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Issue #612 
May 5, 2019 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| The Economy Remains Strong. Bulls now Firmly on the Driver's Seat!
DOW Friday closing price - 26504
The SPX and the NASDAQ once again made new all-time weekly closing highs on Friday, confirming the breakout that occurred the week before and suggesting the rally will continue further. The breakout was also confirmed fundamentally given the positive figures seen in the Jobs report that show that growth continues without any pullback of consequence. By the same token, the ISM index report did come in lower than expected and suggests that even though growth continues it is not doing it in a torrid pace, meaning further upside will likely be slow and limited.
For the next 8+ weeks there are no catalytic earnings reports due out and on the economic front there are none for the next 4 weeks, meaning that traders are more likely to be trading the market technically than fundamentally. One guideline that is often seen when new all-time highs are made is for a rally of 3% above the previous all-time high, meaning that the SPX likely has an upside objective of 3017 and the NASDAQ of 8259. Evidently, these guidelines are not set in stone but they are more often reached than not. The only fundamental thing that could derail this chart outlook is the Trade War agreement that is supposed to be announced sometime over the next 2-4 weeks. Not much is known yet about the agreement and that means it is still a possible negative as well as positive fundamental catalyst. It does seem though, that the Trade agreement is the only thing that could derail the indexes from heading higher given that there are no economic or earnings reports of consequence due out for the next 4 weeks.
To the upside and on an intraweek basis, the DOW shows no resistance until 26769 and at the all-time high at 26951. The SPX shows no resistance above until psychological resistance begins that the 3000 demilitarized zone (2970-3030) and the NASDAQ shows no resistance above until general resistance at 8300 is reached.
To the downside and on an intraweek basis the previous week's lows are now considered minor but likely pivotal support. In the DOW that is at 26180, in the SPX that is at 2900, and in the NASDAQ it is at 7976.
Though the breakout and new all-time highs have now been confirmed with a second close above those levels, it is even more important now for the indexes not to generate a failure signal given that if such a signal occurs it would be technical rather than fundamental and therefore indicative that the bulls have run out of ammunition. As such and on a weekly closing basis, the 2930 level in the SPX and the 8109 level in the NASDAQ should not be broken. There is a high likelihood that at some point those levels could be tested and that could even be as soon as this coming week. Nonetheless, the bulls are now committed to higher prices and any failure at this time would change the outlook dramatically.
The only economic reports of any possible consequence scheduled for this week are PPI and CPI, due out on Thursday and Friday respectively. They are already anticipated to be higher numbers than last month's (anticipated at 3% and at 4%) so the only way they would possibly be a negative is if they come in higher than anticipated and that is a very low probability. As such, the indexes should continue to move higher though at a slow but consistent basis. One index to watch this week is the VIX (Volatility index). The index shows resistance at 15.92 and support at 11.03 and pivotal at 10.17. A break of either level will be indicative. If 10.17 is broken, it would just about guarantee that the upside objectives in the indexes mentioned above will be reached. Probabilities strongly favor the bulls this week but with limited upside.
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Stock Analysis/Evaluation
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CHART Outlooks
Now that the charts and the fundamentals seem to be once again "in-sync", it is time to do some trading that perhaps offers a higher probability of success than what has been seen the past 2 months. By the same token, chasing stocks is not a good strategy given that even though further upside is likely to be seen in the stocks that have been driving the market, the upside in those stocks will be limited and the risk factor will remain high. What the traders are now likely to do is look for stocks that will benefit from a stable chart situation but that are depressed in price, much like the stocks I mentioned last week. In addition, traders are also likely to key on industries that are not directly tied to the indexes, such as Health and Oil. As such, the mentions this week will be in those areas.
I have come up with a mention in oil stocks and 1 in health stocks. I would have come up with an additional 1 or 2 mentions in oil stocks but want to see the action in oil versus the stocks I am looking at to see if they are in sync as far as short-term direction. When I see that and I am convinced the trades are doable, I will mention then either in the message board or in next week's newsletter. There seems to be no rush to buy oil stocks this week as oil seems to have at least 1 more down week before it starts to turn around.
CPG Friday Closing Price - 3.65
CPG is an oil related stock that started a downtrend in June 2014 from a high at 44.84. In February of this year, it seems that a bottom to the downtrend was found at 2.43, given that 5 weeks ago the stock broke a 22-week resistance area at 3.50 and from which a short-covering rally back up to the 200-day MA, currently at 4.40, occurred (rallied to 4.46). The last 2 weeks, the stock has seen selling interest with the stock dropping down to 3.43 last week and a daily close at 3.50 on Thursday, which is the previous daily and weekly close breakout point. It can now be said that the breakout level has been tested successfully on the daily closing chart, given that on Friday the stock closed in the green.
It is important to note that CPG does follow oil prices and oil closed on Friday at 61.86 and near the lows of the week, suggesting further downside below last week's low at 60.96 is expected to be seen this week. Downside objective for oil is 59.70-60.30 or even perhaps as low as 58.00, meaning that the probabilities do favor the stock going below last week's low this week.
If in fact CPG has found a bottom (likely), it is probable that a retest of the weekly close breakdown level at 6.43 will be the mid-term objective. This is especially true given that there is already a successful retest of that level with a weekly close at 6.35 that occurred in September of last year. Nonetheless, if the stock is able to survive the earnings report without any important negative changes and confirmation of the retest of the previous high daily and weekly close breakout points occurs, that level will be the upside objective to be reached in a period of no less than 2 months to as much as 6 months.
To the downside, CPG shows that the most recent intraweek low is at 3.02, meaning that level of support should no longer be broken.
Purchases of CPG below 3.43 and using a stop loss at 2.92 and having an objective of 6.35 will offer a 6-1 risk/reward ratio.
My rating on the trade is a 4 (on a scale of 1-5 with 5 being the highest).
CVS Friday Closing Price - 56.66
CVS is the health giant called Humana. The stock began a downtrend in July 2015 from a weekly closing high at 112.47 and it seems that it may have bottomed out 5 weeks ago at 52.63. The stock traded for the last 8 weeks between 56.04 and 52.36 (all based on weekly closes) but a buy signal was given on Friday when the stock closed at 56.66 and near the highs of the week, suggesting further upside above last week's high at 57.75 will be seen this week.
As an additional benefit to the chart action, the rally seen this past week in CVS was fundamentally based as the stock reported earnings and they were better than expected. The stock gapped up on Wednesday between 54.89 and 56.21 and on Thursday the bears tried to close the gap but failed as the low that day 55.57, followed by an inside day on Friday. The gap may or may not remain but if another gap is seen on Monday (or any day this week before the breakaway gap is closed) it will generate a breakaway/runaway gap formation off of fundamentals news, which should generate a strong short-covering rally as well as new buying interest.
It is evident that many health stocks, and in particular one as big as CVS, have suffered because the fear of a 1-payer system that has been mentioned repeatedly over the past few years and would likely become a strong probability should the Democrats win in 2020. That fear has been preventing these stocks from rallying. Nonetheless, a strong stock that has already lost over 50% of value should be strongly considered at a time when it seems the bulls are once again in control of the market.
Should CVS continue higher, there is no intraweek resistance above until 62.36 and even then that resistance is minor. There is weekly close resistance at 60.86 but it is from a previous low weekly close that when broken brought about the recent drop to the 6-year intraweek low at 51.77. Nonetheless, if the stock has found a bottom, that resistance level is not likely to hold up and above $60 there is no resistance until $70 is reached and even then that is not a strong resistance level. The 200-week MA is currently at 81.30 and ultimately that line could be the objective to be reached over a period of 6 months to a year.
CVS shows some support at Thursday's low at 55.57 that could be used as an area to put a stop loss. Nonetheless, that level is not a proven support level, meaning the stop loss could be triggered. On the other side of the coin, if the stock does generate another gap or if the recent intraweek high at 57.61 is broken convincingly at the beginning of the week, that support would gain some strength. Further support will be found at 54.22 but that is based on a daily close. That level was a breakout point on the daily closing chart and given then breakout came off of positive fundamental news, the stock should no longer close below that level on any day.
A purchase of CVS between 56.55 and 55.66 and using a daily close stop loss at 54.02 and having a 67.63 objective (200-day MA), will offer a 4-1 risk/reward ratio.
My rating on the trade is 3 (on a scale of 1-5 with 5 being the highest). The rating would be higher if I could determine where a dependable support is found as well as determine an upside objective that has a high degree of probability of being reached. Nonetheless, this is a strong company at what seems to be a very low and supportable price, meaning that trade is doable.
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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 3/30 Profit of $10,446 using 100 shares per mention (after commissions & losses) Closed out profitable trades for April per 100 shares per mention (after commission)
IBM (short) $965
Closed positions with increase in equity above last months close minus commissions. NONE Total Profit for April, per 100 shares and after commissions $965 Closed out losing trades for April per 100 shares of each mention (including commission)
BIDU (short) $353
JPM (short) $377 Closed positions with decrease in equity below last months close plus commissions. AXP (short) $1685 Total Loss for April, per 100 shares, including commissions $2415 Open positions in profit per 100 shares per mention as of 4/30
ARNA (long) $102
Open positions with increase in equity above last months close.
FSLR (long) $3476
ARNA (long) $28 ENG (long) $68 Total $3674 Open positions in loss per 100 shares per mention as of 4/30
LNTH (long) $84
TEVA (long) $13 Open positions with decrease in equity below last months close.
CCJ (long) $300 Total $520 Status of trades for month of April per 100 shares on each mention after losses and commission subtractions.
Profit of $1704
Status of account/portfolio for 2019, as of 4/30Profit of $12150 using 100 shares traded per mention.
ARNA generated another green weekly close, confirming that the break of support that occurred 3 weeks ago has now been negated. The stock closed near the high of the week and further upside above last week's high at 47.88 is expected to be seen this week. Short term pivotal resistance is found at 49.54 that if broken would mean the bulls have the edge again. There is some resistance at 48.45 that the traders are likely to use as a barometer of the strength or lack of it of the bulls. A break above 48.45 would suggest further upside is to come, while a failure to get above 48.45 would suggest more backing and filling within that high bar and 44.56 to the downside. The chart slightly favors the bulls but some of the gains were likely accomplished because of the index rally and now discovery of what the stock itself has as far as resuming the uptrend is to be discovered. To the downside, a break below 42.48 would now be a negative sign.
CCJ made a new 6-month low, suggesting that the strength seen from October 2017 to February of this year has dissipated. Nonetheless, there was some buying interest at the low of the week at 10.35 as the stock rallied enough to close slightly in the upper half of the week's trading range, suggesting a slightly higher probability of going above last week's high at 11.28 than below last week's low. More importantly, the weekly close was only 3 points below the 200-week MA, meaning that important and pivotal line was not broken. Staying above the line keeps the long-term uptrend viable and suggests the weakness will only be temporary (1-3 months max). This does mean the bulls need to generate a green weekly close next Friday. Evidently, if the bulls can get above last week's high at 11.28, the probabilities of that occurring will increase ten-fold as there is no news scheduled for the company that could act as a catalyst for new selling interest. For the time being, the bulls are simply playing a defensive game with the sole intention of defusing the recent selling power of the bears. A break below last week's low at 10.35 would be a negative sign, especially if the 7-month low at 10.19 is broken. Probabilities slightly favor the bulls. ENG was able to generate a failure signal against the bears, having closed above the previous 6-year weekly closing low at .68. The stock closed on the high of the week and further upside above last week's high at .79 is expected to be seen this week. More importantly, the stock is now back to where it was prior to the earnings report that caused the stock to drop down to .48, meaning that the negative earnings report has now been dismissed. Short-term pivotal resistance is found at .80 and a bit more meaningful at .90 and at 1.00. The 200-day MA is currently at .86 and there is a good chance that level will be seen this week. That line has not been broken to the upside since October when weakness in the overall market started. Support is now pivotal at .63. This is a company that has no debt and does have a product in the clean energy sector that is in demand and that demand is more likely to increase in the future than decrease. As such, holding on to existing positions and even considering purchasing more buy and hold positions is likely the way to go. The 200-week MA is currently at 1.17 and when that line gets broken, it is likely the stock will see a spike up as has been seen 5 times before in the past 10 years. It is unlikely that level will be reached any time soon, but I am mentioning it as an important pivot point. Probabilities favor the bears this week. FSLR generated a new 11-month weekly closing high, confirming the previous week failure signal against the bears when the stock closed above a previous weekly close pivotal support at 61.22. The stock closed in the middle of the week's trading range, leaving the door open for either going above last week's high at 63.82 or below last week's low at 59.75. Nonetheless, the probabilities favor the bulls given that the stock is in an uptrend and new multi-month highs continue to be made. One of the possible reasons some selling was seen on Friday (when the high for the week was made) is that the stock is close to reaching a minor to decent intraweek high resistance at 65.50 and that some profit taking is starting to be seen given that the stock has almost doubled in price in the last 6 months, Nonetheless, reaching the 65.50 level is now a high probability before any serious profit taking occurs. The chart does suggest that after reaching 65.50 that the stock will see a correction back down to the $60 and trade between those 2 levels for 3-6 weeks. Ultimately though, the clear objective for the stock is to get up to the $75 level by the end of the year. Pivotal support is now found between 58.61 and 58.80, meaning that the stop loss can now be raised to 58.30. Probabilities favor the bulls. LNTH made a new all-time weekly closing high and closed on the high of the week, suggesting further upside above last week's high at 26.10 will be seen. The previous all-time intraweek high at 26.30 has not yet been broken but should be broken this week. The company did report earnings this week and the initial reaction was negative but by the end of the week, the selling dried up without any support levels broken, leaving the door wide open for further upside to be seen. The previous established all-time high weekly close seen in January 2018 was 23.60 and using the 3% above-the-previous-high guideline objective, it does offer a 30.68 upside objective. Intraweek support is now found at 23.28 and strongly pivotal (on a weekly closing basis) at 23.60-24.00. Probabilities strongly favor the bulls this week. MCIG generated an inside week but a green weekly close and slightly in the upper half of the week's trading range, suggesting a slightly higher chance of going above last week's high at .089 than below last week's low at .07. The chart shows no intraweek resistance until .105 but given that a fundamental evaluation given 2 weeks ago suggests the stock will be trading between .05 and .08 for the next few months, if the bulls are able to get up to .105 it will be seen as an unexpected positive. If unable to get up to that level and last week's low at .07 is broken, probabilities will skyrocket that .05 will be seen. Probabilities slightly favor the bears this week. TEVA reported earning this past week and the initial reaction was negative, given that the stock dropped down to 14.26 and very close to the pivotal support at 14.07. Nonetheless, the bulls were able to turn the stock around to close near the highs of the week, suggesting further upside above last week's high at 15.72 will be seen this week. Using the daily chart, the stock now shows a required/needed retest of the 18-month low at 14.07 that has now been confirmed given that the stock went above Thursday's high on Friday. The action being seen in the strongly depressed stock that had been on a strong downtrend for almost 3 years is strongly suggestive that the downtrend is now likely over and that a short-covering rally is likely to occur. There is no resistance above until 17.13 where a minor to perhaps short-term resistance is found. Nonetheless, the chart suggests that the $20 level will now be targeted before any selling of consequence reappears. Probabilities favor the bulls this week.
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1) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at .78. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 4.76 (new price (47.60). 3) FSLR - Averaged long at 49.017. (4 mentions). Stop loss now at 58.30. Stock closed on Friday at 61.76. 4) CCJ - Averaged long at 10.637 (5 mentions). Stop loss now at 10.51. Stock closed on Friday at 10.89. 5) LNTH - Purchased at 25.00 and at 23.68. Averaged long at 24.34 (2 mentions). Stop loss at 23.18. Stock closed on Friday at 26.07. 6) MCIG - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .08. 7) IBM - Covered shorts at 138.12. Averaged short at 143.015 (2 mentions). Profit on the trade of $965 per 100 shares minus commissions. 8) BABA - Covered short at 190.75. Loss on the trade of $1227 per 100 shares plus commissions. 9) TEVA - Purchased at 15.35 and 14.38. Averaged long at 14.875 (2 mentions. Stop loss is at 13.92. Stock closed on Friday at 15.18. 10) BABA - Shorted at 191.55. Covered shorts at 193.57. Loss on the trade of $202 per 100 shares plus commissions. 11) IBM - Shorted at 140.66. Covered shorts at 140.15. Profit on the trade of $51 per 100 shares minus commissions. 12) GS - Shorted at 206.08. Covered shorts at 206.31. Loss on the trade of $23 per 100 shares plus commissions. 13) LVS - Shorter at 68.18. Covered shorts at 67.99. Profit on the trade of $19 per 100 shares minus commissions.
Previous Newsletters
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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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