fail to make a new all-time high this coming week, the chart outlook will change to a more negative scenario and likely to one that would require a positive fundamental change (like Tax reform) for any new highs to be made in the near or mid-term future. Probabilities favor the bulls this week.
SPX Friday Closing Price - 2415
The SPX made a new all-time intraweek and weekly closing high this week and closed near the highs of the week, suggesting further upside above last week's high at 2418 will be seen this week. The index reversed in just 1 week the previous week's negative reversal from an all-time high, which is the first time that has happened since the uptrend began in 2009. It does suggest that things are heating up to the point where either the uptrend will accelerate markedly or a top of consequence will be uncovered.
The SPX is close to reaching an upside objective of 2428-2431 that came about originally as the objective of a bullish flag formation on the weekly chart but that has become even more viable as an upside objective given that it is where a 3-point trend line that started in December 2014 currently connects at. Each time that line has been reached over the past 2+ years, it has generated a 3.5-5% drop in price within 2-6 weeks. It means that if mimicked again this time, it would suggest a drop back down to 2322-2345.
To the upside and on an intra-week basis, the SPX has now resistance other than perhaps 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 and the NASDAQ, the SPX gapped up last Thursday between 2405 and 2408 and that gap will remain a magnet as long as it is not closed. It also needs to be mentioned that the index has now generated 7 green daily closes in a row and that has only happened once in the last 52 weeks. The negative to that is that the previous time the index had 7 days in a row of green daily closes it was already 2.8% above the previous all-time high, whereas this time the index is only .5% above the previous all-time high, which suggests that any minor red day could generate a failure signal.
The probabilities favor the bulls this week, with the SPX moving up to the 2428-2431 level.
NASDAQ Friday closing price - 6210
For the 5th week in a row, the NASDAQ made a new all-time intraweek high and for the 4th week out of the past 5 weeks it made a new all-time weekly closing high. The index has now rallied 19.1% (1183 points) since Trump won the election. The index closed on the highs of the week and further upside above last week's high at 6217 is expected to be seen.
On a cautionary note though, the NASDAQ has reached with the 6210 close on Friday, the same 3-point trend line using the weekly closing chart that is found in the SPX, suggesting that that a temporary top to this rally may have been made this past week. In April 2015, which was the beginning point of the trend line, the index closed got up to 5100 (closed that week at 5092) and then rallied up to 5119 the following week but generating a red weekly close. Two weeks later, the index got down to 4888, a 4.6% correction. If the same thing occurs this week, the index should get down to around 5946 within the next couple of weeks.
To the upside and on an intra-week basis, the NASDAQ has no resistance above. On a "general" basis, resistance is expected to be found at 6300.
To the downside and on an intra-week basis, the NASDAQ show minor support at 6074 and 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 is facing what seems to be a short-term pivotal week based on the important economic reports scheduled, as well as trend line mentioned above. Evidently, if the index closes higher next Friday, especially if by a wide margin above 6210 (by more than 10+ points), it will mean the fundamental picture remains bullish for higher prices and the chart resistance of the trend line negated. If that does happen, there will be no resistance above until "general" resistance at 6300.
It must be kept in mind that the NASDAQ gapped up on Thursday between 6166 and 6174 and that is a gap that has no reason to stay unclosed, meaning that further upside without closure of the gap is a low probability event. In addition, any daily close below the previous all-time high daily close at 6169 would be seen as a failure signal. Probabilities favor an intra-week rally up to around 6230 and a red close next Friday.
The index market continues the torrid uptrend that it has been on since the Trump election even though the Trump administration has not yet accomplished any of the goals it set out to do. In fact, the traders have totally ignored all the recent problems that have popped up from Trump actions, keying mostly on charts and momentum than on fundamental speculation of the future. Nonetheless, both the SPX and the NAZ have reached the top of a 2+ year uptrend channel that will give the traders a technical reason to consider taking profits as a break of that channel to the upside probably requires an increased positive fundamental picture, which is unlikely to be available at this time.
The slow summer months are ahead and there has been a consistent (6 out of the last 8 years) seasonal tendency for a correction to occur in June and into July. In addition, the 2 most important economic reports of the month (ISM Index and Jobs) are scheduled for this week, meaning that after those reports are out the traders will not have any possible positive catalysts to support higher prices, especially considering that Tax reform and Health Care are unlikely to be addressed and even more unlikely to be passed until at least August. Simply stated, it is unlikely that the bulls can continue to push for higher prices with all these short-term obstacles ahead.
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Stock Analysis/Evaluation
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CHART Outlooks
My outlook for the market at this time is that a correction is likely to start this week. As such, I looked at over 80 charts and found at least 2 stocks that are good shorts if and when the correction does start.
Nonetheless, I also believe that oil prices will start moving up after this coming week and have found 1 stock (RIG) that offers a major buying opportunity and 1 stock (CLB) that I have had quite a bit of success trading and that also finds itself near price levels that are attractive for purchase.
PURCHASES
RIG Friday Closing Price - 9.56
RIG is an off-shore drilling company that suffered greatly when that industry relapsed under Obama. This is a stock that traded as high as $163 in 2008 and then proceeded to get into a downtrend that ended at 7.66 in February of 2015. Nonetheless, with Trump as the President and OPEC starting to get together to control the price of oil, oil drilling companies seem to be looking to rise from the rock bottom prices they have been at for the past couple of years.
Over a period of 11 months (between Feb and December 2016) RIG was in a bottom building process, testing the all-time low successfully on 2 occasions with intraweek drops down to 8.68 and 9.10 and making 2 highs at 13.48 and at 13.28. Nonetheless, in December of last year, the stock gave a buy signal when the 11-month high last 13.48 was broken with a rally up to 16.66, meaning that the bottom building process is now complete and confirmed.
RIG has been in a downtrend since the 16.66 high was made, having generated 4 months of red closes (likely 5 since it is likely to close below last month's close at 11.03 on Wednesday). The stock has also generated red weekly closes on 16 out of the last 20 weeks, which has put the stock at a major pivotal chart point as the stock closed on Friday at 9.56 and the monthly close support is at 9.61. This downtrend though, has set up a trade that has a very high probability of being successful as well as a risk/reward ratio that is "through the roof".
Using the monthly closing chart, RIG has an upside objective of 18.82-19.01 which represent a major previous low monthly close (18.82) as well as a minor but evidently indicative high monthly close (19.01). The chart suggests that objective could be reached in as little as 6 months or as long as 1 year.
It is evident by the chart that this coming week is highly pivotal because if RIG gets below 9.10, the entire 16 month bottom building process will be erased. What makes this trade even more attractive is the fact that oil seems to be poised for not only a rally but perhaps for a strong one.
Purchases of RIG at or below Friday's close at 9.56 and using a stop loss at 9.00 and having a 19.00 objective will offer 20-1 risk/reward ratio.
My rating on the trade is a 4.25 (on a scale of 1-5 with 5 being the highest).
CLB Friday Closing Price - 102.71
In keeping with the idea that oil is going to stage a rally over the next few months, CLB is down to price levels that make it an attractive purchase.
CLB reported better than expected earnings 3 weeks ago and opened higher at 119.56 (above the previous day's close at 113.43) but fell in price due to a comment by David Einhorn that the company was overpriced and should be shorted. The stock that day generated a negative reversal and with oil also going into a bit of a tail spin and a drop down to 43.77 (from the $50 level), the stock has continued lower, having made a low last week at 99.31, which is a 17% drop in price over this period of time.
Nonetheless, CLB is now reaching a level of weekly close support between 92.75 and 97.34 that has held up for the past 6 years and that is unlikely to be broken at this time, especially considering the bullish picture being seen for oil.
CLB generated a negative reversal week last week (higher highs and a close below the previous week's low) and also closed in the lower half of the week's trading range, suggesting further downside below last week's low at 99.31 is expected to be seen this week.
It is difficult to predict how low CLB could go this week as there are 7 possible downside intraweek targets at 96.38, at 94.72, at 94.23, and 98.21, at 95.77, and 91.63 and at 96.30 (from oldest to the most recent) that could be seen. Based on the negative reversal action seen twice over the past couple of weeks and the negative comment from Einhorn, I would venture to guess that the 96.30 level will get broken but not 94.72. Then again, the reality is that any drop below last week's low opens the door for a purchase.
To the upside, CLB is unlikely to get above the high seen right after the earnings report, at least not until oil breaks out of its bullish inverted Head & Shoulders formation with a break above the neckline at $54. Nonetheless, the intra-week high at 116.79 seen in October of last year is a viable upside objective once the selling interest subsides.
As far as the stop loss is concerned, CLB has been showing higher low weekly closes since January 2015, with closes at 92.75, 95.27 and the most recent at 97.34. I do not want to see the stock break that minor uptrend, meaning that a weekly close below 97.34 would be considered a negative. What this suggests is that for the time being no intra-week stop loss is used but that a close eye on the action and on the intra-week supports mentioned above be kept.
Purchases on CLB below 98.00 and using a weekly stop close at 96.65 and having a 116.79 objective will offer a 15-1 risk/reward ratio (with the caveat that the risk is not clearly defined).
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
SALES
AXP Friday Closing Price - 77.46
AXP broke above the 200-week MA, currently at 77.60, in January of this year and continued higher to 82.00 (79.88 on a weekly closing basis). The breakout suggested that after a retest of the line that the stock would continue higher on a quest of testing the all-time high at 96.24, much like the indexes have done and been successful at. Nonetheless, instead of continuing higher, the stock has gotten into a sideways trend in which the MA was not retested successfully but broken, having closed almost $2 below the line the second week of April.
AXP is now showing a successful retest of the intra-week high at 82.00 with a rally to 81.39 seen 5 weeks ago as well as a successful retest of the weekly closing high at 79.88 with a close at 79.59 that is now confirmed, having generated 4 red weekly closes in a row thereafter. The stock has now also given a negative signal, having closed below the line 2 weeks ago and confirming the break having closed below the line again on Friday. The action seen, suggests that there is now more weakness than strength and with the summer correction likely to occur, the stock is now looking like a decent short.
AXP is showing minor to decent intra-week support at the 18-week low at 75.51 that was seen the 3rd week of April. Below that level there is no support of consequence until the 71.31 to 71.71 area is reached, which for the intent of this mention is the main downside objective.
To the upside, AXP is now showing minor to perhaps decent resistance between 78.40 and 78.64, which is an area that has stopped previous rallies on 4 different occasions over the past 4 years. Further resistance is found at 81.39 that if reached and broken would suggest the uptrend will resume.
AXP closed near the highs of the week last week and further upside above last week's high at 77.92 is expected to be seen this week. Nonetheless, any rally above last week's high should be used as an opportunity to short the stock.
There are 2 areas where a stop loss can be placed, at 78.74 and at 81.49. With 71.41 as the downside objective a stop loss at 81.49 would not offer a good risk/reward ratio, meaning that the stop loss needs to be placed at 78.74. Such a stop loss will lower the probability rating though in reality if the stock is to head down to the $71 level and that trip is to begin this week, the 78.64 resistance area should not be broken.
Sales of AXP above 77.92 and using a 78.74 stop loss and having a 71.41 objective will offer an 8-1 risk/reward ratio.
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest). The rating would be a 3.5 if the higher stop loss is used.
AMTD Friday Closing Price - 37.91
AMTD made a new all-time monthly closing high at 46.15 in January, above the previous all-time high at 41.55 made in April 99, but the bulls failed to confirm the breakout, having closed the following month at 39.10, followed by an additional 3 months of red closes. In addition and on the weekly closing chart, the stock also gave a failure signal in March when it closed below the previous 18-year high weekly close at 38.50. The stock has since retested that failure successfully on 2 occasions with a close at 38.86 the last week of March and a close at 38.98 the first week of May.
On an additional negative note, AMTD has successfully retested the 18-year intra-week high at 47.15 on 3 occasions, suggesting that the stock is now on a confirmed mid-term downtrend.
AMTD closed near the highs of the week on Friday, suggesting further upside above last week's high at 38.22 is expected to be seen this week. The bounce being seen is a result of a double bottom at 36.36/36.12 that has been built over 9 weeks and that does suggest that the most recent intra-week high at 40.00 is going to be retested. In the process, the most recent high weekly closes at 38.86 and 38.96 are likely to be tested as well. Nonetheless, with no fundamental reason for the downtrend to be overturned at this time, the rally expected this week offers a good opportunity to short.
To the downside, AMTD is likely to be heading down to the $30 level that has been seen on 13 different occasions on the monthly chart over the past 3 years. In addition and using the monthly chart, the stock is showing an inverted flag formation with the flagpole being the drop from 47.15 to 36.12 and the flag being the trading range up to 40.00 seen over the past 2 months. A break of the bottom of the flag offers an objective of 29.03.
Sales of AMTD at 38.50 or better and using a 40.35 stop loss and having a 29.03 objective will offer a 5-1 risk/reward ratio.
My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the highest).
Several other stocks are possible shorts this week but they do depend on several factors that are not evident at this time. Nonetheless, I am also considering last week's mention of KMX and of BA. I will give these as mentions on the message board if and when the stocks reach the desired entry point levels as well as do it in a way that suggests the stocks should be shorted.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA bulls were unable to generate more than a 1 point follow through to the previous spike up week and ended up closing on the lows of the week, suggesting further downside below last week's low at 1.30 will be seen this week. In addition, the drop below 1.33 on Friday started to erase what was a possible bullish flag formation, meaning that the positive upgrade with a $5 target given the previous week has not yet generated the kind of buying interest that would lead the traders to believe that "the worst is over". The weakness seen on Friday likely means that a retest of the all-time low at 1.13 will be seen this week. In addition, a gap presently exists between 1.18 and 1.22 that is likely to be targeted for closure given the inability of the bulls to get above a minor resistance level at 1.41. Minor intra-week support is found at 1.20 and decent at the all-time low at 1.13. Resistance is now minor to decent as well as short-term pivotal at 1.41. Probabilities favor the bears this week with the bulls on the defensive and looking to establish a level of support that can be trusted. CLF generated a negative reversal week, having made a new 4-week 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 6.01 will be seen this week. The stock is now showing multiple lows (4) between 5.97 and 6.04 that suggest that a break of that level is likely to happen. On an additional negative note, the high daily close on Tuesday at 6.75 became a successful retest of a trend line that started on January 2016 and that got broken to the downside 4 weeks ago and suggests that the downtrend being presently seen remains strong. The probabilities now favor the stock getting down on Wednesday (end of the month) to the 13-year monthly close support at 5.85, which is a level of support that though minor has been pivotal twice before. A close below 5.85 on Wednesday would be an additional negative signal that would suggest that the stock will be heading down to the next and strongly pivotal support at 4.91. The underlying negative factor in the stock is the lack of any inflation surge that was expected to be seen in a Trump administration. With the Fed likely to continue to raise interest rates and keep inflation under control, there doesn't seem to be any pressing fundamental reason to keep the stock at this time. Nonetheless, if the 5.85 level holds up on the monthly closing basis on Wednesday, it should be mentioned that since 2008 there has not been more than 3 months in a row of red closes, meaning that in June the stock should see some rally and a green close. Using the weekly and monthly charts, resistance is not found until the 7.91 to 8.64 level is reached, meaning that if 5.85 holds on Wednesday, a rally next month up to that area could be seen. CNX had an uneventful inside week in which nothing was decided. Nonetheless, the stock closed on the lows of the week, suggesting further downside below last week's low at 15.36 is expected to be seen this week. On a possible negative note, the stock generated a buy signal on the daily closing chart on Tuesday, negated the buy signal on Thursday and then proceeded to give a sell signal on the daily closing chart on Friday. None of these signals were confirmed by the weekly closing chart but it does give the stock a negative outlook for the start of this week. The chart is very clear right now with a double top on the intra-week chart at 16.77/16.79 and a double bottom at 14.76/14.79. A break of either of those levels would likely generate further movement in that direction with 13.36 as the next downside target and 17.50 as the next upside target. At this moment, the bears have the edge. The same lack of inflation problem as is being seen with CLF is being seen in this stock, meaning that if support is broken, there would be no reason to stay with this stock. ENG bulls failed to rally above the previous week's close on the highs of the week and as such, the stock made a new 6-month intra-week low and closed in the lower half of the week's trading range, suggesting further downside below last week's low at 1.26 will be seen this week. By the same token, the bears failed to generate a close below the decent weekly close support between 1.29 and 1.31 (closed at 1.30), meaning that the close next week is likely to be short-term pivotal. It is important to note that the weekly volume this past week was the lowest in 7 months and 5 times lower than the previous week which does suggest that there is very little sell interest at this time. Intraweek support is found at 1.20 and daily close support at 1.24. A break of either of those 2 levels would suggest further downside would be seen. Short-term pivotal resistance is found at 1.40. Even though the stock closed near the lows of the week, the chart suggests the bulls will generate a green weekly close next Friday. FCEL had an uneventful week but did generate a green weekly close (the 1st in 6 weeks) as well as a close in the upper half of the week's trading range, suggesting further upside above 1.00 will be seen next week. Minor intra-week support is found at .90 and slightly stronger at .80. Minor intra-week resistance is found at 1.00, slightly stronger at 1.15 and likely short-term pivotal at 1.20. Probabilities favor the stock now getting into a bottom building trend, having gotten down to a support at .80 that was decent before the 12-1 reverse split. X generated the first green weekly close in 5 weeks but it was not a convincing one as it was only by 15 points and the stock closed near the lows of the week, suggesting further downside below last week's low at 19.20 is expected to be seen. On a slight positive note, the bulls were able to break intra-week above 3 minor resistance levels at 20.55, 20.93 and 21.49 (got up to 21.93), suggesting that there is some buying interest of consequence at these levels. The key to look at this week is whether the recent low at 18.55 gets broken or not, if and when the expected drop below 19.20 occurs. If the bulls are able to keep the stock above 18.55 and generate a green weekly close next Friday above 20.53 (minor but short-term indicative weekly close resistance), it would be a clear sign that a bottom to this downtrend has been found and that the possibilities of a short-covering rally would increase. Probabilities favor that scenario occurring.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .08 (new price .96). 2) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at 1.30. 3) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 1.31. 4) CLF - Averaged long at 8.96 (3 mentions). No stop loss at present. Stock closed on Friday at 6.14. 5) CNX - Averaged long at 19.17 (3 mentions). Stop loss now at 14.66. Stock closed on Friday at 15.38. 6) X - Averaged long at 29.765 (4 mentions). No stop loss at present. Stock closed on Friday at 19.74. 7) GS - Shorted at 218.36. Covered shorts at 218.96. Loss on the trade of $60 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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