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Issue #598 
Jan 13, 2019 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Earnings Quarter Starts, Bulls Have a Small Edge!
DOW Friday closing price - 23995
The indexes generated another green week (the 3rd in a row) and got back up to and slightly above the weekly close breakdown points at 23533 in the DOW, at 2588 in the SPX and at 6939 in the NASDAQ. Nonetheless, the bulls have not even recovered 50% of the drop from the all-time highs, given that the DOW has recovered 43%, the SPX 42% and the NAZ 37%, meaning that this recovery is still considered only a bounce and not all that indicative yet.
The action this past week was helped by comments from Fed Chief Powell that the Fed is now likely to lower their previously stated guidelines for another 2-3 interest rate hikes this coming year, which was welcome news that gave the market new support. In addition, the trade talks between China and the U.S. regarding the Trade War were said to have been constructive and positive, also giving the bulls additional ammunition to rally the indexes.
On a chart note, all indexes closed on Friday above their respective breakdown points (see above), suggesting that the worst may be over and that the December lows will not be broken. By the same token and using the SPX, which is the key index at this time and especially this week with most of the important financial stocks reporting earnings, the index only closed above its weekly close breakdown point by 8 points and though that is considered a break, it still needs to be confirmed this coming Friday with another close above 2588. As such, the earnings reports on C, WFC, JPM, BAC, GS, MS, and AXP will likely determine where the index closes next Friday.
One of the problems the bears faced this past week is that there was no intraweek resistance of consequence nearby, meaning that rallying the indexes without facing an area where the bears could unite and gather selling strength was the scenario they faced. On Friday, the SPX traded around the 2588 area for 80% of the day with the index trading at that price at 3:30 pm. Nonetheless, with no negative news coming out on Friday, the bulls were able to rally enough in the last 30 minutes of trading to close above the breakdown point. That means that this coming week the bulls will need to confirm what they accomplished on Friday in order to give the bulls additional ammunition to take the indexes higher.
Keep in mind that the first 3 weeks of the earnings quarter have belonged to the bulls for the last few years, meaning the bulls have history supporting them. By the same token and due to the Trade War that has now been waged for over 6 months, earnings are not expected to be as good as in the past, meaning that there is uncertainty among the traders as to what to expect in this earnings quarter.
To the upside and on an intraweek basis, the DOW shows very minor resistance at 24312, minor between 24446 and 24998 and then decent at 24858. The SPX shows very minor resistance at 2559 and minor to decent between 2572 and 2582. The NASDAQ shows very minor resistance at 7036 and then nothing until 7197.
To the downside and on an intraweek basis, the DOW shows decent support at 23531 and pivotal at 23344. The SPX shows minor to decent support at 2553, and then short-term pivotal at 2532. The NASDAQ shows decent support at 6805 and then pivotal at 6630. at 6457).
As you can see by the above support and resistance levels, there are still wide gaps between those areas and that suggests that volatility will continue. Talking about volatility, the VIX has pivotal intraweek support at 15.96 that if broken would give the bulls a decided edge. The index closed at 18.19 on Friday.
There are no economic reports of consequence this coming week so it will all be about earnings. Normally, I would give the edge to the bulls for the first 3 weeks of the earnings quarter but this time around it is almost a 50-50 proposition with perhaps a very slight edge toward the bears given the recent late quarter earnings results that have come out the last couple of weeks. The Trade War continues to be a big issue and as such the market will continue to pivot around news on that front. By the same token, no news is scheduled or expected this week.
I would normally give either the bulls or the bears the probability scenario for the week at this time but on this occasion I have to say that the odds are 50-50, meaning that the traders will likely continue to trade on both sides of the coin until the reports start coming out. Monday, C reports in the morning but that report is not likely to move the market in either direction unless it is way out of line. Tuesday morning though, JPM and WFC report and that will have a slightly higher probability of affecting the market. Wednesday will likely be the pivotal day for the week with GS reporting.
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Stock Analysis/Evaluation
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CHART Outlooks
There have been very few new trades for a couple of months but the start of the New Year the traders will start putting on new positions. I looked at over 100 stocks this weekend and found very few stocks that are presently at levels where either an purchase or a sale can be made this week. Overall, I did see quite a few stocks that perhaps in a week or two will be at levels where a purchase can be made, if and when the fundamental picture does not change all that much.
Nonetheless, among all those stocks I did look at this week, I did find 3 trades that can be done, one of which is a high probability trade.
PURCHASES
LB Friday Closing Price - 26.46
LB is Brands Mart and certainly a very recognized company in the industry. The stock has been in a 3-year downtrend and has dropped from 101.11 to a low of 23.71 that was seen just a couple of weeks ago on December 24th. Nonetheless, the stock generated a weekly close at 24.91 that week and it needs to be mentioned that the all-time high for 13 years (between 1997 and 2010) was 24.97, meaning that a successful retest of that important and pivotal level occurred. From that level, the rally up to 101.11 occurred, meaning that it should not be broken without further negative news.
Last week, LB generated a rally up to 29.68 but on Thursday it was announced by the company that sales were lower than expected and the stock tanked down to 24.66 and on Friday 2 rating companies downgraded the stock with one of them downgrading it from $33 to $31 and the other one from $34 to $29. Nonetheless, the downgrades are still above the previous all-time weekly closing high at 24.97 and the recent low weekly close at 24.91, suggesting that the stock is now likely to get into a trading range between those 2 levels until the next earnings report comes out on February 18th.
LB closed in the lower half of the week's trading range and further downside below last week's low at 24.66 is expected to be seen. By the same token, it is not a given that such a drop will occur given that on the daily chart, the 24.66 low is now seen as a successful retest of the 23.71 low. In addition, it seems difficult that further negative news will come out prior to the earnings report on February 18th, especially considering that all of the negative news that came out last week did not generate a new low. As such, the stock looks to be a buy this week with the $29 to $30 level as the short-term objective.
To the upside and on an intraweek basis, LB shows no previous resistance except last week's high at 29.69. Above that level, there is some minor resistance at 30.20 and then nothing until 32.42, which is further strengthened by the 200-day MA, currently at 32.47. It is unlikely that MA line will be broken without some positive fundamental news but a rally up to the line is certainly viable.
Purchases of LB between 24.66 and 25.89 and using a stop loss at 23.61 and having a 32.42 objective will offer a 3-1 risk/reward ratio.
My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
MDT Friday Closing Price - 84.84
MDT develops, manufactures and distributes, and sells device-based medical therapies to hospitals, physicians, clinicians and patients worldwide. In September of last year, the stock hit an all-time high at 100.15 and since then it has been coming down, having hit a low of 81.69 last week.
MDT has been in a long term uptrend, having broken above the 200-week MA in June of 2012 and staying above the line for the past 6+ years. The MA line is currently at 81.69 and the stock got down to 81.66 last week, meaning that this is now the 4th occasion in the past 6 years that the stock has gotten down to the line. On the previous 3 occasions (Aug2015, Jan2017, and Mar2018), bounces of 14%, 22%, and 24% occurred and on the last occasion a new all-time high was made before any profit taking occurred.
MDT did have some negative news last week, inasmuch as one of their cranial devices had to be recalled due to inaccuracies displayed during surgical procedures. It is likely that the news was the catalyst for the drop down to the 200-week MA. The news did generate some rating companies lowering their target prices but even with the negative news, one company lowered the target from $113 to $104 and the other one lowered it to $99, meaning that the upside targets remain much higher than where the company is presently trading at.
It is interesting to note that MDT generated a gap on May 7th of last year between 81.19 and 82.21, likely off of a positive earnings report, and last week when the stock was in free-fall, the gap was not closed even though it did get down to 81.66. It is not a major point of contention, especially considering that the stock still closed in the lower half of the week's trading range in spite of the bounce and therefore should go below last week's low this week and close the gap. Nonetheless, failure to close the gap would be a tell-tale sign of innate strength at these prices.
To the downside and on an intraweek basis, MDT is showing pivotal support at 78.29. It is considered pivotal support only because it was the low prior to the May earnings report that generated the new all-time high and breaking of that support would be indicative. Nonetheless, there is quite a bit of additional support between 76.41 and 77.56, meaning that a break of 78.29 is not likely to bring in any panic selling.
To the upside and on an intraweek basis, MDT shows minor resistance at 85.50, minor to perhaps decent between 87.93 and 88.65 and then nothing until 94.66. Above that level, there is decent resistance at 97.38 that will be the high target of this mention. On a daily closing basis though, the 200-day MA is currently at 89.49 and that is going to be a difficult obstacle to overcome without some positive fundamental news. This area is further strengthened by the 200 60-minute MA, currently at 90.93, suggesting that the $90 area is the mostly likely upside objective that will be achieved.
The most difficult task in this mention is choosing the desired entry point as there are several possibilities given that the stock closed in the lower half of the week's trading range. By the same token, the daily and intraday charts do not suggest any weakness will be seen, meaning that the stock could be a purchase at Friday's close. The most likely to be achieved desired entry point is between 83.61 and 84.00 but if that area is broken, a drop down to at least 82.43 will occur. The best stop loss is at 78.19, Upside objective that should be reached is the $90 level but there is a 40% probability that a rally up to $97 will occur. Company reports earnings on February 19th.
My rating on the trade is 4 (on a scale of 1-5 with 5 being the highest).
BIDU Friday Closing Price - 166.11
BIDU is the Chinese equivalent of GOOG. The stock has been on a strong short-term downtrend over the past 8 months since reaching an all-time high at 284.22, having dropped 46% in value.
Nonetheless, 2 weeks ago BIDU got down to a strong area of support that has been in place for the past 7 years (since 2011) and with 5 points of reference and a bounce occurred, suggesting that there is buying interest of consequence in this prince range.
BIDU broke the 200-week MA, currently at 198.26, 13 weeks ago and though 1 small retest of the break has been seen, the probabilities of a stronger retest of that area are high given the strength of the support area that has been reached. At the very minimum, there is no intraweek resistance until 185.28 is reached, meaning that a $15 move could be seen from Friday's close.
To the downside and on an intraweek basis, BIDU until 139.61 is reached, meaning that the recent low at 153.78 (and from which a bounce occurred) will be used as a support level that is short-term pivotal if broken. By the same token, the stock generated a buy signal on Wednesday, having broken above the 13-day high at 164.61 (163.04 on a daily closing basis), meaning that a daily close below 163.04 will generate a failure signal against the bulls. As such, a daily close stop loss at 162.65 will be used.
To the upside and on an intraweek basis, BIDU shows no resistance on any chart until the 180.00 level is reached. On the weekly chart, no resistance is found at 185.28.
This mention does have some unmeasured risk given that the Trade War with China could generate further downside movement in the stock. Nonetheless, with talks between China and the U.S. now occurring and supposedly being positive, there is a better chance of a deal being made than not, which would generate more recovery. At this time, the 200-week MA, currently at 198.26 is potentially the most this mention can give.
Purchases of BIDU below 164.55 and using a daily close stop loss at 162.65 and having an upside objective of at least 185.28 will offer a 10-1 risk/reward ratio.
My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA made a new 11-week intraweek high but then closed slightly in the lower half of the week's trading range, suggesting that the bulls are not yet convinced that the stock is ready to move substantially higher. A weekly close on Friday above 43.37 would have given the bulls some additional ammunition but most of the day the stock traded below that level, meaning that in spite of the late rally in the index market that the traders are a bit negative on what the stock will do this coming week. In addition, the stock broke the 200 10-minute MA on Friday morning and did retest successfully the break at 2:00 pm and that is a short-term negative sign given that the line had not been broken for the past 11 days. In looking at the daily chart, it does suggest that a drop down to the 200-day MA, currently at 40.98 will be seen. Then again, there is no intraweek support found until the 39.06-39.50 area is reached, meaning that is likely the downside objective for the week. Weekly chart suggests a drop down to 36.80 is a decent probability, to be seen over the next 1-3 weeks. Probabilities favor the bears this week. CCJ made a new 2-year weekly closing high on Friday and did close near the highs of the week, suggesting further upside above last week's high at 12.33 will be seen this week. Nonetheless, the new weekly closing high was only by 4 points and the previous intraweek high 12.78 was not broken, meaning that in spite of the new weekly closing high, the traders are still wary about going "whole hog" to the upside. By the same token, the stock is only 4.2% from its 2-year intraweek and weekly closing high, compared to the indexes that are over 55% from their highs, meaning the stock has been (and likely will be) outperforming the index market. Based on the action seen this past week, it is highly unlikely that a drop below 11.25 will occur and the probabilities now favor further upside occurring, as well as a break above the 12.78 level. Such a break would offer a short-term rally to 13.33-13.54 and open the door for a longer term rally to $17. CLF, like with the indexes, has now generated a green weekly close for the past 3 weeks and having closed near the high of the week, further upside above last week's high at 8.91 is expected to be seen this week. Nonetheless and like with the indexes, nothing of consequence in favor of the bulls has occurred, meaning that the bulls need to do more to generate new buying interest. There is decent and likely pivotal resistance at 9.15 that if broken would suggest a rally up to at least 10.90 if not 11.44. Once again, support is now decent between 8.02 and 8.11. Probabilities favor the bulls this week but more concrete gains need to be achieved before confidence in the bull side is once again generated. CRON made a new all-time high weekly close and closed near the highs of the week, suggesting further upside above last week's high at 13.99 will be seen. The all-time intraweek high is at 15.30 and that is the objective for this week. Given the merger between the company and Atria (Marlboro cigarettes) and the continuing interest in Cannabis stocks, the outlook for the stock is rosy. Support is now found at 10.92 that given the new all-time weekly closing high made, should no longer be seen and much less broken. Probabilities favor the bulls this week. ENG generated and uneventful inside week but it was disappointing to the bulls as it had been expected (based on the close near the highs of the week the previous week) that the stock would see higher prices. It did not occur. An intraweek drop down to the .73 cent level should be seen this week but if broken (probably), a drop down to .68 would then be the objective. The bulls continue to need a weekly close above .76 to make a bullish statement. Intraweek support is now found at .65. Probabilities slightly favor the bulls this week. FSLR made a new 12-week intraweek and weekly closing high and closed on the highs of the week, suggesting further upside above last week's high at 47.90 will be seen this week. The stock shows no resistance above until the $50 demilitarized zone is reached and a little bit more at 51.33. This resistance is further strengthened by the 200-week MA, currently at 50.43. Nonetheless, last week the stock got an upgrade with an upside target of $58 and given that a bottom to this recent downtrend has now been established, the possibility of a clear signal that the trend is over with a close above the MA line is now a high probability. Intraweek support should now be found at 45.26. Probabilities favor the bulls this week for a rally up to the $50 level. MCIG has now bounced 28.5% from its lows, strongly suggesting that the worst of the recent downtrend is over. In addition, the stock got above the intraweek resistance at .20, meaning that this rally is a bit more than a bounce off of the lows. The stock closed near the highs of the week and further upside above last week's high at .21 is expected to be seen this week. There is minor resistance at .22 and stronger at .245, which does include the 200-week MA. Support should now be found between .175 and .18. Probabilities favor the bulls this week for a rally back up to the 200-wee MA. SLCA generated a 3rd green weekly close in a row and closed on the highs of the week, suggesting further upside above last week's high at 12.58 will be seen this week. In addition, the stock broke the 200 60-minute MA, currently at 11.89, on Thursday,, which is line that had not been broken to the upside for the previous 23 trading days, suggesting that the selling interest has waned. Probabilities favor the bulls this week for a rally up to the next intraweek resistance area at 13.10. That level of resistance is 6+ year old but it is clearly define and will be unlikely to break unless oil is able to get above the $55 level. Intraday support is now found at the 11.00 level and intraweek support at 10.65.
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1) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at .74. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 4.27 (new price (42.77). 3) CLF - Averaged long at 8.976 (3 mentions). No stop loss at present. Stock closed on Friday at 8.60. 4) FSLR - Averaged long at 49.51. (3 mentions). No stop loss at present. Stock closed on Friday at 47.50. 5) CCJ - Averaged long at 10.637 (5 mentions). Stop loss now at 9.65. Stock closed on Friday at 12.12. 6) CLB - Liquidated at 68.70. Averaged long at 75.266. Loss on the trade of $1605 per 100 shares (3 mentions) plus commissions. 7) CRON - Averaged long at 9.577 (4 mentions). No stop loss at present. Stock closed on Friday at 13.67. 8) FCEL - Averaged long at 2.2275 (4 mentions). No stop loss at present. Stock closed on Friday at .0434 (new price .5214). 9) SLCA - Averaged long at 16.85 (2 mentions). No stop loss at present. Stock closed on Friday at 12.46. 10) SLCA - Liquidated at 12.06. Averaged long at 18.50. Loss on the trade of $1288 per 100 shares (2 mentions) plus commissions. 11) MCIG - Purchased at .26. No stop loss at present. Stock closed on Friday at .1985. 12) AAPL - Liquidated at 152.59. Purchased at 142.14. Profit on the trade of $1045 per 100 shares minus commissions. 13) OLN - Shorted at 22.33. Covered shorts at 22.84. Loss on the trade of $51 per 100 shares plus 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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