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Issue #608 
Mar 24, 2019 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Negative Manufacturing News from Europe, Generates Negative Reversal!
DOW Friday closing price - 25928
The bulls and the bears battled the first 4 days of the week to gain control of the direction for the coming month, having fought around last month's closes until Thursday's close when it became evident that there wasn't enough negative information to wrest control away from the bulls. The indexes all closed near the highs of the month, suggesting further upside above last month's highs will be seen this week (DOW above 26155, SPX at 2860 and NAZDAQ above 7850).
As such, the outlook that I submitted 2 weeks ago remains viable: In April of the year 2000 when the stock market ended a decade long uptrend, the SPX generated a high of 1552 and 6 months later in September 2000, the index got back up to 1530 before a 25-month downtrend began that cut the index in half down to 775. The 1530 high seen in September 2000 fell short of reaching the all-time high by 1.5%. If we use the same scenario this time, this is now the 6th month since the all-time high was made and 2895 would be the level to be reached that would be 1.5% from this all-time high. I am using the downtrend that began in the year 2000 and not the downtrend that began in 2007 given that in 2007 the mortgage bubble broke and no retest of the highs occurred. Given that on this occasion there has been no bubble bursting and a retest of the highs is occurring, the downtrend from the year 2000 is appropriate. It must be mentioned that in the year 2000, the index generated a high of 1525 the month before going up to 1530 and then the month after, generating a negative reversal, suggesting that this month will not be a negative reversal month as there are only 2 weeks left to the end of the month and it is likely the indexes will close near the highs of the month this month. This suggests that April would then be the negative reversal month. Following what happened in the year 2000, it would suggest the SPX will see a high this month at 2883 and then next month go above that level to 2895 and then reverse. All of this based on charts alone without taking into consideration any changes in the fundamental picture. Adding to this scenario, there is a strong seasonal tendency to generate a correction or a drop of consequence in the first 5 months of the year. In the past, the larger portion of those corrections/drops began in January or February but about 40% of them started between April and May, meaning that the scenario I have painted above is not only based on the year 2000 but also on the seasonal tendency that since the year 2000 has occurred on 15 of the last 18 years.
The only thing that did not occur this past month was my assessment based on the year 2000 that the SPX would see a high of 2883 and next month (April) would see a high of 2995, which is not going to happen given that last month's high was 2860. By the same token, there is clear and decent resistance at 2872 and going up to that level this month would mimic the 1% appreciation in price in the year 2000 from one month to the other, which then turned out to be the negative reversal month. This does suggest that the existing resistance at 2872 will clearly represent a resistance area of consequence.
To the upside and on an intraweek basis, the DOW shows minor to perhaps decent but short-term pivotal resistance between 26241 and 26277. Above that level, there is no resistance until decent at 26616 and then strong at the all-time high at 26951. The SPX shows minor to perhaps decent but short-term pivotal resistance at 2860 and then decent at 2872. Above that level, there is minor resistance at 2916 and strong at the all-time high at 2940. The NASDAQ shows minor resistance at 7806, minor to perhaps decent at 7850 and then again at 7933, minor at 8107 and strong at the all-time high at 8133.
To the downside and on an intraweek basis last week's lows are now considered minor but short-term pivotal support. In the DOW that is at 25372, In the SPX that is at 2685, and in the NASDAQ it is at 7579.
This coming week many important economic reports are due out with Retail Sales and the ISM Index reports on Monday, Durable Goods orders on Tuesday and the Jobs report on Friday. Expectations are for Retail Sales to come out at 2%, ISM Index at 54 and Durable Goods at -.9%. None of these expectations is supportive to the market but given that they are the expected numbers, only if they come in better than expected will it give the bulls additional ammunition. Economic numbers recently have been generally disappointing to the market but have been mostly ignored. Nonetheless, this following month if the reports are once again disappointing and the disappointment get supported by earnings numbers that are as expected of lower, it will give ammunition to the bears (the opposite is also true for the bulls). Nonetheless and with the traders depending mostly on the resolution of the Trade War to make a decision on further direction, Thursday's next scheduled meeting between China and the U.S. could supply enough information for decisions to be made, one way or the other.
As such and with so much important fundamental information due out this week, there is very little more than I can say about the charts. The 2872 level on the SPX is important and likely to play an important role if reached. Nonetheless, I personally do not see enough fundamental positives (even if the Trade War is resolved) to give the bulls enough ammunition to make new highs and much less to maintain the market above them. This means that short positions in the indexes and in most stocks is still the preferred direction, other than perhaps short-term for the next 1-3 weeks but on a limited basis. Probabilities favor the bulls this week.
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Stock Analysis/Evaluation
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CHART Outlooks
Once again, there are no mentions this week. Had the bears been successful in generating a negative reversal month on Friday, I would have had quite a few mentions but since the bulls won this battle, it is expected that the bulls will have the edge this week. By the same token, the upside objectives remain limited and purchases do not offer good risk/reward ratios or even highe probabilities and short positions are not likely to be of interest "until" the resistance levels are reached. As such, there are no new trades of interest at this time.
Nonetheless and as was the case last week, day and overnight trades might present themselves during the week and I will mention those on the message board. In addition, the Cannabis convention is this week and there have been rumors that some new and positive things regarding Marijuana laws might be changing in favor of the industry. If any of that occurs, I will also give mentions on the message board. Cannabis stocks are not sensitive to the index market.
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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 $15735 using 100 shares per mention (after commissions & losses) Closed out profitable trades for March per 100 shares per mention (after commission)
FNSR (long) $33 AAPL (short) $3 AXP (short) $128 BIDU (short) $148 Closed positions with increase in equity above last months close minus commissions. NONE Total Profit for March, per 100 shares and after commissions $312 Closed out losing trades for March per 100 shares of each mention (including commission)
AAPL (short) $109
IBM (short) $66 ORCL (short) $72 FSLR (short) $217 Closed positions with decrease in equity below last months close plus commissions.
BIDU (short) $919 Total Loss for March, per 100 shares, including commissions $5195 Open positions in profit per 100 shares per mention as of 3/31
AXP (short) $158
Open positions with increase in equity above last months close.
FSLR (long) $116
CCJ (long) $80 Total $354 Open positions in loss per 100 shares per mention as of 3/31
BABA (short) $436
Open positions with decrease in equity below last months close.
ARNA (long) $152 Total $760 Status of trades for month of March per 100 shares on each mention after losses and commission subtractions.
Loss of $5289
Status of account/portfolio for 2019, as of 3/31Profit of $10446 using 100 shares traded per mention.
ARNA generated a positive reversal week, having made a new 10-week low and the turning around to close in the green and near the highs of the week, suggesting further upside above last week's high at 45.27. Nonetheless, no resistance levels were broken, suggesting that the rally had more to do with following the rally in the index market than anything special about the stock itself. Resistance is found at 46.71 and the pivotal at 47.50. Follow through up to the first level of resistance is likely to be seen this week in following what the indexes are likely to do as well. Nonetheless, the chart still suggests that the short-term downtrend is not over and that after a short rally, the bears will step in again. Pivotal support remains at 41.73 that if broken would suggest a minimum drop down to the $40 level. Nonetheless, probabilities favor the bulls this week.
AXP bulls were unable to generate enough buying to participate in the index rally as the stock followed through to the downside, both on an intraweek and weekly closing basis, The stock closed exactly in the middle of the week's trading range, meaning there is a 50-50 chance of going above last week's low at 108.19 than above last week's high at 110.40. Nonetheless, the fact the bulls were unable to take advantage of the rally in the index market, bodes negatively for the stock. Resistance is now decent and likely pivotal at 111.77 and the same can be said for support at 106.24. Probabilities slightly favor the bears this week, at least as far as next week's close likely being red. BABA generated a positive reversal week, having made a new 3-week intraweek low and then turning around to close in the green and on the highs of the week, suggesting further upside above last week's high at 182.60 will be seen this week. The reason for the rally was a combination of Asian and U.S. stocks rallying but also due to an acquisition it made that was reported on Friday morning. Short-term pivotal resistance is found at 183.36 that should be broken this week but the resistance at 188.08 should remain inviolate unless the indexes can make new highs. The stock gapped up on Friday between 178.53 and 179.00 but it must be mentioned that this stock, who has shown itself to be a gap machine (many gaps generated this past 12 months), has closed each and every gap that has been generated during this period of time with one exception, which was the gap to the downside between 200.25 and 198.10, which occurred on June 25th of last year after an earnings report came out. As such, this gap should be closed as well. The big question is whether the stock will break above 183.36 and head up to test the resistance at 188.08 first (before the gap is closed) or close the gap before that happens. As such, a break above 183.36 should be used to cover the short but with the outlook for re-shorting the stock around the 186.50 where old but decent resistance is found. Probabilities favor the bulls this week. CCJ generated the same kind of action as AXP did, inasmuch as the stock followed through to the downside and generated a red weekly close as well. The stock did close in the lower half of the week's trading range and further downside below last week's low at 11.63 is expected to be seen. Nonetheless and like it was mentioned last week, the stock continues to trade in this basic 11.30 to 12.60 trading range it has been in for the past 6 months and given that there has been no fundamental changes, the probabilities favor the stock being in that trading range for at least another week. Downside objective for this week remains the same as it was last week, which is 11.46, but based on the 6-month history, the stock should turn around and generate a positive reversal week and a green close next Friday above this past Friday's close at 11.79. One important thing to watch this week is that the red weekly close seen the previous week generated a double top on the weekly closing chart at 12.34/12.42 and if the weekly close support at 11.53 gets broken, it would be a negative sign. Short-term important and pivotal intraweek support is found at 11.29 and the same is true as far as resistance at 12.53. Probabilities slightly favor the bulls this week but the start of the week should be to the downside. ENG reported earnings this past week and they were disappointing, causing the stock to make a new 6-year intraweek and weekly closing low. The stock closed near the low of the week and further downside below last week's low at .48 is expected to be seen this week. Nonetheless, it was announced by the company that the unexpected expenses were a 1-time event and given that sales increased, the fundamental outlook for the company is not negative. The company shows $52 million in assets and only $12 million is liabilities, meaning that the stock is below book value. As such and like the last time that the stock reported earnings (in December), the probabilities favor the stock recovering from these low prices. In December when the stock reported earnings last time, the stock fell to $.52 cents 2 days after the report was released but within 4 days it was back at .$76, which was a 32% recovery. I anticipate the same thing occurring now. Intraweek support is found at .31 and resistance is now at .80. Probabilities favor the bulls this week. FSLR generated a positive reversal week, having made a new 3-week low but then closing green and on the highs of the week, suggesting further upside above last week's high at 53.00 will be seen this week. If that does occur (likely), last week's low at 50.21 will become a successful intraweek retest of the 200-week MA, currently at 50.00. The stock has already retested the MA line on a weekly closing basis with the weekly close at 51.16 that occurred 4 weeks ago and this retest could provide the bulls with the ammunition needed to break the decent resistance found between 55.75 and 56.04 and push the stock up to the $60 level. Any daily close above 55.65 or a weekly close above 54.53 would generate a breakout. With the action seen last week, the 49.06 level has become pivotal intraweek support. If the stock gets above last week's high at 53.00, last week's low at 50.21 will become new support, both on an intraweek and psychological basis. Probabilities favor the bulls. MCIG generated a negative reversal week, having gone above last week's high and then closing red on Friday and in the lower half of last week's trading range, suggesting further downside below last week's low at .128 will be seen this week. Unfortunately for both bulls and bears, the close on Friday was not clearly indicative of what is likely to happen, given that the stock maintains a bullish flag formation and that the stock stayed above the important and indicative low daily close seen on November 17th 2017 at .129. Evidently, any daily close below .129 will generate a new failure signal as well as a intraweek drop below .125 will generate dissolution of the bull flag formation. Pivotal short-term resistance (top of the flag) is found at .1445 that if broken would offer an objective of .18. Probabilities slightly favor the bears this week but until .125 is broken, it is a flip of a coin as to the short-term direction. It should be mentioned that the yearly Cannabis Conference starts on Monday, April 1 and runs through Wednesday April 3 and some news could come out of it that would affect the Marijuana stocks.
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1) ENG - Averaged long at 1.764 (5 mentions). No stop loss at present. Stock closed on Friday at .51. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 4.48 (new price (44.83). 3) FSLR - Averaged long at 49.017. (4 mentions). No stop loss at present. Stock closed on Friday at 52.84. 4) CCJ - Averaged long at 10.637 (5 mentions). Stop loss now at 10.51. Stock closed on Friday at 11.79. 5) AXP - Shorted at 109.88. Stop loss at 110.45. Stock closed on Friday at 109.33. 6) MCIG - Averaged long at .215. No stop loss at present. Stock closed on Friday at .1341. 7) IBM - Shorted at 140.20. Covered shorts at 140.72. Loss on the trade of $52 per 100 shares plus commissions. 8) BABA - Shorted at 178.08. Stop loss presently at 183.75. Stock closed on Friday at 182.60.
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The opinions and commentaries by Mr. De Vito are not a recommendation to buy or sell, but rather
a charting guideline, based on his own knowledge and experience, regarding the stocks he is following or
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