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Issue #588 
Oct 21, 2018 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls Showing Failure Signals, in Spite of Earnings Reports!
DOW Friday closing price - 25444
The indexes generated an inside week but due to the fact that the indexes all closed near the lows of the week it does not suggest anything more than perhaps a pause in the correction occurred. In the past few years, the first 3 weeks of the earnings quarter have belonged to the bulls but even though most of the reports last week were as expected or better, the bulls were unable to make any kind of a positive statement, suggesting the traders are now considering further downside of consequence unless the earnings reports scheduled for the next 2 weeks come out "much better" than what is already expected (which is better to begin with).
The DOW and the SPX were able to hold weekly close support levels, meaning that no new sell or failure signals were given but the NASDAQ, which has been the leader to the upside during the past few years and especially in the first 3 weeks of the earnings quarter, confirmed the failure signal given the previous week when the index closed below the previous week's close, which was below the previous all-time high weekly close at 7560 and also below a decent weekly close support level at 7510. The confirmation is a bad omen for the bulls, especially considering that NFLX (a NAZ stock) reported much better earnings than expected on Tuesday night and opened 9% higher the following morning and by the end of the week, ended up with a 2% loss below the previous week's close.
This coming week on Thursday and in the NASDAQ, AMZN and GOOGL report earnings but given the action seen in NFLX this past week, the traders will need to see substantial better earnings than expected in order to prevent the same fate occurring. AAPL and FB report the week after. The probabilities do not favor that happening, especially considering that the NFLX report was more than expected by a lot.
It does seem that the Trade War is starting to cause problems as companies (such as the car makers) have reported substantially lower incomes because of it and have fallen over 29% in value during this Trade wartime. The Trade War is not likely to end anytime soon and the traders seem to be taking a bearish view of what the market can do from here. As it is, the Fed announced in the recent minutes that they will continue to raise rates for the following year, likely with the next Fed rate hike occurring in December and that is an additional reason to sell.
This coming week is important given that the Durable Goods report comes out on Thursday and more importantly, the new GDP Advance number comes out on Friday and is already expected to be lower than the previous one that came out at 4.2%. The number is expected at 3.3% and that will deflate some of the positive thoughts about the economy growing above 4%. In addition, earnings reports on CAT, 3M and VZ come out Tuesday morning, T and MSFT on Wednesday and AMZN and GOOGL on Thursday after the close. These will be what the traders look at this week to decide what to do. Evidently how the indexes close next Friday will be a strong sign of what is to come as the following week's reports on FB and AAPL are not likely to be any better than what AMZN and GOOGL report this week.
To the upside and on an intraweek basis, the DOW now shows minor resistance at 25692 and pivotal resistance at 25817. The SPX shows minor resistance at 2791, a bit stronger at 2801 and pivotal at 2816. The NASDAQ shows minor resistance at 7505, a bit stronger at 7637 and pivotal at 7670.
To the downside and on an intraweek basis, the DOW shows minor support at 25236, minor to perhaps decent at 24965 and pivotal at 24899. The SPX shows very minor support at 2743 and then nothing until 2710, which should be pivotal support but there is quite a bit of additional support down at 2700. The NASDAQ shows minor support at 7320 and then pivotal at 7274.
The reality is that other than the DOW, the other indexes are already showing failure signals and that means that the burden of proof is in the shoulders of the bulls. The action seen this past week in NFLX has to be considered disappointing as it suggests that even if good earnings continue to come out that it may not be sufficient to regenerate the uptrend even for a simple retest of the recent highs. As such, the probabilities are favoring the bears though they still have to prove it this week with all those reports scheduled.
The lows seen the previous week (DOW at 24899, SPX at 2710 and NAZ at 7270) are pivotal and if broken, panic selling may once again be seen. Probabilities favor the bears.
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Stock Analysis/Evaluation
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CHART Outlooks
I was looking to short stocks this weekend but soon found out that most of the stocks that can be shorted are already down substantially and do not offer good risk/reward ratios, especially considering that the probability ratings are not high enough at this time because of the possibility that the economic and earnings reports due out this week could be short-term game changers. As such, I found no stocks that I would be willing to short until such a time that the probability ratings increase. By the end of the week on Friday though, the picture will be much clearer and at that time and if the actions warrants it, shorts can be placed even if "chasing" is needed. Evidently, if after the earnings and economic reports come out the market is heading lower, it is unlikely that any bounce of consequence would occur, meaning that stops can be placed using the intraday charts.
It is also possible that during the week there might be a rally and some stock get up close to a resistance level that has a fair degree of probability of holding up and if that occurs, I will give the mention on the message board.
As far as last week's buy mention in MCIG (the Cannabis stock), that will remain as is given that the Marijuana industry (especially in Canada) is not likely to be affected by market action. In fact, I am considering buying more of CRON if the stock gets down to 9.29 and the action supports a purchase. I will let you know on the message board.
PURCHASES
MCIG Friday Closing Price - $.28 cents
MCIG has been trading since August 2013 and started trading at $.04 cents and within 6 months had moved up to $.92. Nonetheless, the stock fell into a slump after that original foray to the upside and fell all the way down to $.018 cents in December 2015. Nonetheless, in September 2016 the stock once again saw some buying interest come in and rallied from $.025 cents to $.50 cents over the next 4 months.
For the past 19 months, MCIG has been backing and filling with lower highs and higher lows being seen consistently. Rallies up to $.43 cents, $.37 cents and $.35 cents have been seen, while drops down to $13 cents, $.19 cents and $.22 cents have been seen as well. The formation that has been formed during the past 19 months is a triangle one that suggests a breakout will occur with an upside objective of $.75 cent. If that occurs, it is certainly possible that the all-time high at $.92 would become a magnet to be tested.
The most recent low in MCIG was $.219 and that low should not be broken given that it would break the triangle formation to the downside. The most recent high was at $.35 and a break of that high would break the triangle formation to the upside and offer the $.75 objective.
MCIG closed near the highs of the week and further upside above last week's high at $.295 is expected to be seen this week. Support is found at $.26 and a purchase around .265 would be desired.
Purchases of MCIG around $.265 and using a stop loss at $.2365 and having a $.75 objective will off a 16-1 risk/reward ratio.
My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest). Nonetheless, keep in mind that this is an over-the-counter stock and therefore much riskier than trading on the established exchanges. By the same token, the stock has been averaging about 1.5 million shares traded daily so liquidity is not a problem.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA generated a totally uneventful week but the bulls did try to generate a rally on Tuesday and were successful in closing above the 200-day MA that day but then fell back on Wednesday without any confirmation of the breakout and on Thursday and Friday the stock was once again trading below the MA line. The stock closed slightly in the lower half of the week's trading range, suggesting further downside below last week's close at 38.98 will be seen this week and if that occurs it could be the sign that will generate further selling interest. The outlook remains short-term bearish as the stock has now traded below the 200-day MA, currently at 40.91, for 10 of the last 11 trading days and the bearish flag formation mentioned last week remains in place though the parameters have now slightly changed, given that last week's high is now the top of the flag and a break of the bottom of the flag at 38.75 would now offer a downside objective of 41.97 (rather than the one given last week at 30.75. Strictly from a chart point of view, the drop down to the $30 is a viable possibility as there is decent support at the 30.00 level and it will become a magnet if the support between 36.80 and 34.90 is broken. In addition, the failure to make a new high 2 weeks ago above the 50.05 high seen in June does mean that a successful retest of that high has occurred and that opens the door for a retest of the decent and clearly defined support at $30 which could be seen if the indexes continue lower or the traders decide to sell their positions. The bearish outlook on the indexes (if it is confirmed this week) will put pressure on the bulls for supports to break. Probabilities favor the bears this week. My stop loss on the purchase is now at 38.65. AXP reported earnings this week and they were better than expected and the stock rallied to close 3.7% above the previous week's close and near the highs of the week, suggesting further upside above last week's high at 107.55 will be seen this week. The mention's objective at 107.41 was reached last week but given that the rally came off of news and further upside is expected this week, the objective is now at least 108.50. Resistance is found at 109.40 and then very minor at 110.24 and strong at the all-time high at 111.77. Given the bearish outlook on the indexes but that will not likely be fulfilled until next Friday, I will be liquidating these positions this coming week. Intraweek support is found at 106.28 and stronger and more indicative at 105.40. Probabilities favor the bulls at the beginning of the week but likely will turn negative at the end of the week. CCJ generated another uneventful inside week but once again closed at the 200-week MA, currently at 11.40, which was broken to the upside for the first time in 4 years 3 weeks ago. The stock did close near the lows of the week and further downside below last week's low at 11.36 is expected to be seen this week. A green close next Friday will mean the breakout will have been tested successfully and new buying interest is likely to be seen. Minor to perhaps decent resistance is found at 11.95/11.98, and decent at the 21-month high seen the 2 weeks ago at 12.38. Minor support is found at 11.29 and then at the gap area at 11.00. The weekly chart does not show any support until 10.68 is reached but the gap area at 11.00 should offer support given that the gap came off of good news and should not be closed. Probabilities favor the bulls for a green close next Friday but some sell pressure at the beginning of the week is expected to be seen. CLF reported earnings this past week and even though they were better than expected, the stock sold off and made a new 6-week low at 10.32. The stock did recover to close on Friday slightly in the upper half of the day's trading range, suggesting a slightly higher probability of going on Monday above Friday's high at 11.70 than below Friday's low at 10.32. If that occurs, the drop down to 10.32 will be seen as a spike low as well as an important retest of the psychological support at $10 and the bulls will likely get back on the saddle. On a negative note though, the stock closed below the previous multi-year high weekly close at 11.49 and another close below that level next Friday would be negative change the chart. For now, a weekly close at $13 remains as the main objective of this rally. Probabilities favor the bulls this week given that the earnings report was actually bullish and that a recovery rally occurred after the report. CRON generated a wild week in which the stock traded in a wide trading range between 13.00 and 9.61 and the stock did close on the lows of the week, suggesting further downside below last week's low will be seen. Nonetheless, the news was actually positive given that Canada made recreational Marijuana legal this past week, meaning that there could be a strong increase in sales in the coming months. Nonetheless, the stock and the industry have proven to be volatile and perhaps the 25% sell off from the highs to the lows of the week could be about the old adage of "buy the anticipation and sell the news". The stock has support at 9.26 with a turnaround expected from that price. Resistance is found at 11.90 and then at 13.00. The chart remains showing a bullish flag formation and therefore probabilities favor the bulls unless the 8.68 support level is broken. ENG made a new 5-month low this past week, having broken the .98 support level and dropping down to .80. The break was not unexpected as the stock had traded sideways for 9 weeks but with a slight bearish bias and the break was likely the end result of that. On a small positive note, the breakout seen in May and that took the stock up to 1.47 was from a weekly close resistance at .91 and the bulls managed to close the stock on Friday at .92, meaning that a green weekly close next Friday will become a successful retest of the breakout level. As it is, the stock closed slightly in the upper half of the week's trading range, suggesting a higher probability of going above last week's high at 1.02 than below last week's low at .80. The company reports earnings in 2 weeks (Friday Nov. 2nd) and that will likely be the determining factor. Probabilities slightly favor the bulls this week. FSLR generated a green weekly close and above the weekly close support at 45.88 that got broken the week before, suggesting the break has been negated. The stock closed near the highs of the week and further upside above last week's high at 48.00 is expected to be seen this week. A daily close above 47.61 would now generate a new but short-term buy signal and that is what the bulls will try to accomplish this week. Daily close support is now found at 45.37 that if broken would once again give the bears the edge. Nothing has yet been accomplished by the bulls as far as the downtrend is concerned but this week they will have a good opportunity to make a statement regarding the potential bottom of the downtrend having been found with the 44.72 low. The company reports earnings on Thursday after the close and given that the stock has fallen 45.3% in value during the past 6 months but the fundamental outlook for the company for next year is positive, the probabilities strongly suggest the stock is about to make a turn around. In fact, I may purchase additional shares before the earnings report comes out, if and when a buy signal is given. Probabilities favor the bulls. SLCA received a downgrade this past week from a buy to a hold with a $20 objective that brought about new selling interest and a new 32-month intraweek and weekly closing low. The stock fell 12.3% just this week, adding up to 59% for the year. The stock closed at a decent weekly close support level at 16.10 that suggests that a bounce and a green close will occur this week. Intraweek support of consequence is the double bottom at 13.54/13.55 that was seen in February 2015 and from which a 52-week rally up to 61.49 occurred. It is highly unlikely that double bottom will be broken or even seen given that the fundamental picture does not support these low prices. The company reports earnings on Tuesday morning and based on the present prices, the probabilities favor the stock rallying back up to the $21 level, which is what happened the last time the stock was at these prices back in 2015. The stock gapped down on Tuesday between 18.33 and 18.12 off of the downgrade. Given that a downgrade is not a fundamental change, that gap is likely to be closed this week. Minor but short-term pivotal resistance is found at 18.96 and then nothing until 20.51 to 20.82 level. Evidently the longer term semi bullish outlook has changed but a rally up above $20 and likely up to the $21 or even the $22 level is likely to occur over the next few weeks if the earnings report does not further disappoint. I do want to remind everyone that as of 1 month ago there were 17 analysts covering the stock and 10 have aggressive buy recommendations and 7 have hold recommendations. No sell recommendations. I will be aggressive this week and add more positions on Monday before the report comes out. I will be looking to add around the 16.00 level and will have no stop loss until after the report is released.
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1) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at .92. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 3.99 (new price (39.99). 3) CLF - Averaged long at 8.96 (3 mentions). No stop loss at present. Stock closed on Friday at 11.05. 4) FSLR - Averaged long at 54.21. (2 mentions). No stop loss at present. Stock closed on Friday at 46.59. 5) CCJ - Averaged long at 10.47 (3 mentions). Stop loss now at 10.03. Stock closed on Friday at 11.49. 6) ARNA - Purchased at 39.73. Stop loss at 38.65. Stock closed on Friday at 39.99. 7) AXP - Purchased at 102.30. Stop loss at 99.65. Stock closed on Friday at 106.73. 8) CRON - Purchased at 9.36, at 11.05, and at 10.25. Averaged long at 10.22 (3 mentions) Stop loss at 8.58. Stock closed on Friday at 9.71. 9) TXN - Liquidated at 98.84. Averaged long at 99.325. Loss on the trade of $75 per 100 shares (2 mentions) plus commissions. 10) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .08 (new price .95). 11) SLCA - Averaged long at 18.34 (3 mentions). No stop loss at present. Stock closed on Friday at 16.07.
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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
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