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Issue #601 
Feb 3, 2019 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls Continue Run but Resistance Ahead!
DOW Friday closing price - 25063
The indexes generated another green week, the 6th in a row, and closed near the highs of the week, suggesting further upside above last week's highs will be seen this week (DOW above 25193, SPX above 2716 and NAZ above 7313). Nonetheless, the first 3 weeks of the earnings quarter are now over and the important economic reports for the month are out, meaning that the bulls will need new catalysts to keep the indexes going forward, especially since resistance levels of consequence are found above and no retest of the December lows has occurred yet and from a technical perspective, that is likely to happen.
There is still one important report due out and that is GOOGL that reports Monday after the close. Due to the positive close on Friday, it is likely that higher highs above last week's high and month will be made Monday or at the latest Tuesday after the GOOGL report comes out. Nonetheless, if the bulls are not able to get above the minor to decent but indicative intraweek resistance levels above (DOW at 25980, SPX at 2800 and NASDAQ at 7486), then the traders are likely to get on the short side and push down to retest the December lows over the next couple of months.
It should be mentioned that in 18 out of the last 19 years there has been some form of correction starting in the first 5 months of the year and most in the first quarter of the year. Using the DOW as the guideline, in 8 of the last 19 years, the correction started either in January or February and in 3 of the years it started in March. The latest time it started was in May as 4 of the corrections started that month. One of the years where a correction did not happen was in 2003 when the index bottomed out of a downtrend and was starting to recover and in 2017 when the index was rallying strongly due to the Trump Presidency, the correction was very minor in nature. Nonetheless, it is evident that there has been a strong seasonal tendency to correct in the first few months of the year and the situation presently is screaming out loud for a correction to test the lows to be seen.
It also needs to be mentioned that on the monthly chart, the all-time highs have not yet been retested by any of the indexes and given than the indexes all made the highs for January last week, a rally above last week's highs this week will be seen as a potential retest of the all-time highs. The monthly chart is not all that important for the short or mid-term but in cases like this (determining what the future might bring this year), a retest of the all-time highs is a necessity given that the indexes have not yet shown that the uptrend has turned into a downtrend. Normally for that to happen, the indexes would go through some form of a sideways trend before instituting a downtrend and in those cases it could be months and perhaps even a couple of years before that would be established. By the way, the only index that is showing close by resistance of consequence on the monthly chart is the NASDAQ and that resistance is at 7505 (242 points above Friday's close). It is highly unlikely that resistance will be broken without some strong positive fundamental news.
To the upside and on an intraweek basis, the DOW shows minor to perhaps decent resistance at 25402, minor to decent at 25800 and then decent as well as pivotal at 25980. Nonetheless, on a weekly closing basis, there is decent resistance between 25316 and 25335. The SPX shows minor resistance at 2717and again at 2742. Above that level, there is no resistance until pivotal at 2800. A weekly close above 2760 would generate a buy signal. The resistance at 2742 is important as it is further strengthened by the 200-day MA, currently at 2741. The NASDAQ shows minor resistance at 7319 and then nothing until pivotal at 7485. Nonetheless, the 200-day MA is currently at 7453, and that will also be seen as resistance. On a weekly closing basis though, a close above 7330 would generate a buy signal.
To the downside and on an intraweek basis, the DOW shows multiple supports (7 to be exact) between 24323 and 23881. Nonetheless, on the weekly chart there are only 2 supports at 24122 and at 23997. Below that, there is no support until 23531. The SPX also shows multiple supports (5) between 2594 and 2624. On the weekly chart though, the support is found between 2603 and 2594. The NASDAQ also shows multiple supports (7) between 6830 and 7017. On the weekly chart though, there is support at 6922 and then at 6830. In looking at the weekly closing charts, these are the likely pivotal levels. In the DOW at 23997, in the SPX at 2588 and in the NAZ at 6874.
As you can see by the above mentioned support levels, there is quite a bit of risk to the bulls given that no support levels of consequence are nearby. Any negative news or pause of momentum can generate a down draft of consequence and that is of concern. In addition, there is a magnet in the DOW that will beckon strongly this week and that is the gap made on Tuesday between 24674 and 24790. The gap is not supported by news and therefore highly likely to be closed at some point. If the index gets up to resistance at 25402 in the first 2 days of the week and that resistance is not broken, the gap will beckon strongly and that would mean a drop of over 700 points from that potential high. Such a drop, and with no strong support below until the 24122 level is reached, would likely generate a lot of new selling interest and effectively stop the recovery rally. As such, the bulls must depend on the momentum that is being seen now and plow higher and through 25402 if they have any hope of maintaining the rally that started 7 weeks ago.
This coming week is likely pivotal (from a chart point of view) given the levels of support and resistance now in place and the lack of news scheduled. In addition, this rally is now all about momentum and momentum cannot be maintained without feeding it daily.
More importantly, all the indexes made new 17-20 month lows in December and those lows have not been tested successfully as yet. Without any game changing positive fundamental news (which there has not been), it is extremely unlikely that an index (or stock) can continue higher without accomplishing a retest of the lows first if there has not been any positive catalytic news. So far, the only thing the bulls have been able to accomplish is negating the break of weekly close support, suggesting that the December lows have a high probability of holding up. Nonetheless, without some form of retest of those lows, it is only speculation that they will hold up. As such, the probabilities favor the indexes starting to turn back downward either this week or at the latest next week if the bulls cannot accomplish anything more "concrete" than what they have accomplished so far.
Probabilities favor upside follow through at the beginning of the week but a negative reversal toward the end of the week.
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Stock Analysis/Evaluation
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CHART Outlooks
I believe that the indexes will be generating a negative reversal week this week, going up early in the week and turning back down late in the week. As such, short positions are likely the way to go. Downside objective is at least a retest of the December lows but there is a small possibility that new lows could be made. Either way, it is more likely that short positions will make money under this scenario than not.
I am not going to give individual mentions with details at this time but in all cases the indexes and stocks have to rally to get to the desired entry points and that is a price assumption that is difficult to make. As such, I will be giving 4 stocks that can be shorted (and their stop losses and objectives) if the desired entry points are reached.
AAPL Friday Closing Price - 166.52
A sale of AAPL anywhere near the 180.00 and using a stop loss at 185.35 and having a downside objective of $149 will offer a 5-1 risk/reward ratio. Rating on the trade is a 3.75.
BIDU Friday Closing Price - 171.27
A sale of BIDU anywhere near the $180 level and using a stop loss at 185.35 and having a $161 objective will offer a 6-1 risk/reward ratio. My rating on the trade is a 3.
FB Friday Closing Price - 165.71
A sale of FB anywhere around the $175 level and using a stop loss at 180.35 and having a downside objective of $127 will offer a 9-1 risk/reward ratio. My rating on the trade is a 3.25.
BWA Friday Closing Price - 41.21
A sale of BWA anywhere around the $43 level and using a stop loss at 44.35 and having an objective of 35.71 will offer a 7-1 risk/reward ratio. My rating on the trade is 3.25).
I will be looking at other stocks as the week progresses and action is seen and will give other mentions in the message board if an opportunity arises. For now, the above 4 mentions are decent shorts if the desired entry points are reached.
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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 1/1 Profit of $0 using 100 shares per mention (after commissions & losses) Closed out profitable trades for January per 100 shares per mention (after commission)
AAPL (long) $1031
Closed positions with increase in equity above last months close minus commissions.
CLB (long) $2984 Total Profit for January, per 100 shares and after commissions $4370 Closed out losing trades for January per 100 shares of each mention (including commission)
OLN (short) $65
AAPL (short) $833 Closed positions with decrease in equity below last months close plus commissions. NONE Total Loss for December, per 100 shares, including commissions $898 Open positions in profit per 100 shares per mention as of 1/31
MDT (long) $419
Open positions with increase in equity above last months close.
CRON (long) $3788
CCJ (long) $308 ARNA (long) 409 CLF (long) $906 FSLR (long) $2439 ENG (long) $92 SLCA (long) $660 MCIG (long) $25 Total $9181 Open positions in loss per 100 shares per mention as of 1/1
NONE
Open positions with decrease in equity below last months close. FCEL (long) $2 Total $2 Status of trades for month of January per 100 shares on each mention after losses and commission subtractions.
Profit of $12651
Status of account/portfolio for 2019, as of 1/31Profit of $12651 using 100 shares traded per mention.
ARNA generated a new 8-month high weekly close and closed on the highs of the week, suggesting further upside above last week's high at 46.49 will be seen this week. Based on the weekly closing chart, there is no resistance until the 4-year high weekly close at 49.47 is reached. On an intraweek basis, there is resistance at 48.45 and on a daily closing basis there is resistance at 47.59 but the fundamental picture is presently supportive, suggesting that a retest of the $50 level is now likely to occur. In addition, the stock broke out of a bullish flag formation that offers a 51.80 objective to be reached within 3 weeks. Support on a daily closing basis is now found at 43.98, given that the breakout of the flag would be negated if the stock generated a daily close below that level. On an intraweek basis, pivotal support is now found at 41.73. Probabilities favor the bulls.
CCJ generated an uneventful week, having closed at the same level as it did the week before. Nonetheless, the stock has now generated 2 weekly closes in a row above the previous and decently strong weekly close resistance at 12.08, suggesting the bulls will be in control this week. By the same token, the stock closed very slightly in the upper half of the week's trading range, suggesting a slightly higher chance of going above last week's high at 12.45 than below last week's low at 11.71. The reason for the uncertainty is that the company reports earnings on Friday and the traders are unsure whether the report will be bullish or bearish. Nonetheless, the probabilities do favor the bulls inasmuch as the stock has been on the verge of a clear breakout for the past 12 weeks and the burden of proof is on the shoulders of the bears. Short-term pivotal support is found at 11.46 and short-term pivotal resistance is found at 12.79. It is now all about the earnings report next Friday AM. CLF generated the 5th week in a row of green weekly closes and had the biggest trading range of those weeks given that a fundamental boost occurred due to Vale's output reduction due to the catastrophe at the dam, meaning that the company will see an increase of orders. There is some minor to perhaps decent intraweek resistance at 11.44 and minor to decent at 11.90. Nonetheless and due to a bullish flag formation as well as a breakaway/runaway gap formation, the stock shows an upside objective of 12.72 to be reached within 2 weeks. As stated in the past, long term upside objective for the stock has been the 13.03 level, based on a weekly close. That was the major low weekly close seen in March 2009 and a close above that level will generate a major failure signal against the bears and that is not likely to happen without some strong and positive fundamental changes. It does need to be mentioned that the company also reports earnings on Friday morning and they could be catalytic. Probabilities favor the bulls this week. CRON continued its strong upward climb having moved up an additional 23% in value and generating the biggest appreciation week in its history. The stock closed near the highs of the week and further upside above last week's high at 21.79 is expected to be seen this week. Nonetheless, the stock has more than doubled in price in the last 6 weeks (from 9.58 to 21.79) and there has not been any new news to support such a price appreciation other than perhaps the merger with Athria, meaning that this kind of a run is not likely to be maintained much longer. Nonetheless, there has not yet been any sign of selling interest so following the stock with a trailing stop loss is likely to be the best course of action. The $20 level is now a psychological support area, meaning that a stop loss at 19.65 can be considered as it would mean that psychological support area has been broken. Nonetheless, the best strategy at this time is to use a trailing stop loss based on the 200 10-minute MA, currently at 19.00. That line has not been broken to the downside for the past 12 trading days and broken only once by a small margin in the last 23 trading days. As such, a break of that line will signal that at least a temporary top to the rally has been found. ENG made a new 8-week weekly high close and closed on the high of the week, suggesting further upside above last week's high at .80 will be seen this week. The .80 level has proven to be a difficult resistance area given that the stock has been up to the .79-.80 level every week the past 5 weeks and has yet gone above it. Nonetheless, with no follow through to the downside last week in spite of closing near the lows of the week and the close at .80, the probabilities suggest a break of that resistance level will occur this week. It can be said that the chart to the downside is fulfilled given that the stock now shows 1 successful retest of the multi-year low at .57 with the drop down to .70 seen 4 weeks ago. A break above .80 is likely to carry the stock up to the next resistance level at .95. Further and more important resistance is found at .99 that includes the 200-day MA, currently at .98. If that level of resistance gets broken, a strong short-covering rally is likely to occur. For now, the probabilities favor the stock trading up to .95 and back down to .80 until the earnings report comes out on Thursday, February 14th. FSLR hit a speed bump this past week in the manner of getting up and above the 200-week MA, currently at 50.25, and finding selling interest of some consequence, causing the stock to drop 6% from the highs (from 51.43 to 48.02). This is not surprising given that the stock has traded below that line for the past 22 weeks and there has been no positive fundamental news yet to give the bulls enough power to break the line the first time around. The stock did close near the lows of the week and further downside below 48.02 is expected to be seen this week. Short-term pivotal support is found at 45.77 and again at 45.26 that are unlikely to be broken, at least both. One additional obstacle to overcome is the 200-day MA, currently at 52.09, suggesting that this whole area between $46 and $52 will be contentious for the next few weeks until the earnings report comes out on February 21st. Probabilities favor the bears this week but only for a drop down to at least the 47.00 level. A turn around at the end of the week is possible and perhaps even probable. FNSR broke above a minor to decent resistance area at 21.99 after it was revealed that Apple has increased its component spending by more than 10% and quoting FNSR as the main beneficiary of that increased spending. The stock gapped up on Thursday and had the biggest 1-day appreciation since November 13th. The stock closed near the highs of the week and further upside above last week's high at 23.12 is expected to be seen this week. The chart is quite bullish, especially with last week's rally, given that a bullish flag formation is in place with the flagpole being the rally from 15.91 to 23.68 and the flag the action seen the past 8 week with a low at 20.38. The flag (if the top of the flag at 23.68 is broken) offers and upside objective of 28.15 which coincides with a previous resistance level of consequence. This objective would be further highlighted if the stock generates another gap and a breakaway/runaway gap formation is formed. Such a gap, it is occurs above 23.68 would be a strong reason to add positions using a daily close stop loss at 23.58. Support is now pivotal at 21.33. Probabilities favor the bulls. MCIG generated a positive reversal week, having made a new 2-week low and then closing green and on the highs of the week, suggesting further upside above last week's high at .18 will be seen this week. The green close does make the previous week's close at .16 into the required/needed successful retest of the 15-month low weekly close at .142, which was also a successful retest of the 200-week MA. In addition and on an intraweek basis, the stock will now show 2 successful retests of the .141 low if the stock goes above .18 this week (probable). With Cannabis stocks making bold moves to the upside of late, the probabilities favor MCIG doing the same and starting this week given that the bears have had no success in pushing the stock lower in spite of trying hard the past 3 weeks. Resistance is found at .21 that if broken would open the door for a rally up to the 200-day MA, currently at .242. Intraweek support is now found at last week's low at .155. Probabilities favor the bulls. MDT generated a positive reversal week, having made a new 2-week low and then closing in the green, above last week's high and in the process also making a new 4-week high. The stock closed near the highs of the week and further upside above last week's high at 89.45 is expected to be seen this week. There is minor to decent weekly close resistance at 89.02 as well as the 200-day MA, currently at 90.02, that the bulls must will overcome for a short-term bullish scenario to come into effect. A daily close above 90.96 would generate a new buy signal and confirm the downtrend is over. The stock did break out of a bullish flag formation that offers at 92.62 objective, meaning that if the flag is fulfilled, the downtrend will be officially over. Nonetheless, it will not be that easy as the 200-day MA is a difficult obstacle to overcome. As it is, the minimum objective of getting up to the $90 level will be fulfilled this week, meaning that any additional upside is gravy. Pivotal support is now found at 85.66, meaning that the stop loss can be raised to 85.46, thus locking up profits. Maximum upside potential is $98. Probabilities favor the bulls this week. SLCA generated an uneventful inside week, especially considering that the stock closed just 1 point below last week's close at 14.04. Nonetheless, the stock has now put itself into a situation where the probabilities now favor a failure signal against the bears being given next Friday, if and when a weekly close above 14.47 occurs. Considering that oil broke out on Friday and is likely to run up to the $60 to as high as $65 level (increase of $5-$10) over the next couple of weeks, it does suggest that oil stocks will rally as well. A weekly close above 14.47, which is the low weekly close that stood up for 6 years and when broken caused the stock to drop down to 9.30) would give a failure signal that would mean the downtrend is over. As such, this week is pivotal not only for oil but for oil stocks. Based on the action last week, it is all supposed to happen this week (no delay or pause). Failure to break through would be seen as a short-term negative.
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1) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at .80. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 4.63 (new price (46.36). 3) CLF - Averaged long at 8.976 (3 mentions). No stop loss at present. Stock closed on Friday at 10.53. 4) FSLR - Averaged long at 49.51. (3 mentions). No stop loss at present. Stock closed on Friday at 48.43. 5) CCJ - Averaged long at 10.637 (5 mentions). Stop loss now at 9.65. Stock closed on Friday at 12.11. 6) CRON - Averaged long at 8.95 (2 mentions). No stop loss at present. Stock closed on Friday at 20.81. 7) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .042 (new price .5098). 8) SLCA - Averaged long at 16.85 (2 mentions). No stop loss at present. Stock closed on Friday at 14.03. 9) MCIG - Purchased at .17. Averaged long at .215. No stop loss at present. Stock closed on Friday at .1799. 10) MDT - Purchased at 84.20. Stop loss now at 85.56. Stock closed on Friday at 88.31. 11) AAPL - Covered shorts at 165.27. Shorted at 157.09. Loss on the trade of $818 per 100 shares plus commisions. 12) FNSR - Purchased at 21.43. Stop loss at 20.28. Stock closed on Friday at 22.66 13) CRON - Liquidated at 21.31. Averaged long at 10.205. Profit on the trade of $2221 per 100 shares (2 mentions) minus commissions.
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The opinions and commentaries by Mr. De Vito are not a recommendation to buy or sell, but rather
a charting guideline, based on his own knowledge and experience, regarding the stocks he is following or
that are brought to him by others. Mr. De Vito does not presently offer a track record of his trading experiences.
No inference of success and/or failure should be assumed. The
information enclosed above, regarding his background, length of trading, and experience, is correct
but is not meant to suggest, state, or infer any future success in trading, based on his opinions. The information herewith included should only be used by investors who are aware of the risk inherent in securities trading. Mr. De Vito accepts no liability whatsoever for any loss arising from any use of the information and/or comments he supplies. |
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