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Issue #562 
March 25, 2018 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Trump Tariffs Drive Market Down!
DOW Friday closing price - 23533
The indexes dropped over 6% in value this past week, mostly due to fears that the Tariffs being imposed by the Trump administration will bring about a Trade War and in turn do damage to the nation's growth in the future (the Trade War that ensued in 1929 made the Great Depression worse). This was the biggest 1 week drop (from weekly close to weekly close) seen in the last 2 years and opened the door for further downside of consequence given that it is a negative "fundamental" change and not something chart oriented.
Sell signals were generated in the weekly chart in the DOW and the SPX given that the previous low weekly closes seen in February at 24190 (DOW) and 2619 (SPX) were broken. The last time such a sell signal occurred on the weekly chart was in December 2016 and on that occasion an additional 7% drop in price was seen, suggesting that if the indexes do the same now the DOW could drop down to 22500 and the SPX to 2435 (based on weekly closes). By the same token, in 2016 the drop in the index market was more technical than fundamental in nature, given that the indexes had failed to generate any meaningful rally for over a year and the traders simply lost confidence in the ability of the bulls to generate further upside. On this occasion that scenario does not apply.
The NASDAQ has not yet generated a sell signal on the weekly closing chart as the previous low weekly close seen in February is 6874. Nonetheless, the index did give other negative signals that could be even worse, starting with the island formation on the daily chart that presently exists (index gapped up on March 9th from 7435 to 7469 and gapped down on March 19th from 7473 to 7421), the now confirmed failure to follow through signal produced when the index closed below the previous all-time daily and weekly close at 7505, and the breakaway/runaway gap that is now in place with the gaps at 7473-7421 and Wednesdays gap between 7325 and 7303. All indexes are now showing a breakaway/runaway gap formations which does strengthen the bear outlook.
I do want to mention that Island gaps are "extremely" rare and normally are only found at major tops or major bottom. As such, this island formation suggests that this recent high could very likely be the top to the uptrend for years to come. All indexes closed on the lows of the week and further downside is expected to be seen below last week's lows (DOW at 23509, SPX at 2585, and NAZ at 6992).
To the upside and on an intraweek basis, the DOW will show minor resistance at 24534 but that resistance is strengthened by the fact that the runaway gap is between 24655 and 24526. In the SPX the same situation is seen given that there is minor resistance at 2694 and the runaway gap is between 2709 and 2695. In the NASDAQ, there is minor resistance at 7170 and then nothing until minor at 7303 and minor to perhaps decent at 7338.
To the downside and on an intraweek basis, the DOW has decent support at the February low at 23360. Below that, there is very minor support at 23242 and the nothing until minor at 22219. On the weekly chart, the support below 23360 is also very minor at 23242 but then nothing until minor at 21600. In the SPX, there is decent support at the February low at 2532 and then minor at 2488. On the weekly chart and below 2532 there is no support until the 2400-2417 area but that support is considered to be minor to decent. In the NASDAQ, there is minor support at 6903, minor to perhaps decent at 6747 and again at 6667 and decent at the February low of 6630.
There are going to be several things the traders will be watching this week, starting with the DOW/NAZ spread that has widened considerably this year. If that spread narrows indicatively, more fear will be seen among traders, given that the Tech Industry is not subject to the Tariff War as much as the companies in the other indexes are and if the NASDAQ strongly outperforms the other indexes to the downside, it will suggest that not only a major top is in place but that a downtrend may have begun. Secondly, the 200-day MA's will play a role this week but it is expected that the line will be broken in the DOW and probably in the SPX which would suggest that a sideways market action will then ensue (rather than the beginning of a downtrend). In the DOW that line is presently at 23357 and in the SPX that line is at Friday's low at 2585. Those lines have not been broken for 2 years (since March 2016) and a break of them would suggest that at the very least we are in the same type of correction as was seen that year.
Evidently, the NASDAQ will be the index that the traders will pay most attention to, starting with the fact that the index made a new all-time high just 2 weeks ago whereas the other indexes did not, meaning most of the buying strength/interest is in that index. As such, the index "should not" go below the February low at 6630 (as the other indexes are likely to do) though a test of that low should be seen. In the case of the NASDAQ, the 200-day MA, currently at 6725 should not be broken, meaning that the February low support at 6630 is expected to hold up. If that occurs, the traders will likely generate a "small" sigh of relief, believing that the indexes are only in a sideways trending market and not at the beginning of a downtrend.
As far as what is likely to happen this week (if no fundamental surprises come out), further downside in all indexes is likely to be seen. Given the urgency and strong drops seen last week, chances are that the traders are in a rush to find out how much damage has been done and will try to determine all (or at least most) of that this week, at least as much as they can. I do expect the NASDAQ to fall down to the 6800 level where some nibbling at buying will probably begin. That means that another 2.8-3% drop will occur. That would also mean that both the DOW and SPX would drop down to around 22800 and 2500 in the other indexes, respectively. As I mentioned up above, based on the action seen in 2016, the DOW has a possible downside objective of 22500 and the SPX of around 2434.
Let me put one qualifying comment though. All of these chart evaluations are based solely on the charts and given the turmoil that is occurring in the White House, the fundamental picture can change for the worse easily, or for the better (not so easily). As such, the traders will be looking at the charts and trading off of them, but that can change in an instant.
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Stock Analysis/Evaluation
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CHART Outlooks
There are no mentions this week given that purchasing stocks this week is not a good option and shorting stocks this week means chasing (which is something I am normally against). Nonetheless, the probabilities strongly favor further downside and of some consequence, suggesting that short positions is the "way to go".
Under these conditions, the only way to short a stock is if the intraday chart offers a decent resistance level where the risk/reward ratio is good enough to consider and the stop loss area has a good chance of not being broken. Based on the closes on Friday of short-able stocks and the lack of closeby resistance levels, desired entry points is not something that I can determine at this time, especially not knowing where the indexes and these stocks will open at tomorrow.
As such, any mentions will be given on the message board "after" the indexes and stocks open on Monday.
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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 reversal week, having gone below the previous week's low and then above the previous week's high. The stock closed in the upper half of the week's trading range, suggesting further upside above last week's 30-month high at 45.85 will be seen this week. Nonetheless, the bulls were unable to generate a new 30-month weekly closing high given that a secondary offering came out at 41.50 right after the report, so the necessary funding is accomplished to finish the studies. As such, the stock closed below the 30-month weekly closing high at 43.37 as the traders await the results and amount of participation in the offering. The stock did generate a gap between 31.48 and 38.96 that is likely to be seen as a breakaway gap, suggesting that at some point in the near future that a runaway gap will occur. Intraweek support is now decent at 36.88 but due to the positive fundamental outlook, unlikely to be seen unless there are any snags. To the upside and on an intraweek basis, resistance is minor at 47.40, minor to perhaps decent at 49.05 and at 49.70 and decent at 51.20. Above that level, there is no resistance until decent and longer term pivotal at 62.80. Wells Fargo did give an upgrade with a $60 objective after the Phase 2 results. In looking at the 15-year weekly chart, the probabilities now strongly favor a rally up to at least the $50 level and support now likely to be decent at $37. Probabilities favor the bulls. BHTG made a new 3-week high but then fell back to close near the lows of the week (likely because of the selloff in the index market), suggesting further downside below last week's low at 4.06 will be seen this week. Nonetheless and based on the weekly close, it was an uneventful week that suggests that after the indexes find a low to the recent selloff that the stock will rally, if and when no new lows below 3.90 are generated. Important and pivotal support is found between 3.90 and 4.00. Short-term pivotal resistance is now found at last week's high at 4.38. Probabilities still slightly favor the bears but if the indexes continue lower (likely) but the bears are unable to generate new lows this coming week, the probabilities would then favor the bulls. CCJ bulls were unable to generate follow through to the upside after the previous week's close on the highs of the week and a red close and near the lows of the week occurred, suggesting further downside below last week's low at 8.85 will be seen this week. The stock was likely somewhat affected by the index selloff but this is not a stock that will generally mimic the market. Nonetheless, this coming week is likely to be short-term pivotal because if the stock breaks below the most recent low at 8.73, the bears will gain the edge. At least on a short-term basis. Short-term pivotal resistance is now found at the previous week's high at 9.52. Overall, the chart looks supported though not necessarily ready to breakout. Probabilities favor an uneventful week. CLF generated a negative week and a close once again below the 200-week MA, currently at 7.07. The stock closed in the lower half of the week's trading range, suggesting further downside below last week's low at 6.40 will be seen this week. Nonetheless, the stock was able to generate a bounce on Friday to close in the upper half of the day's trading range, suggesting further upside above Friday's high at 6.80 will be seen on Monday. With the indexes closing on Friday on a strong negative note, it was not expected the stock would bounce at all and yet it did, suggesting there is buying interest of some consequence at this area. As it is, the 6.30 level of support is pivotal for the longer term uptrend and as such and if the uptrend is to continue, the bulls will need to keep the stock above 6.30 as a break of that support will break the 25-month uptrend. Short-term pivotal resistance is found at 7.36, that if broken would shift the edge to the bulls. Probabilities slightly favor the bears this week. ENG had an uneventful inside week and a close in the middle of the week's trading range, meaning that there is no clear outlook for what the stock will do this week. Nonetheless, the bulls were unable to confirm the previous week's break of weekly close resistance by 1 point, having closed below .90 this week, meaning that the possible start of a recovery rally has been postponed for at least 1 more week. Nonetheless, last week's low at .84 and last week's high at .92 are support and resistance for this week and a break of either of them is likely to generate at least another $.04-.06 cent move in the direction broken. Probabilities are very slightly in favor of the bulls. FCEL also generated an uneventful week but the stock did close slightly in the lower half of the week's trading range, suggesting that further downside below last week's low at 1.73 will be seen this week. The 200-day MA is currently at 1.68 and pivotal support is now found at 1.69 and as such, the stock is likely to get down to 1.70-1.72 and then turn around. Pivotal resistance is found at 1.87. Probabilities favor more backing and filling but no break of support or resistance. FSLR made a new 8-week high this past week but ran up to a strong and established intraweek resistance between 73.78 and 74.86 (got up to 74.68) and backed off to close still in the green but near the lows of the week, suggesting further downside below last week's low at 69.30 will be seen this week. If that occurs, last week's high will become the 8th successful retest of that established resistance area and would suggest the stock is ready to generate a correction from the recent rally that started in February from 58.80. Minor but likely short-term pivotal support is found at 68.36 and the minor to perhaps decent between 66.20 and 67.15. Below 66.20 there is no support of consequence until 60.15 (which is the objective of the mention). Minor resistance is found at 71.80 and then decent as well as pivotal at 74.68. Probabilities favor the bears. IBM generated a strong spike down week, having dropped 7.2% in value and making a new 7-week low. The stock closed on the lows of the week and further downside below last week's low at 148.54 is expected to be seen. The stock also generated a sell signal on the weekly closing chart, having closed 9 points below the low weekly close for the past 5+ months, likely meaning (if another red close occurs next Friday) that the 25-month low weekly close at 139.70 will become a target for a retest of that support. Minor intraweek support is found at 146.21 and short-term pivotal support is found at 144.40 that if broken would suggest a drop down to the 139.13-140.67 area would occur. Intraday resistance is found at 152.58 that if broken would ease the sell pressure slightly. Further but minor resistance is found at 153.22 and then at 155.25 that if broken would suggest the worst is over. Probabilities strongly favor the bears. The key level this week is 144.40. If that level is broken, the bears will be totally in control. MNK continued lower this past week, having made another new all-time low at 13.81. The stock closed on the lows of the week and further downside below that level is expected to be seen. Short-term pivotal resistance is now found at 16.09. There is no support below. Probabilities continue to favor the bears. PTC bears finally got the edge this past week (with the help from the indexes) as the bullish flag formation on the daily chart was negated and the stock made a new 2-week low as well as closing on the low of the week, suggesting further downside below last week's low at 77.54 will be seen this week. Given the expected additional weakness in the indexes, the stock is likely to do what it did when it made a new all-time high in January, which was to correct down to the previous all-time high that was made in October. As such, the downside objective of this correction would be 73.50. On an intraweek basis, there is no support until 72.45 is reached. If that level of support is broken, it would likely mean that a major top has been made. Resistance is now found at 80.64 that if broken, would negate last week's breakdown. Probabilities favor the bears. RENN made a new 5-week low last week and closed near the lows of the week, suggesting further downside below last week's low at 8.62 will be seen this week. The stock closed below the 200-day MA, currently at 8.86, and the last time that occurred was on February 9th and the stock negated the break the very next week. The drop below last week's low could end up being the required/needed retest of the February low at 8.02 (weekly close at 8.45). Nonetheless, if the stock generates a weekly close next Friday below 8.45, the break of the MA will have ominous meaning. Short term pivotal resistance is now found at 9.20. Probabilities favor the bears this week with a potential intraweek drop down to 8.36. Nonetheless, if the bulls can manage to close in the upper half of the week's trading range, and more so in the green next Friday, then the edge will turn back to the bulls. TXN generated a spike down move this past week as well as a close on the lows of the week, suggesting further downside below last week's low at 101.34 will be seen this week. A sell signal was given on the daily chart, having broken below the most recent low daily close at 107.86 but no sell signal has yet been given on the weekly chart, though the probabilities favor that occurring this coming week, if and when the stock can close next Friday below 100.49, which is a level that is highly likely to be seen this week. Pivotal intraweek support is found at 96.69 that if broken would signal that a major top has been built at 120.75. Below 96.69 there is minor support at 94.72 that if broken would leave open air below until $80-$85 area is reached. Intraday and intraweek resistance is found between 104.94 and 105.33 that if broken would suggest the worst is over. Probabilities strongly favor the bears. |
1) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .148 (new price 1.78). 2) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at .88. 3) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 4.18 (new price (41.88). 4) CLF - Averaged long at 7.786 (5 mentions). No stop loss at present. Stock closed on Friday at 6.65. 5) RENN - Purchased at 11.08. No stop loss at this time. Stock closed on Friday at 8.73. 6) CCJ - Averaged long at 9.585 (2 mentions). No stop loss at present. Stock closed on Friday at 8.97. 7) MNK - Averaged long at 25.18 (2 mentions). No stop loss at present. Stock closed on Friday at 13.94. 9) BGTH - Purchased at 5.07. No stop loss at present. Stock closed on Friday at 4.06. 10) TXN - Shorted at 109.05. Stop loss at 113.65. Stock closed on Friday at 101.36. 11) IBM - Shorted at 161.03. Stop loss at 162.58. Stock closed on Friday at 148.89. 12) FSLR - Shorted at 73.42. Stop loss at 74.95. Stock closed on Friday at 70.65. 13) FCEL - Purchased at 1.60. Stop loss now at 1.40. Stock closed on Friday at 1.78. 14) TOL - Liquidated at 45.01. Purchased at 43.54. Profit on the trade of $147 per 100 shares minus commissions. 15) PTC - Shorted at 80.19. Stop loss is at 81.82. Stock closed on Friday at 77.56. 16) MNK - Liquidated at 14.41. Purchased 16.23. Loss on the trade of $182 per 100 shares plus commissions.
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Encyclopedia of Chart Patterns. A must have for chart aficionados! |
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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