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Issue #556 
December 31, 2017 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| What Will the New Year Bring?
DOW Friday closing price - 24719
The DOW and the SPX generated the first red weekly close in the last 6 weeks and the NASDAQ the first red weekly close in the last 3 weeks and they all closed near the lows of the week, suggesting the first course of action in the first week of the New Year will be to the downside. On the other side of the coin, all indexes generated another green monthly close (the 9th in a row for the DOW and SPX and the 14th out of the last 15 months since Trump got elected) and closed near the highs of the month, suggesting that sometime in January, new all-time highs will be made.
Nonetheless, fundamentally there was a change in December that is likely to at least slow down or generate some type of correction, inasmuch as the driving force in the market the last 15 months has been the "anticipation" of Tax reform and now that has occurred, meaning that the traders will no longer have something that can drive the market up without some tangible proof of benefits.
The indexes have now also reached psychological resistance levels of consequence (DOW at 25,000, SPX at 2700, and NAZ at 7000) and though this past year psychological resistance levels were broken easily, it will not be the same now given that the bulls no longer have anticipation to help them break through as easily as they did before, especially in the DOW at 25,000.
In looking at the past 24 years of the DOW chart, I did find one interesting fact that could be a harbinger of what is to come in 2018. In November of 1994, the index began a 62 month bull market that took the index from 3612 to 11750. In that uptrend, the index generated a total of 5 corrections with the strongest one being the 4th correction between July and September 1998 in which the index corrected 21.7%. From there, the index rallied a total of 38% over the next 17 months to make its then all-time high at 11750 in January 2000 and from which a downtrend began. That January turned out to be a negative reversal month, having gone above December's high and making a new all-time high and then closing in the red. The index has now rallied 37.9% since the last strong correction that occurred in June-Dec 2015 in which the index corrected 16.3% and given that it is expected that the index will go above this month's high in January, it could set a similar repeat of what occurred in the year 2000.
All indexes show minor resistance at the all-time highs seen 2 weeks ago (DOW at 24876, SPX at 2494 and NASDAQ at 7003) and a bit stronger at the psychological resistance levels. To the downside, the DOW shows minor support at 24508, minor but short-term indicative support at the previous week's low at 24318 and short-term rally ending support at 24101. The SPX shows minor support at 2652 but also short-term indicative support at previous week's low at 2651 and short-term rally ending support at 2605. The NASDAQ shows minor support at 6851, minor but short-term indicative support at the previous week's low at 6844 and short-term rally ending support at 6734.
The indexes all technically generated a sell signal on Friday, having broken the most recent low daily close support levels (DOW at 24726, SPX at 2479 and NASDAQ at 6936). Nonetheless, it is difficult to give much credibility to the sell signals given that it was the last day of the year and some end of the year book squaring likely occurred, meaning that the indexes could open higher on Tuesday and continue higher. Nonetheless, all indexes closed on the lows of the day on Friday and if follow through to the downside is seen on Tuesday and the minor support levels mentioned above get broken, then it will be a more meaningful sell signal.
Chart-wise, there are no signs yet that the indexes are at a top or even that some serious selling interest is being seen. Nonetheless, the old adage of "buy the anticipation and sell the news", the fact that the indexes are all at decent if not strong psychological levels, and that they are strongly overbought and gone farther than ever before does suggest that they are now primed for at least a correction of some consequence. It also needs to be mentioned that seasonally there is a correction in the market that starts sometime in the first quarter of the year. Over the past 24 years, that seasonal correction has started in January on 4 occasions, meaning that the probability number is good that this year it will happen the same way.
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Stock Analysis/Evaluation
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CHART Outlooks
Now that the anticipation of the Tax Reform bill has become a reality,, the market will no longer have a strong driving force to drive the prices higher without "proof of benefits". This means that now there could be as much anticipation of failure as of success, meaning that traders are now likely to take the sell side as easily as the buy side and probably even more the former as a good case can be made that the market may have overextended itself to the upside.
Nonetheless and as of today, it is still unknown how the traders will approach the beginning of the New Year, meaning that caution in either direction needs to be used until some clear chart signals are given.
As such, the mentions below (1 buy and 1 sell) are still based on factors not related to the indexes in general, meaning they can move in the desired direction even if against the overall market direction.
By the same token, "things" should start to happen this week and I will be watching closely and will give mentions in the message board if anything becomes clear. Keeping in mind that there is usually a seasonal tendency for a correction of consequence starting sometime in the first quarter of the year, I will likely be keying more on sales than purchases, but then again there are plenty of stocks that did not participate in the rally last year and could be keyed on for purchases if interest in the overbought stocks decline but the market continues to be supported (likely).
PURCHASES
WDC Friday Closing Price 79.53
WDC broke above the 200-week MA in January, currently at 78.30, and has been trading above the line since then. The uptrend at that time kept the stock heading higher but on a backing and filling basis until the high at 95.77 was reached in July. Since then, the stock has been on a short-term downtrend and 4 weeks ago it got back down to the MA, seemingly fulfilling the immediate downside objective of the short-term downtrend.
For the past 4 weeks, WDC has stayed above the MA but not traded high enough to fulfill the minimum requirements of the bounce and over the past 2 weeks and due to the failure the sellers have taken a small measure of control as the stock has dropped back $6.31 (7.5% drop) and is now reaching levels where buying interest is likely to be found, especially considering that the buy recommendation from The Benchmark Company and the $130 target price were re-iterated this past week.
WDC went below the previous week's low last week and closed on the lows of the week, suggesting further downside below last week's low at 79.22 is expected to be seen. The probabilities favor the stock dropping back down to test the MA at 78.30 that is further supported by a spike low at 78.31 that was seen August and was the first successful retest of the MA line. Such a retest of that level would also be seen as a successful retest of the 76.59 low seen the first week of December, which in turn would likely generate strong new buying interest.
WDC had gapped down on November 27th due to a downgrade from overweight to equal weight by Morgan Stanley, which in effect caused the stock to drop down to the 200-week MA, but the downgrade simply stated that further upside was unlikely to be seen, not that the stock was a sell. As such and with the positive reversal seen last week, it is highly likely that the traders will look to close the gap between 88.33 and 92.25 and keep the stock in a sideways trading range that has been seen over the past 8-months (between $77 and $92). Then again, if the reasons for the recent re-iteration of the buy signal from Benchmark come to happen, it could open the door for the uptrend resuming.
To the downside and on an intraweek basis, WDC shows important and pivotal support at the recent 76.59 low. Nonetheless, there is a spike low at 78.31 that was seen in August that should work as support now, especially considering that a drop down to that level would close the gap that was seen on Friday.
To the upside and on an intraweek basis, WDC shows minor resistance at 84.47, minor to perhaps decent at 85.63 and minor again at 85.94 that is further strengthened by the 200-day MA, currently at 86.25, that was broken 2 days after the downgrade by MS came out. That line will be an obstacle to overcome and as such will be considered a viable and highly likely to be reached objective. Above that level, there is minor to decent resistance at 88.00 and decent between 92.13 and 92.50, which would close the gap that occurred on November 27th.
WDC now shows a successful retest of the 200 week MA to the downside and a successful retest of the 200-day MA to the upside, suggesting that whichever line gets broken convincingly will generate further action in that direction. A break and a confirmed close above 86.25 should generate enough interest to push the stock up to close the gap at 92.25. A break below the most recent low at 76.59 in conjunction with a confirmed close below the 200-week MA, currently at 78.40, should push the stock down to at least 71.39 but with a decent possibility of a drop down to the $50 level over the next few months. As such, this is a trade that can be considered both as a purchase at the desired entry point and a sell if the recent low is broken.
Purchases of WDC at 78.87 (or lower) and using a stop loss at 76.49 and having a minimum objective of 86.25 will offer a 5-1 risk/reward ratio with a decent possibility of the stock continuing higher to 92.25, which in turn would make the risk/reward ratio a high 9.7-1. The stop loss could be a double one, meaning that if hit, the long positions would be liquidated and new short positions instituted.
My rating on the purchase trade is now once again a 4 (on a scale of 1-5 with 5 being the highest), given the re-iteration of the buy recommendation.
SALES
NFLX Friday Closing Price - 191.96
NFLX made a new all-time high 11 weeks ago at 204.38 but in spite of the index market continuing to make new all-time highs, the stock got into a short-term downtrend, having corrected 12.8% to a low of 178.38 and showing at least 2 previous successful retests of the all-time high over this period of time.
During the past 4 weeks, NFLX has been on a recovery phase and last week it made a new 21-day high at 194.49 after it was announced the company was giving its executives a big raise due to the new Tax Law. The stock closed near the highs of the week, suggesting further upside above that level will be seen this week but it also needs to be mentioned that on Friday, after Thursday's spike high, no follow through was seen and the stock closed in the red, suggesting that there is selling interest being seen.
To the upside and on an intraweek basis, NFLX shows minor resistance at 194.49 and again at 196.05, stronger at 197.70 and minor to decent and likely pivotal at 199.68.
To the downside and on an intraweek basis, NFLX shows minor to perhaps pivotal support at 185.22 (last week's low), very minor support at 184.82, minor at 184.32 and then nothing until minor to decent as well as short-term pivotal at 178.38. Below that level, there is minor to perhaps decent support at 176.55 and then nothing until the 200-week MA, currently at 169.75.
NFLX already shows 2 successful retests of the all-time high on the daily chart and 1 successful retest on the weekly chart, suggesting that the bulls will need either strong positive news or a major continuation of the uptrend in the index market to overcome those negatives. As such and with the Tech Industry not being one of the major recipients of benefits from the Tax Reform bill, it is one of the best charts at the moment for a sale position.
NFLX reached last week's mention desired entry point above 194.10 but the sale was not instituted due to the spike rally seen on Thursday and expectations for further upside. Nonetheless, with Friday's lack of follow through, the desired entry point has become even more attractive.
Sales of NFLX between 194.10 (50-week MA) and 194.70 (decent resistance) and using a stop loss at 200.35 and having a downside objective of 169.75 (200-week MA) 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). Nonetheless, the rating would be 3.75 if the Tax Reform bill was not such a big monkey wrench.
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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 12/1 Loss of $11000 using 100 shares per mention (after commissions & losses) Closed out profitable trades for December per 100 shares per mention (after commission)
AMZN (short) $603 (per 50 shares) AMZN (short) $50 (per 50 shares) AMZN (short) $871.50 (per 50 shares) AMZN (short) $167.50 (per 50 shares) SLCA (long) $34 Closed positions with increase in equity above last months close minus commissions. NONE Total Profit for December, per 100 shares and after commissions $1726 Closed out losing trades for November per 100 shares of each mention (including commission)
GS (short) $481
SLCA (long) $45 AMZN (short) $85 (per 50 shares) GS (short) $217 SLCA (long) $81 Closed positions with decrease in equity below last months close plus commissions. CAT (short) $563 Total Loss for December, per 100 shares, including commissions $1472 Open positions in profit per 100 shares per mention as of 12/31
GS (short) $1265
Open positions with increase in equity above last months close.
MNK (long) $370 ARNA(long) $328 AMZN (short) $364 (per 50 shares) CLF (long) $275 ENG (long) $28 FCEL (long) $1 Total $1366 Open positions in loss per 100 shares per mention as of 12/31
NONE
Open positions with decrease in equity below last months close.
SLCA (long) $183 Total $286 Status of trades for month of December per 100 shares on each mention after losses and commission subtractions.
Profit of $1334
Status of account/portfolio for 2017, as of 12/31Loss of $9666 using 100 shares traded per mention.
Ending Results for 2017
Yearly totals:
Total amount of trades for the year = 105
End result of all trades for the year including open positions:
AMZN generated an uneventful week based on the weekly close that was only $1.11 above last week's close. Nonetheless and on an intraweek basis, the action seen last week makes the previous week's high at 1194.78 into the required/needed retest of the all-time high at 1213.41 and if the stock goes below last week's low at 1160.55 (likely since the stock closed near the lows of the week), it will confirm the successful retest and the bears will then be likely to step up their selling interest. To the downside and on an intraweek basis, short-term pivotal support is found at last week's low (1160.55) and then nothing until minor to perhaps decent support is found at 1145.19. Below that level, there is mid-term pivotal support at 1124.74 and then nothing until minor support at 1086.89. To the upside and on an intraweek basis, there is minor resistance at 1190.10 and pivotal resistance at 1194.78. The stock is now showing 2 successful retests of the all-time high on the daily chart and 1 successful retest on the weekly chart, strongly suggesting that some type of correction is about to begin. Pivotal support is found at 112.74 that if broken would open the door for the stock to retest the previous all-time high daily close at 1052.80. Probabilities favor the bears this week.
ARNA made a new 28-month high at 35.09 last week and closed in the upper half of the week's trading range, suggesting that further upside above that level will be seen this week. Nonetheless, the stock has now reached a decent intraweek resistance area between 34.80-35.90 from 2010 and that held up for 21 weeks before the bulls were able to break through and take the stock higher and that is likely to be resistance again unless some new positive fundamental news comes out. Selling interest was evident late on Friday given that the stock traded all day above the important weekly close resistance at 34.20 (important previous low weekly close from December 2014) before selling in the last 20 minutes took the stock $1 lower to close below that level and on the lows of the day, suggesting the first course of action for the New Year will be to the downside below Friday's low at 33.94. Intraday support is found at the 200 10-minute MA, currently at 33.60, and then nothing until the previous 28-month high daily close at 31.82. Last week's high and low (35.09 and 31.56) will be important this week as the chart suggests further upside will be seen and the rally continue but if last week's low is broken this week, it will be a strong sign that a temporary top to this rally has been found. Probabilities favor the bulls. BHTG made a new 5-month low and closed on the lows of the week, suggesting further downside below last week's low at 3.90 will be seen this week. The stock has now retraced all the way back to the weekly closing high breakout at 3.81 that was resistance for 13 months between June 2016 and July 2017, meaning that any further downside on a weekly closing basis would suggest that the original reason for the rally to 9.50 has totally gone away. It is likely that the reason for the selling interest this past week was technical in nature as the stock broke the 200-day MA, currently at 4.55, on Tuesday and with the holiday period the bulls were unable to mount much of a defense. Nonetheless, that also means that with the New Year the bulls are now committed to turn the stock around this week or face trading disappointment that will not be assuaged without some strong positive fundamental news. A turnaround this week will require a rally above last week's high at 4.57 and a daily close above the 200-day MA. Probabilities favor the bears. CLF generated a negative reversal week, having made a new 10-week high and then closing in the red and on the lows of the week, suggesting further downside below last week's low at 7.18 will be seen this week. The negative reversal was not unexpected given that the stock got up once again and for the second time in 10 months to the 200-week MA, currently at 7.45, and last week being a holiday week it was unlikely the bulls would have the strength to break that important long term trend line. Nonetheless, this is now the 3rd time that 5+year MA trend line has been touched, increasing the chances that the next time it will be broken convincingly. On a strong positive note, the stock confirmed the break of the 200-day MA, currently at 7.00, with 5 closes in a row above the line, suggesting that the bulls now have strength once again and that means that the week's objective is likely to be the 7.00 area and if the retest of the breakout is successful, that the bulls will generate new and stronger buying interest for a break of the 200-week MA. Minor to decent intraweek support is found at 6.95. Intraweek resistance will be found at last week's high at 7.42 and longer term pivotal resistance is found at 7.73 that if broke would be a clear sign that the 6-year downtrend is over. Probabilities favor the bears this week but only for a drop back down to 6.95. Thereafter, probabilities slightly favor the bulls. ENG made a new 5-week high but then closed in the red and near the lows of the week, suggesting further downside below last week's low at .84 will be seen this week. Nonetheless, the stock is now showing a double bottom on the intraweek chart at .73 which has not yet been tested successfully and it is likely that this week's move below .84 will be such a needed/required retest. Minor to decent intraweek support is found at .80 that is likely to be seen but not broken. The stock has now spent 2 months trading in this area between .73 and .90, suggesting that a strong bottom may have been built and from which a concerted rally can occur. Pivotal resistance is found at 1.00 that if broken would be a sign that the worst of the 10-month downtrend is over. On a longer term positive note, the bears were unable to break the previous and major intraweek low at .68 cents, meaning that the minor but evident 56-month uptrend remains unbroken. Probabilities favor the bears this week for a drop down to the .80 level but thereafter the probabilities favor the bulls. FCEL has been on a 3-week short-term downtrend and once again the stock closed in the lower half of the week's trading range, suggesting further downside below last week's low at 1.66 will be seen this week. Nonetheless and in spite of the selling pressure being seen, the bears have not accomplished any significant breaks of support, suggesting that that the 7-month uptrend that started at .80 remains intact. Pivotal and decent intraweek support is found at 1.50 that is further strengthened by the 200-day MA that is currently at 1.55. It is likely that the short-term objective of the traders is to once again test that line and if it holds again (as it did on November 15th and 20th) that a rush of new buying interest will occur and that an uptrend of consequence begin. Pivotal resistance is presently found at 1.93 that if broken would suggest the bulls are back in control. Probabilities favor the bears this week for a drop down to 1.55 but longer term the probabilities favor the bulls. GS generated a red week and a drop below the previous week's low for the first time in the last 5 weeks, suggesting that at least a temporary top to this recent rally has been found. The stock closed near the lows of the week and further downside below last week's low at 252.91 is expected to be seen this week. Nonetheless, the negative action this week did not accomplish any breaks of important support, suggesting this may only be a pause in the uptrend rather than an important high/top having been found. The low this past week at 252.91 seems to bear that idea, given that the previous all-time high weekly close is 252.89, meaning that the traders are definitely watching that level closely. The stock did make a new 12-day intraweek and daily closing low on Friday and that suggests that further weakness will be seen this week. Support on a daily closing basis is found at 252.89, meaning that the probabilities favor a close somewhere near that level one day this week. On an intraweek basis though, there is no support until minor support at 247.11 is reached. It must be mentioned that the 200 60-minute MA is currently at 250.00 and that level also being a psychological support, it seems that it could be the downside objective on an intraweek basis this week. MNK generated a negative reversal week, having made a new 7-week high at 24.80 and then closing below the previous week's low at 23.09. The stock closed on the lows of the week, suggesting further downside below last week's low at 22.55 will be seen this week. On an intraweek basis, there is no support below until 20.93 is reached but if that occurs much of the recent bull support would be negated. On a daily closing basis though, there is support at 22.45, which was the level where the recent mini breakout to the upside occurred, meaning that if the bulls want to keep the short-term rally alive, they need to keep the stock closing above that level. A daily close below 21.25 would be a decent negative sign. Intraweek resistance is now found at 24.80 that if broken would suggest the gap up at 26.91 would be tested. The probabilities very slightly favor the bulls but the inability to take the stock further to the upside last week was disappointing. SLCA generated an uneventful week, having traded within the previous week's high and low and closing only 20 points lower than the previous week's close. By the same token, the stock has now generated 6 red weekly closes out of the last 7 weeks and with oil making a new 28-month high this past week, another red close was disappointing. By the same token, the bulls have had a strong obstacle facing them in the manner of the 200-day MA, currently at 34.10 and then again the 200-week MA, currently at 36.05, which is an obstacle that has stymied the bulls for the past 2 months. With oil likely to continue higher, the probabilities favor at the very least the stock getting back up to the 200-day MA this week. A convincing break of that line would suggest a rally up to the $36 level. If the stock gets above Friday's high at 32.66 on Tuesday (likely), then 31.14 would become minor to decent support. Pivotal support continues to be found at 30.41. Probabilities favor the bulls this week for a rally up to at least 33.28.
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1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .141 (new price 1.70). 2) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at .87. 3) ARNA - Averaged long at 37.25 (4 mentions). Stop loss now at 24.23. Stock closed on Friday at 33.97. 4) CLF - Averaged long at 7.786 (5 mentions). No stop loss at present. Stock closed on Friday at 7.21. 5) GS - Shorted at 260.21 and at 261.96. Averaged short at 261.085 (2 mentions). Stop loss now at 262.35. Stock closed on Friday at 254.76. 6) SLCA - Averaged long at 27.03 (3 mentions). No stop loss at present. Stock closed on Friday at 32.56. 7) MNK - Averaged long at 35.754 (5 mentions). No stop loss at present. Stock closed on Friday at 22.56. 9) BGTH - Purchased at 5.07. No stop loss at present. Stock closed on Friday at 3.92. 10) ARNA - Purchased at 20.16. Stop loss now at 29.44. Stock closed on Friday at 33.97. 11) AMZN - Shorted at 987.95. No stop loss at present. Stock closed on Friday at 1169.47 12) AMZN - Shorted at 1181.34. Covered shorts at 1182.77. Loss on the trade of $71.50 per 50 shares plus commissions. 13) FCEL - Purchased at 1.60. Stop loss at 1.40. Stock closed on Friday at 1.70. 14) AMZN - Shorted at 1189.00. Covered shorts at 1185.35. Profit on the trade of 232.50 (per 50 shares) minus 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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