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Issue #571 
Jun 10, 2018 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls Back in Control. Question is "How Much Higher and for How Long?"
DOW Friday closing price - 25316
The NASDAQ made a new all-time high across the board (intraweek, daily and weekly closes) and closed in the upper half of the week's trading range, suggesting further upside above last week's high at 7697 will be seen this week. The DOW and the SPX both made new 13-week highs and closed on the highs of the week, suggesting further upside above last week's highs (DOW at 25325 and SPX at 2779) will be seen this week as well.
The most significant thing that has happened over the past 4 weeks is that the Russell 2000 index (RUT) has been leading the rally, having closed on Friday 3.6% above its previous all-time high weekly close at 1608, in comparison with the NASDAQ that is only 1.1% above its previous all-time high. This does suggest that the rally is likely to continue over the summer months (against the seasonal tendency to correct) as it likely means that small cap stocks have quite a bit of catching up to do, given that they have been quite suppressed over the past few years. Then again, it also likely means that the rally may be nearing a major top in the near (or not too distant) future as small cap stocks are normally the last ones to rally before a top is found.
The SPX may become the index to watch over the next few weeks, given that bank stocks are expected to rally due to the regulations that limited their growth in the past 9 years (by limiting what they could do in the market) have been lifted by the Trump administration. With the index still having resistance levels above, it is the index most likely to give traders chart clues as to what to do.
To the upside and on an intraweek basis, the SPX shows minor to perhaps decent resistance at 2789 and then decent resistance at 2801. Above that level, there is minor but likely indicative resistance at 2839 (due to the breakaway gap between 2839 and 2851) and then major at the all-time high at 2872. The NASDAQ and the RUT show no resistance above.
To the downside and on an intraweek basis, the SPX shows minor but likely short-term indicative support at 2701 and then decent as well as trend changing support at 2676. The NASDAQ shows no intraweek support of any consequence until 7320 is reached but on a daily and weekly closing basis, the 7588 and 7560 levels respectively would give a failure signal if the index close below them. The RUT would do the same if a daily or weekly close below 1608 and 1611 were to happen. On an intraweek basis, support is found at 1611.
This coming week there are a few economic events that might generate movement. On Tuesday the CPI number comes out and on Wednesday the Fed will announce the rate decision for the month of June. By the same token, there is a 90% expectation that the Fed will raise rates, meaning that if they do, it is not likely to be a negative catalyst for the market. The expectation for the CPI number is 2% (core CPI). Last month, the expectation was also 2% and the number came in a 1%. If either of those numbers are matched this week, it is unlikely that there will be much of a reaction. A number above 3% could have a negative reaction but it is unlikely to occur.
The other factor in play this coming week is that Trump is meeting with the North Korean President on Tuesday and that can be a big "monkey wrench" since the history of us and North Korea agreeing on anything has been always negative. Nonetheless, if something positive does come out of the meeting, it would be a positive to the market.
As such, the probabilities continue to favor the bulls but there are certainly events and reports this week that could generate changes if surprises occur.
As stated above, the SPX is likely to be the key index to watch with the 2801 level of resistance being pivotal to the upside. By the same token, the 2676 level of support is also pivotal to the downside. I do not anticipate a break of resistance occurring before Wednesday but the probabilities do favor it happening before the end of the week. The action being seen, especially in the RUT is suggestive that a summer rally will occur.
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Stock Analysis/Evaluation
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CHART Outlooks
The Russell 2000 index has made a new all-time high and in an impressive way. This does suggest that the traders are now looking at small cap stocks to trade, which is the normal progression to occur near the end of a major bull trend. Below are a couple of small cap stocks whose charts suggest that something positive is about to happen.
TWNK Friday Closing Price - 13.33
TWNK has only been trading for 18 months and when the IPO opened it opened at $12. The stock proceeded to rally up to the 17.18 level before embarking on a 6-month downtrend that took the stock all the way down to a new all-time low at 11.00, seen in November of last year. Since then, the stock has been trading with lower highs and higher lows (a cone formation) that suggests that a breakout or a breakdown is likely to occur in the near future.
In December of last year, TWNK broke above the 200-day MA, currently at 13.64, and since then has traded both above the line and below the line with more of a bullish than a bearish outlook, given that 65% of the past 117 trading days have been above the line. In addition, the first time the stock broke below the line it traded below it for 25 days. The second time it broke below the line it traded below the line for 14 days and now it has been trading below the line for the last 5 days but given Friday's action, it does suggest the stock will not stay below the line for much longer.
TWNK generated on the daily chart, the 3rd successful retest of the 11.00 low, having seen a low at 12.23 on February 28th, a low of 12.59 on May 18th, and Thursday's low at 12.95, followed by a green close above Thursday's low on Friday. Simply stated, the chart now seems to be fulfilled to the downside and it is highly likely that the traders will now attempt to generate a breakout to the upside.
TWNK is showing a slew of rallies over the past 13-months, all of which have been successful retests of the 17.18 all-time high. Rallies to 17.03, 16.75, 16.55, 16.45, 15.40, 14.98, and most recently a double high at 14.03 and 14.04 have occurred, suggesting that a break above 14.04 will generate a buy signal of consequence.
It should be mentioned that the 13.00 level has proven to be a decent support area, given that the stock traded repeatedly down to the 13.00-13.16 area for 1 month in Aug/Sep of last year and another 10 times as resistance in February and in May of this year, in addition to Thursday's low at 12.95.
A break of the recent double high at 14.03/14.04 would generate a buy signal and it would suggest that the previous high at 14.98 would be tested and broken, which would mean the cone formation would be broken as well. The cone formation (if broken) would give a $20 objective, to be reached within 6-12 months.
Purchases of TWNK below Friday's close at 13.31 and using a stop loss at 12.85 and having a $20 objective will offer a 13-1 risk/reward ratio.
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
NE Friday Closing Price - 5.90
NE generated a 13-month weekly close breakout 5 weeks ago when the stock closed above the January high at 5.77. The following week, the stock negated that breakout, having closed at 5.42 and then followed by another close below that level at 5.63. Nonetheless, on Friday the breakout was once again confirmed with a 5.90 close, suggesting that the bears have failed to make a statement and that the bulls are ready to "cash in" on the breakout. This is even more convincing given that the company is an off-shore oil and gas drilling contractor that is tied in to the price of oil and oil has been weak over the past few weeks.
It is important to note that NE made a new 23-year low at 3.14 in August of last year after reaching its all-time high at 60.27 in June 2008 and has now spent 8 months building a bottom formation from which to launch a breakout. More importantly, the 4.94 to 5.34 level has proven to be a support or resistance level of consequence since 1990, having either been an important weekly closing low or high on 8 occasions during that 28 year period of time. Having now closed above that level on 3 occasions over the past 5 months and twice over the past 4 weeks, strongly suggests that the bulls are now in at least short-term control.
NE does show several resistance levels above, likely meaning that any rally will have several obstacles to overcome but in general the bulls are likely to target the 200-week MA, currently at 9.78, which is a line that has not been broken or even touched over the past 4+ years. The breakout of this area does suggest that testing that line will be an objective over the next few months.
For now, NE does not show any resistance of consequence until the 6.70 level is reached. Further and slightly stronger resistance is found at 7.80 and then again at 8.37. Above that level, there is resistance at 9.17 and 9.73 that will incorporate the 200-week MA, giving that area not only an objective status but also a decent resistance status.
To the downside and on an intraweek basis, NE shows minor to perhaps decent and likely pivotal support at the low seen the previous week at 5.29. It is also important to note that the stock broke above the 50-week MA 4 weeks ago, currently at 5.12, and the drop back down to 5.29 is now seen as a successful retest of that line, which is a line that had not been broken to the upside since December 2013 (4+ years).
Simply stated, the NE chart is offering a multitude of signs that something of importance to the upside is happening.
Purchases of NE between 5.55 and 5.85 and using a stop loss at 5.21 and having an objective of anywhere between 8.37 and 9.75 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).
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA extended its recent rally, having made another new 39-month intraweek high and closing above the weekly close resistance at 48.10 with a close on Friday at 48.34. Nonetheless, some selling interest was seen this past week as the stock got up near the March 2015 intraweek resistance at 49.70 with a high this past week to 49.64 and then backed off down to 47.38 during the next 2 trading days. The stock closed slightly in the lower half of the week's trading range, suggesting a slightly higher possibility of going below last week's low at 47.18 than above last week's high at 49.64. The stock did generate a green daily close on Friday, above Thursday's high, meaning that Thursday's low at 47.38 and Tuesday high at 49.64 are both pivotal support and resistance levels for this week. Evidently, a break above 49.64 is likely to bring in additional buying interest and a rally up not only above the psychological resistance at $50 but up to the double high intraweek resistance at 51.20. By the same token, a drop below 47.38 is likely to bring in new selling interest, a break below last week's low at 47.18, as well as a drop down to the decent daily close support at 43.85. The probabilities favor the bulls but this is an area that in the past generated over a year of sideways trading action. AXP reversed the previous week's weakness, having rallied this past week up to close the weekly gap between 100.47 and 99.84 as well as up to the previous all-time intraweek high at 102.39 with a high this past week at 102.39. The stock closed in the upper half of the week's trading range, suggesting a higher probability of going above last week's high than below last week's low at 98.43. Nonetheless, the stock generated a red daily close on Friday, meaning that the decent daily close resistance between 101.22 and 101.64 that has held the stock in check on 3 previous occasions between January and May has now been further strengthened. Evidently, any daily close this coming week above 101.64 would suggests that the all-time high daily close at 102.70 would likely be tested and probably broken. Daily close support at 97.14 is now decent as well as pivotal/indicative. Probabilities slightly favor the bulls but it seems that the stock needs help from the index market to make new highs. CLF continues to trade sideways, having generated an inside week last week as well as a close in the middle of the week's trading range, suggesting the traders are waiting for some type of catalyst to decide on a direction from here. Pivotal intraweek resistance is found at 9.08 and pivotal support at 8.11. The stock continues to be in an overall positive though slow upward trend, suggesting a higher probability of a breakout than a breakdown. Nonetheless, there was no sign last week that either is imminent. Probabilities favor more of the same. ENG extended its gains, having generated another new 8-month high intraweek high and weekly close. Nonetheless, the new intraweek high was only by 1 point (1.47 vs 1.46) and the 13-month high weekly close resistance at 1.40 was not broken (closed on Friday at 1.39), meaning that the bulls have not yet been able to generate mid-term control. Nonetheless, the stock has rallied 65% in value over the past 5 weeks and closed in the green every one of those weeks and did close in the upper half of last week's close, meaning that the probabilities favor the bulls. By the same token, it is clearly evident that the stock is at an important pivot point and needs a new multi-month high as well as a close above 1.40 next Friday to take the next step up. Last week's low at 1.23 is short-term pivotal support this week. FCEL reported lower than expected earnings and the stock made a new 8-week low and in the process broke and closed below the 200-day MA, currently at 1.81. Nonetheless, the stock got down to the 2-point uptrend line that started in May of last year (currently at 1.70) and stopped and then on Friday there was no follow through to the downside and a green daily close was generated, suggesting that the worst of the news may already be factored in. Pivotal intraweek support is found at 1.64 that if broken would be indicative that the uptrend has been broken. Resistance is found at 1.88 and then pivotal as well as indicative at 1.98. The stock did close near the lows of the day on Friday, suggesting that Monday's action is likely to be indicative. Probabilities continue to favor the bulls but very slightly. FSLR received several downgrades this past week, adding to the previous week's negative announcement by China that they will no longer be subsidizing Solar companies, meaning that lower prices for Solar Panels are likely to be seen. Some rating companies went from buy to hold and others from hold to sell as price objectives from anywhere from $63 to $53 were given, which brought about additional selling interest and a stop to the 13-month uptrend that started at 25.56 and ended at 81.72. The stock has dropped 25% in value since China announced the end to subsidies and the stock has reached an area of multi-year support as well as psychological support at $50. There is weekly close support of consequence between 48.31 and up to 54.03 with the stock having generated an excess of 9 high or low weekly closes in that area during the past 4 years as well as the 200-week MA, currently at 51.69. Many of these closes occurred at a time when the Solar Industry had previously been under strong sell interest fundamentally. The stock did close near the lows of the week and further downside below last week's low at 52.11 is expected to be seen this week. The stock had tried to bounce up on Wednesday but then was hit further downgrades on Thursday, stopping whatever bottom fishing had occurred. The stock did break the lowest intraweek support at 52.16 and that now suggests further downside. The next intraweek support is found at 48.58 but the stock has an open gap down at 48.08 that is likely to be targeted given that the Solar Industry now has either a hold or a sell rating. The probabilities favor the stock now trading between $47 and $63 over the next 6 months and as such, should be traded as a "trading stock" and not as a trending stock. Intraday 10-minute chart suggests that a mini rally up to 54.25 may occur at the beginning of the week. Consideration should be given to liquidate the positions bought earlier this week at that price. By the same token, a rally above 54.89 should generate a rally up to the 200 10-minute MA, currently at 56.38. Probabilities favor the bears this week. MSFT made another new all-time intraweek and weekly closing high this past week but did get up near to the "general" resistance at $103 ($3 above a major level such as $100 is). The stock sold off to close very slightly in the upper half of the week's trading range, suggesting that further upside above last week's high at 102.69 will be seen this week but that a new high will be limited. The stock did generate a small dip on Thursday with a low at 100.38 as well as a green day on Friday, suggesting that if that low is broken that some profit taking or new selling interest might be seen for further downside with a potential for a drop down to the $97 level, which is also now "general" support. The probabilities favor the stock now trading between $97 and $103 for the next week or two or until something new is decided in the index market. RENN continues to trade in the recent 5-week trading range between 8.32 and 9.20. The stock did close in the upper half of the week's trading range, suggesting a higher probability of going above last week's high at 8.91 than below last week's low at 8.62. Nonetheless, the overall sideways action during the past 5 weeks with no rallies of consequence being seen, as well as the fundamental picture that is presently uncertain but leaning slightly to the bear side, suggests that consideration should be given to liquidating the positions and looking elsewhere for trading opportunities. UGAZ continues to trade in a volatile manner but within the chart parameters that have been set up during the past 5 weeks (since the breakout occurred). The traders are waiting to see what oil is going to do before deciding on a definite direction but oil continues to trade with a slight bearish bias though within $2 of what is likely decent support, meaning that the traders are more likely to opt for continuation of the breakout than giving a failure signal. This was certainly evident on Friday when the index traded most of the day below the daily close support at 62.75 but at the end of the day a rally occurred that generated a close above the daily close support, in spite of the fact that oil was down that day. Daily close support is found at 62.75 but if oil continues to be under pressure, that level could be broken on a 1-day basis. The important and indicative daily close support is found at 61.14 that if broken would be a bear statement. By the same token, any daily close above 68.75 would be a bull statement. Probabilities slightly 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 .1458 (new price 1.75). 2) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at 1.39. 3) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 4.83 (new price (48.34). 4) CLF - Averaged long at 7.786 (5 mentions). Stop loss now at 6.30. Stock closed on Friday at 8.67. 5) RENN - Averaged long at 9.795 (2 mentions). No stop loss at this time. Stock closed on Friday at 8.80. 6) CCJ - Liquidated at 12.01. Averaged long at 9.585. Profit on the trade of $485 per 100 shares (2 mentions) minus commissions. 7) UGAZ - Purchased at 62.49. Averaged long at 62.40. Stop loss at 61.02. Stock closed on Friday at 63.15. 9) FSLR - Purchased at 61.03 and again at 53.14. Averaged long at 57.085. No stop loss at present. Stock closed on Friday at 52.67. 10) MSFT - Shorted at 96.43. No stop loss at present. Stock closed on Friday at 101.63. 12) FCEL - Purchased at 1.60. Stop loss now at 1.63. Stock closed on Friday at 1.75. 13) AXP - Averaged short at 101.305 (2 mentions). Stop loss now at 103.35. Stock closed on Friday at 101.00. 14) FSLR - Purchased at 69.03. Liquidated at 64.92. Loss on the trade of $411 oer 100 shares plus commissions. 15) FSLR - Purchased at 61.87. Liquidated at 60.48. Loss on the trade of $129 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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