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Issue #624 
Aug 4, 2019 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls Lose Control. Negative Reversals Seen!
DOW Friday closing price - 26485
The bulls failed to get above the previous week's highs in spite of closing on the highs of the week and then after the rate increase by the Fed was exactly as expected, a strong bout of profit taking occurred that caused the indexes to drop between 3-4% in value. All indexes generated failure signals of consequence by closing below 1 or both of the 2 previous all-time high closes seen over the past 18 months, meaning that in one week all the gains seen in the past year to year-and-a-half were erased. In the DOW the previous high weekly closes were 26743 (September 2018) and 26616 (January 2018), in the SPX it was 2954 (April) and thought the September close was at 2929 and the index closed at 2932 (failure signal not given on this close), it did close near enough that another red close next Friday (likely) will mimic the other indexes, and in the NASDAQ it was 8164 (April) and 8109 (August 2018). Never before has such a thing happened where all gains from 2 previous all-time high weekly closes were negated in one fell swoop. The indexes closed near the lows of the week and further downside below last week's lows (DOW at 26249, SPX at 2914) and NASDAQ at 7953) are expected to be seen this week.
There was one additional piece of news that aggravated the selling and that was that Trump announced on Friday that further tariffs will be imposed on China on September 1st if no agreement is made before then. With no new trade meetings scheduled until the first week of September, it seems highly unlikely that the new tariffs will not be imposed. Add to this the fact that the interest rate cut scenario has been the main thrust of the bull-run recently and that no new cuts will be considered until the September meeting, it does seem highly unlikely that the bulls will be able to stimulate in August any negation of the failure signals given or even a suggestion of resumption of the 9-month uptrend that was in place since November of last year. Last but not least, the first 3 weeks of the earnings quarter are over and there are no catalytic-to-the-market earnings reports due out until the second week of October, meaning that there is nothing fundamentally positive scheduled on the immediate horizon that could give the bulls any ammunition to stimulate new buying interest.
From a chart point of view there is no help for the bulls either, given that the latest rally that started in May (10 weeks ago) was straight up and no support levels of consequence were built, suggesting nearby support levels are minor and not likely to offer the kind of support that is likely to cause a turn-around back to the upside, other than on a very short term and limited basis. Simply stated, the May lows are the only levels of support where the bulls might have some success in stopping a profit taking and new selling interest run. On a weekly closing basis, the May low in the DOW is 24815, in the SPX it is 2752 and in the NASDAQ it is 7453.
To the upside and on an intraweek basis, the DOW shows minor resistance at 26695 and decent between 26951 and 26966. The SPX shows minor resistance at 2939 and then minor to decent between 2954 and 2964. The NASDAQ shows minor resistance at 8088 and then decent between 8133 and 8147.
To the downside and on an intraweek basis, the DOW shows minor support at the 26000 demilitarized zone and then minor again at 25372 and decent at the 25000 demilitarized area. The SPX shows minor support at 2891 and again at 2864 and then decent around the 28000 demilitarized zone. The NASDAQ shows minor support at 7879 and then again at 7732, minor to perhaps decent around 7600 and then decent down around 7332.
The last time the SPX made a new all-time high and then gave a failure signal, the index generated 4 red weeks in a row and fell 6% in value. Using that example, if that is mimicked this time, the index would have a 2843 objective. Then again, the first time the index made a new all-time high and generated a failure signal, the index fell 20.2% and if that time is mimicked here, it would offer a 2413 downside objective. Common sense and considering what is at play at this time, it is likely this correction will be more than the last one but less than the first one. I would venture an educated guess and say the index will at least drop to 2800 and possibly as low as 2750, which would mean a correction of about 8% in value. By the same token, it is more likely the correction will be more than the last one given that there is no fundamental reason to buy for the next 4-6 weeks and 2 previous all-time highs were broken in the DOW and NAZ and that is a strong negative stimulator, especially since the outlook for the rest of the year is for lower earnings and lower GDP.
There are two possible outlooks for this coming week. 1) the indexes will open strongly lower on Monday and continue lower the rest of the week until those minor support levels are reached. 2) the indexes open higher on Monday as the bulls try to negate the signals given on Friday. The latter is the most probable given that there was a late rally on Friday, suggesting that already there are some traders looking to buy the dip. Had the indexes not generated that small rally on Friday, the traders would be looking to sell from the first get-go on Monday. Now and because of the minor rally, they might wait until after the rally reaches resistance levels above before selling.
Probabilities favor the bears this week for further downside and a red close next Friday.
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Stock Analysis/Evaluation
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CHART Outlooks
The indexes gave strong signals on both the chart and on a fundamental basis that a correction is occurring that will likely continue for at least the next 3-4 weeks. As such, the only type of position that can be considered at this time are sales. Gold has broken out and is likely to continue higher but it too suggests that for the next few weeks' gains will be small and likely limited, meaning that it does not seem to be a time where Gold stocks will appreciate much. The same can be said about oil stocks.
SALES
DIS Friday Closing Price - 141.71
DIS has been one of the "hot" stocks of late given that it has appreciated 32% in value the past 9 months (from 100.35 to 147.15). The stock made a new all-time high in April above a resistance level at $120 (based on a weekly close) that was considered strong resistance since it had stood up for 45 months and been retested successfully on 2 occasions during that time. The stock appreciated in value 18.5% after the breakout, which is more than the 15% that is generally seen on new and confirmed all-time highs. Nonetheless, over the past 4 weeks the stock seemed to have met resistance selling as the highs seen were 145.43, 145.36 and 145.19. Last week, the stock broke that evident resistance with a rally to 147.15 but promptly generated a failure signal after making a new all-time high and then closing red below the all-time high weekly close at 144.88. The stock closed in the lower half of the week's trading range, suggesting further downside below last week's low at 139.94 will be seen this week.
DIS bulls were able to hold short-term intraweek support at 139.75 that had been established over the past 3 weeks and did close on the upper half of Friday's trading range, suggesting further upside above Friday's high at 142.22 will be seen this week. If that occurs, it will be seen as an attempt to generate a successful retest of the all-time high at 147.15 that is needed and required in a bull market where no negative news on the stock has come out. Such a retest will likely be used by the traders to take profits and possibly short the stock given that the 147.15 level now seems to be a spike high top to this rally.
DIS now shows minor resistance at 142.95, a bit stronger at 143.53 and decent at 145.43. One or all of those levels are potential highs for this week with the first one being a high probability.
To the downside and on an intraweek basis, DIS shows support at 139.75 but given that there is now a triple low at that level, is likely to be broken. Further but minor support is found at 137.80 but the stock shows an open gap between 136.28 and 137.61, meaning that the gap will be a magnet if the stock gets down to that support. Further support is found at 134.82 and then nothing until 130.55/130.78. All of these levels are viable downside objectives for the short term. Nonetheless, if the indexes do get into the kind of correction that is anticipated to be seen, the stock could easily drop all the way down to the 45-month breakout area at $120 to test that area. In fact, a retest of that area is more likely to be seen than a new high above 147.15, over the midterm.
Sales of DIS at or above 142.94 and using a stop loss at 147.35 and having at least a $130 objective will offer a 3-1 risk/reward ratio. By the same token, if the entry point is near the $145 level, the risk/reward ratio goes up to 7-1 and if the stock is to head down to test the breakout area at $120, both entry points will offer risk/reward ratios above 5-1.
My rating on the trade is a 3.5 (on a scale of 1-5 with 5 being the highest).
The 2 mentions below are both in the semiconductor industry. Only one of them should be done. Pick the one you feel most comfortable with.
ENTG Friday Closing Price - 41.54
ENTG is a semiconductor company in an industry that is presently under pressure due to the China Trade War. The stock made a new all-time high this past week with a rally up to 45.12 but then reversed to close in the red and near the lows of the week, suggesting further downside below last week's low at 41.26 is expected to be seen this week. The stock over the past 14 months has made 3 new all-time highs and the previous 2 generated corrections of 36% and 19% shortly thereafter. The previous all-time high went 9% above the one before and this one has been 5% above the previous one. In addition and more importantly, the stock generated a failure signal, having closed on Friday below the previous all-time high weekly close at 42.01, strongly suggesting that further downside is to be seen if the failure signal is confirmed next Friday.
ENTG is a good company to "trade" given that it has shown volatility in the past and trading ranges that offer good risk/reward ratios for a rather low-priced stock. With corrections of 36% and 19% being seen in the last 2 all-time highs, if the same is seen on this correction it will offer a trade that is worthwhile.
The weekly closing chart of ENTG suggests a high probability of a drop down to the $36 and a decent probability of a drop down to $34. Both of these objectives would leave the chart in a bullish long term trend. If by any chance the indexes and the stock have formed a major top from where a downtrend is to start, the 200-week MA, currently at 25.35, would be the objective. The hardest part of this trade is to find an entry point that is both doable and that will offer a good risk/reward ratio.
In looking at the intraday chart, ENTG has a possibility of getting back to as high as 43.50 but the daily and weekly closes on Friday suggest more downside will be seen before any small rally occurs, meaning that this is a difficult trade to institute. Nonetheless and thinking about having at least a workable risk/reward ratio, anything lower than that would not be desirable.
Sales of ENTG around 43.50 and using a stop loss at 45.35 and having an objective of $36, would 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).
VSH Friday Closing Price - 16.61
VSH is also in the semiconductor industry and it has a higher probability rating than ENTG.
VSH broke above the 200-week MA, currently at 17.10, 3 years ago in July 2016 and stayed above the line until 12 weeks ago when the line was broken to the downside. For the past 12 weeks the bulls have been unable to get above the line on a weekly closing basis though the previous week the stock closed at the line. Last week, the stock made a new 13-week intraweek high but then reversed to close in the red and near the low of the week, suggesting further downside below last week's low at 16.43 will be seen this week. The negative reversal made the previous weeks close at 17.09 into a successful retest of the line and suggesting that the stock remains in a bear trend. This is further supported with a bearish inverted flag formation with the flagpole being the 6-week drop from 20.85 to 15.06 and the flag being the trading range the past 12 weeks with last week's high at 17.82. A break below 15.06 would offer a flag objective of 12.06.
It is clearly evident that VSH is in a bearish trend and now more so because the semiconductor industry is under pressure because of the China trade war. Over the past 15 years, the stock has traded about 40% of the time (during different periods of time) between the $10 and $14 level with most of the support on a weekly closing basis being at $12, meaning that the bearish flag formation objective is viable.
VSH made a new 8-day low on Friday but then closed in the upper half of the day's trading range, suggesting further upside above Friday's high at 16.75 will be seen on Monday. Minimum upside objective is 17.08 but it could go as far up at 17.41.
Sales of VSH at 17.07 and using a stop loss at 17.92 (above last week's high at 17.82) and having a 12.00 objective will offer a 6-1 risk/reward ratio.
My rating on the trade is a 3.5 (on a scale of 1-5 with 5 being the highest).
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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 2019, as of 7/1 Profit of $15,984 using 100 shares per mention (after commissions & losses) Closed out profitable trades for July per 100 shares per mention (after commission)
IBM (short) $6
Closed positions with increase in equity above last months close minus commissions. ARNA (long) $601 Total Profit for July, per 100 shares and after commissions $607 Closed out losing trades for July per 100 shares of each mention (including commission)
MDT (short) $22
BABA (short) $840 IBM (short) $124 JD (long) $198 Closed positions with decrease in equity below last months close plus commissions.
CLB (long) $41 Total Loss for July, per 100 shares, including commissions $2480 Open positions in profit per 100 shares per mention as of 7/31
AU (long) $15
Open positions with increase in equity above last months close.
ARNA (long) $162
CVS (long) $138 CPG $3 Total $694 Open positions in loss per 100 shares per mention as of 7/31
CRON (long) $16
Open positions with decrease in equity below last months close.
IBM (short) $2068 Total $5879 Status of trades for month of July per 100 shares on each mention after losses and commission subtractions.
Loss of $7058
Status of account/portfolio for 2019, as of 7/31Profit of $8926 using 100 shares traded per mention.
AAPL negated a negative reversal week, having made a new 10-month high and then going below the previous week's low and closing red and near the lows of the week, suggesting further downside below the previous week's low at 201.63 will be seen this week. The company reported earnings and they were better than expected ($2.18 vs expected at $2.08) and on an intraweek basis causing the stock to break above a decent resistance at 215.31, triggering stop loss orders that pushed the stock to rally up to last week's high at 221.37. Nonetheless, the bulls were not able to maintain the rally, reversing to make a low 9% below the high of the week. More importantly, the red weekly close generated the second successful weekly close retest of what is now a 3-point down trend line that started when the stock originally made the all-time weekly closing high at 225.74 in September of last year. This now means that on a weekly closing basis, there is pivotal resistance at 207.74. As far as support below, the 9-week rally from the $170 level has been almost straight up with only one very minor pullback 5 weeks ago when the previous week's low was broken and a drop down to 198.41 was seen. If that level of very minor support is broken, there is no support of any consequence until the $180 level is reached. Intraweek resistance will now be found at the $210 demilitarized zone and stronger at 215.31. The stock gapped down on Friday between 206.74 and 206.43 that should be closed this week and probably on Monday given that the stock closed in the upper half of Friday's trading range. New sales can be considered on any rally near $210 and using a stop loss at 210.74. Probabilities favor the bears.
ARNA generated a negative key reversal, having made a new 5-year intraweek high at 64.48 but then reversing to close red and below the previous week's low at 61.26 (closed at 61.25). In addition, a sell signal on the daily closing chart was given when the 17-day daily closing low at 61.33 was broken on Friday with a close at 61.25 was made. The stock closed on the lows of the week and further downside below last week's low at 60.76 is expected to be seen this week. There is some intraweek support at 60.19 and at 59.11 (59.63 on a daily closing basis) but if that is broken, a drop down to 56.00 could be seen. A daily close below 58.41 would generate another failure signal and in looking at the weekly chart, there is no support found until the previous multi-year high weekly close at 50.93 is reached. To the upside, intraweek resistance will be found at 62.64 and stronger at 63.68. The fact that the stock shows decent weekly close resistance between $65 and $67 going all the way back 15 years does suggest that this is likely to be a valid correction having seen a 64.48 high this past week. Probabilities favor the bears. AU generated a new 3-year weekly closing high on Friday and closed on the high of the week, suggesting further upside above last week's high at 19.54 will be seen this week. Nonetheless, questions remain given that in March 2014 the stock had a high weekly close at 19.36 and until that resistance is broken there will still be some doubt as to whether further upside will occur. Nonetheless, Gold also made a new 5+year high and there is no weekly close resistance nearby, meaning that the probabilities favor the stock continuing higher immediately. Above 19.36 there is no weekly close resistance until a strong and pivotal weekly close resistance is reached at 21.91. Last week's low at 16.82 has now become pivotal support. Probabilities favor the bulls. CPG continues to trade in a sideways fashion between 3.00 and 3.45 without any direction seen. The bulls have been unable to make things happen and are playing a defensive game that so far has held up but has more of a chance of breaking to the downside than the upside. The 2.89-2.93 area is pivotal in a closing way (daily, weekly and monthly). A daily close below 2.89 or a weekly close below 2.93 opens the door to the downside in a trending way. On the plus side for the bulls, they were able to close one day this past week above the most recent daily at 3.24 that does shift the short-term edge to the bulls. Probabilities favor the bulls this week but only for the trade within the parameters mentioned above. CRON generated a failure signal on the daily closing chart, having closed on Thursday below the previous all-time high daily close at 13.75. Nonetheless, that failure signal was negated on Friday with a close at 13.84. More importantly, the previous all-time high weekly close that got broken in January is at 12.72 and that level was tested this week on an intraweek basis with a drop down to 12.70 where buying interest was uncovered that generated a $1.14 rally before the close on Friday. The stock closed exactly at the midpoint of the week's trading range, suggesting an equal chance of going below last week's low at 12.70 and above last week's high at 15.01. Nonetheless, the bounce seen from the low of the week as well as the negation of the failure signal given on the daily chart, does give the probabilities to the bulls. The $15.00 level is now pivotal as that is where the 200-week MA is currently at. CVS was able to generate a green weekly close that does suggest that the worst of this mini correction from the recent rally high is over. It was in question all week as the previous week's close was at 55.54 and every day this past week the stock got down below that level, leaving the door open for further downside. The stock closed on the high of the day on Friday and if the bulls are able to get above Friday's high at 55.84 on Monday, a double low at 54.97/55.01 will be built that should give the bulls enough ammunition to make a short term bull statement by generating a daily close above 56.53. Evidently, the 54.97 low made 2 weeks ago is now seen as pivotal support that if broken will bring in new selling interest. As such, a stop loss at 54.65 should be instituted. Probabilities favor the bulls. ENG gave another bull statement, having generated above a minor but evident weekly close resistance area at 1.04 (closed at 1.12). The psychological resistance at $1.00 has now been broken, giving the bulls a level of new support on the weekly closing chart from which attempts at breaking the remaining and stronger resistances above can be launched with limitation of risk. The levels of resistance above are at 1.16 (200-week MA), at 1.32 (minor to decent resistance) and at 1.39 (decent to strong resistance due to a double top found there). All of these resistances are based on a weekly close. Support should now be found at .99-1.00. The 200-week MA is an important mid to long term resistance that is unlikely to be broken the first time around, suggesting that for the next 2-4 weeks the stock will trade between 1.00 and 1.16. Probabilities favor the bulls this week. FNV negated the previous week's negative reversal week, having generated a positive reversal week with a lower low than the previous week and a new all-time intraweek high as well as a green weekly close and in the upper half of the week's trading range, suggesting further upside above last week's high at 90.78 will be seen this week. The stock rallied 6% off of the low of the week, meaning that last week's low at 85.44 is now considered a minor to decent intraweek support. Any new and confirmed all-time high daily close above 90.30 will suggest a new run to the upside has begun. Stop losses can now be placed at 85.34. Probabilities favor the bulls. FSLR reported better than expected earnings that generated a spike rally up to a new 14-month intraweek high at 69.24. Nonetheless and perhaps due to the weakness seen in the index market, the spike high breakout was not confirmed on either the daily or weekly closing chart given that on the daily chart the previous 14-month daily closing high is 67.11 and the bulls were only able to generate a high daily close at 66.83 and on the weekly closing chart, the previous multi-month close was 66.84 and on Friday the stock closed at 66.63. As such, the better than expected earnings report did not give any new ammunition to the bulls. On the negative side, there is a lot of old resistance on the chart between $70 and $71 and having gone up to 69.24, it can be said that the selling seen supports that level of resistance as unbreakable at this time. The stock closed in the middle of the week's trading range, meaning there is equal chance to going below last week's low at 64.09 than above last week's high at 69.25. It will likely depend on what the indexes are doing. Nonetheless, given the resistance found between $70 and $71, consideration should be given to taking profits on any rally near or above the $69 level as the risk/reward ratio at that price favors the bears, Chart suggests that for the next few months, the stock will trade between $59/60 and $70/71. Probabilities slightly favor the bulls because of the uptrend and good earnings report but if the indexes continue to fall (likely) that edge will erode. IBM generated a key negative reversal week, having made a new 10-month intraweek high and then going below the previous week's low and closing in the red and below the previous week's low and near the low of the week, suggesting further downside below last week's low 145.49 will be seen this week. In addition, the stock closed below the 200-week MA, currently at 147.85 and if that failure is confirmed with another red close below that line, it will negate the bullish breakout seen 4 weeks ago. The bulls did hold on to some chart advantage as the previous multi-month high daily close at 145.14 was not broken but it is highly likely that level will be seen this week and any confirmed close below that level will give the bears the edge back, at least for a drop down to the $140 level. Intraweek resistance is now found at 147.52 and up to 150.54 that are now unlikely to both be broken without a change of fundamentals. Downside objective is now the $140 demilitarized zone with a chance of getting as low as 137.45. Probabilities favor the bears. MDT generated a negative reversal week, having made a new all-time intraweek high but then closing in the red on Friday. The red weekly close was only by $.22 cents and as such not all that convincing of weakness. The stock closed slightly in the lower half of the week's trading range, suggesting a slightly higher probability of going below last week's low at 101.24 than above last week's high at 103.95. Compared to the index market and some Tech stocks, the stock is showing quite a bit of resilience, meaning that if there is no follow through weakness in the indexes or just minor, the bulls will remain in control. By the same token, during the last 6 weeks there has not been one week where the stock went below the previous week's low and only 1 week out of the past 13 weeks, meaning that if the indexes do continue lower there is no level of close by support the bulls can depend on to stop the profit taking. The 1 week where the stock went below the previous week's low is considered minor support and that is found at 96.52. If that is broken and a weekly close below 98.37 (previous all-time weekly closing high) occurs, a failure signal would be given and then the bears will take a measure of control and a strong profit taking bout would like be seen. A drop down to the $98-$99 level is likely to be seen. Evidently, a new high above 103.95 would be a positive so a stop loss at 104.35 can now be instituted. Probabilities favor the bears. SRUTF confirmed the successful retest of the important and pivotal weekly close support at .36 with a second green weekly close. Nonetheless, the stock generated an inside week, meaning buying interest remains tepid. The stock did close near the highs of the week and further upside above last week's high at is expected to be seen this week. The 200-day MA is an important line at this moment and it is at .43 which is also where the most recent intraweek high is located. A confirmed daily close above that level will erase all the weakness seen the past 3 weeks and give the edge back to the bulls. Probabilities "slightly" favor the bulls.
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1) ENG - Averaged long at 1.616 (6 mentions). No stop loss at present. Stock closed on Friday at .1.12. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 6.12 (new price (61.25). 3) FSLR - Averaged long at 43.835. (2 mentions). Stop loss now at 61.40. Stock closed on Friday at 66.63. 4) MCIG - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .0571. 5) AAPL - Averaged short at 190.71 (2 mentions). No stop loss at present. Stock closed on Friday at 207.74. 6) IBM - Averaged short at 136.08 (2 mentions) No stop loss at present. Stock closed on Friday at 151.36. 7) CVS - Averaged long at 55.58 (2 mentions). No stop at present. Stock closed on Friday at 55.54. 8) CPG - Averaged long at 3.28 (3 mentions). Stop loss now at 2.66. Stock closed on Friday at 3.08. 9) FNV - Purchased at 85.28. Stop loss now at 85.34. Stock closed on Friday at 89.54. 10) CLB - Liquidated at 52.18. Profit on the trade of $767 per 100 shares (2 mentions) minus commissions. . 11) CRON - Averaged long at 14.033 (3 mentions). No stop loss at present. Stock closed on Friday at 13.84. 12) AU - Averaged long at 18.86 (2 mentions). Stop loss at 15.10. Stock closed on Friday at 19.36. 13) MDT - Shorted at 103.20 and at 103.58. Averaged short at 103.39 (2 mentions). Stop loss now at 104.35. Stock closed on Friday at 102.33. 14) CLB - Purchased at 47.82 and 46.62. Liquidated at 45.73. Loss on the trade of $298 per 100 shares (2 mentions) 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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