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Issue #637 
November 17, 2019 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Trump Tweets About China Keeps Bulls Buying!
DOW Friday closing price - 28004
The bulls continued to be in full control as all indexes once again made new intraweek and weekly closing highs this past week. All indexes closed on the high of the week and further upside above last week's highs are expected to be seen this week. There was no catalyst for the new highs other than the statement from the WH that Phase 1 of the trade agreement is likely to be finalized and signed soon. There was no other news that could be considered a catalyst or even supportive of new highs as the Retail Sales number came in line with what was expected and there were no worldwide reports that helped. Nonetheless, the bulls are in control and have the momentum on their side, meaning that the bears have no ammunition to stop this rally at this time.
On the negative fundamental side, the economy continues to slow down (GDP and Manufacturing with a south direction) and world growth is stagnant at very low levels where economic policy is no longer able to stimulate growth with interest rates being at zero or lower. The trade war agreement (if it happens) is not going to do much to recover what has already been lost as many things are not being addressed and those addressed, like agricultural products, are only recovering a portion of the losses already seen. All of this means that the fundamentals do not support further upside as the economic picture is worse now than it was 52 weeks ago when the indexes were trading 11% lower than where they are now. This does strongly suggest a bubble has been created that will burst at some point. Unfortunately, bubbles can continue to grow for some time, until some catalyst appears that bursts them.
From a chart point of view, the only thing that can be said about resistance is that all indexes are at or slightly above psychological resistance levels (DOW at 28000, SPX at 3100 and NAZ at 8500) where some selling can be expected to be seen. By the same token, the SPX and the NASDAQ closed above those levels convincingly on Friday and whatever resistance it was thought they could provide, it is much less now. There are no economic reports of consequence due out this week, meaning that the bears cannot expect any potentially negative catalyst to appear. On the other side of the coin, the trade agreement remains unsigned and the Chinese requested that the tariffs in place be rolled back as a pre-condition. At the beginning of the week, it was stated by the WH that they would do that if the trade agreement was signed but when Trump himself was asked, he categorically denied that he was considering rolling back the tariffs imposed previously and that remains a potentially strong negative catalyst. This piece of news is better explained in this article
To the upside and on an intraweek basis and in all the indexes, there is no resistance above other than psychological (DOW at 28,000, SPX at 3100 and NASDAQ at 8500. Nonetheless, none of these "psychological" resistances are major as 3000 would be in the SPX.
To the downside and on an intraweek basis, last week's lows are short-term pivotal support. In the DOW at 27517, in the SPX at 3075 and in the NASDAQ at 8475.
The traders at this time are no longer looking at the charts, given that supports nearby below are minor and not catalytic or indicative enough other than for short term moves that if broken would not generate a change of trend. As such, trading the market this week is to be done exclusively from a news based scenario. Evidently, the trade agreement is the only catalyst that can move the market at this time as there are no economic or earnings reports scheduled for this week and even then, those have been mostly ignored. By the same token and given that on Friday the market moved up "because it was announced that the trade agreement was close to be signed", every day this week could be pivotal even if no news is announced. Every day the announcement of the trade deal is delayed, it will be seen as it having problems and weakness could start just based on delay. If the trade deal is announced with everything China is requesting being included, an initial rally is likely to be seen but that could be met with new selling interest given the adage of "buy the anticipation and sell the fact". If the trade deal falls apart once again, it will be seen as a strong negative that is likely to generate the kind of selling where everything gained the past 6 weeks would be given back. The only thing that is likely to keep the market heading higher is delay with the WH contuing to say things are moving forward positively, or a signing of the trade deal as Trump would like (unlikely).
With this kind of a scenario in place, normal chart trading has been put aside and that will not change until the fundamental picture is somewhat resolved.
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Stock Analysis/Evaluation
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CHART Outlooks
Once again, the outlook for the indexes remains slightly in favor of the bulls. The president continues to release statements at specific pivotal occasions that gives the bulls the ability to buy dips without worrying about a loss. This means that short positions are not offering obtainable profits at this time. By the same token, the market seems to be building a bubble and purchasing stocks, at least those that have been moving to the upside of late, offer too much risk to play.
As such, the only play right now are purchases of stocks that are not sensitive to the overall market and have their own fundamental picture that is not tied in to the general economy.
I have 1 mention this week that fits into that scenario but given that it is a Bio-pharma stock, the probability rating by the nature of the industry is low.
CLVS Friday Closing Price - 6.38
CLVS is a biopharmaceutical company that focuses on acquiring, developing, and commercializing anti-cancer agents in the United States, The European Union and internationally. Just recently, they have developed a drug that helps prostate cancer patients and they have a game plan for commercializing it in 2020. Based on the news, the stock gave a signal 2 weeks ago that the downtrend in place since July 2017 and from a high of 116.75 has now stopped and that at least some type of short covering rally is to be seen, if not the start of a recovery after the company lost 97.5% in value over the past 28 months.
CLVS made an all-time low at 2.93 in the last week of October. Previously and for a period of 16 weeks, the stock had built a decent resistance area at 6.16 that got broken the previous week after the news of the new prostate cancer drug was announce, having made a high the previous week at 6.25 and then confirming the breakout this past week with a rally up to 7.00. The previous high weekly close at 5.95 was broken on Friday with a close at 6.38 and if another close above 5.95 occurs next Friday, the breakout will be confirmed. Then again, on a daily closing basis, the breakout above 6.03 has now been confirmed with closes the past 3 trading days at 6.55, at 6.33 and at 6.38, meaning that on a weekly closing basis the breakout is also likely to be confirmed.
If in effect the breakout is confirmed (likely), there is no resistance of any consequence above until a previous low daily close of some importance at 11.65 is reached. On a short-term basis, the chart is showing a breakaway and runaway gap formation to the downside between 10.52 and 9.55 (breakaway) and between 8.84 and 7.77 that will act as resistance given that the gap formation was a strong sign of weakness and that did push the stock down to its all-time low at 2.93. As such, some resistance is expected to be found at 7.77. By the same token and with the news of the new drug, testing that gap is now a very high probability.
As far as support is concerned, as well as finding a desired entry point, it is highly likely that the stock will drop down to test the breakout point at 6.03 (daily) or 5.95 (weekly) at some point this week as the traders are not likely to climb aboard in a strong way until that retest of the breakout occurs. On an intraweek basis, support is now found at 5.26 that if broken, would negate this breakout.
As far as the upside target for this trade, CLVS will have a tough time generating a weekly close above the 11.65 level as that was a major low weekly close support that lasted for 7 years before it got broken to the downside. Nonetheless and on an intraweek basis, the stock could get all the way up to the 200-day MA, currently 14.06. That line was broken to the downside 28 months ago and only tested once since then. If this news is as good as it sounds, testing that line would be highly likely to happen at some point in the near future.
At one point in time this was a strong and successful company that fell on commercializing its products successfully, over paying its high company officials and depending on a drug called Rubraca that never met its lofty expectations. Nonetheless, a company that has fallen from $116 down to $3 but is still a viable biopharma company and that now has a drug that could help one of the strongest and most prominent cancers (Prostate) is a company that could generate a rally of consequence. In reading some of the articles regarding upside projections from rating companies, I found that the lowest projection based on this news is $10 and the highest is $36. With the charts suggesting a rally up to at least the $11-$14 level, it seems that this is a good trade to put on at this time.
Purchases of CLVS between 6.00 and 6.10 and using a stop loss at 5.16 and having at least an 11.63 objective offers a 6-1 risk/reward ratio.
My rating on the trade is a 3 (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 generated an uneventful chart week, having had an inside week as well as a close still above the weekly close support at 45.70 (closed at 45.81). The stock did close slightly in the lower half of the week's trading range, suggesting a slightly higher probability of going below last week's low at 44.66 and above last week's high at 47.36. If that occurs but then a green close occurs next Friday, followed by a rally above next week's high the following week, a successful retest of the previous week's low at 43.09, as well as of the weekly close support at 45.70 will have occurred. This is the most probable scenario at this time. On a less than bullish note, Bank of America and Merrill Lynch started coverage on the stock with a neutral rating and an upside objective of $51, which does seem to negate the possible upside objective on the charts of a rally up to the $60-$62 level by years end. Pivotal support is found at 42.48 and pivotal resistance on a weekly closing basis is found at 50.93. Probabilities slightly favor the bulls this week. AU generated a positive reversal week, having made a new 6-week low but then closing green and in the upper half of the week's trading range, suggesting further upside above last week's high at 20.23 will be seen this week. Gold also generated a positive reversal week and did it from a relatively important weekly close support at $1464. If another green weekly close occurs next Friday, the retest of that minor to perhaps decent weekly close support will be confirmed. On a daily closing basis, the stock has confirmed resistance at $1472.90/$1473.40 that if broken would reopen the door for a rally to the pivotal resistance at $1500. As such, this coming week seems pivotal for Gold. The stock shows pivotal support at 18.56 and minor resistance at 21.16. Probabilities favor the stock seeing both red and green this week with a trading range between 19.00 and 21.00. COF generated an uneventful inside week but did advance the rally with another green weekly close. The stock closed on the high of the week, suggesting further upside above last week's high at 97.63 will be seen this week. If that does occur but the recent high at 99.62 does not get broken and a red weekly close is seen next Friday, a successful retest of the previous intraweek high as well as of the pivotal and decent weekly close resistance at 98.08 will have occurred, suggesting the rally would be over. Nonetheless, any daily close above 98.08 would suggest the rally is to continue and new highs above 99.62 are to be seen. Short term pivotal daily close support is found at 96.31 that if broken, would suggest at drop down to at least the $92 level. Probabilities slightly favor the bulls but this does seem to be a pivotal week. CRON generated another leg down after the industry as the company reported lower than expected earnings. The stock broke below a short term pivotal support at 7.60 and got all the way down to the $6 level (got down to 6.15), which is a level that has not been seen for the past 15 months. The Cannabis industry has been under strong sell pressure due to black market sales and not strongly growing demand internationally, which was expected to happen. From a chart point of view though, the area being reached (between $5.50 and $6.00, was strong support for 9 months between 12/2017 and 08/2018 and given that it is highly unlikely things will get worse than they are now, the probabilities now strongly favor the downtrend coming to an end within the next few weeks and some short-covering rallies occurring. By the same token, the $8 level is now going to be decent resistance and unlikely to get broken until positive fundamental changes occur. There is a small possibility that a rally or two up to the $10 and even the $11 level could be seen on a short-covering rally or on some short term positive news, but the probabilities strongly favor a $5.50 to $8 trading range being seen for the next 2-4 months. For the next 2 weeks though, a 5.60 to 7.15 trading range is the most probable. Probabilities favor the bears this week. DD generated a strong down week, having lost 8% this week. This certainly was unexpected given that the company received two minor upgrades with the target being raised from $80 to $81 and the index market remaining strong. The stock closed on the low of the week and further downside below last week's low at 67.38 is expected to be seen this week. Support is found between 66.58 and 65.36 and given that the indexes remain strong and the fundamental outlook for the company is also strong, if and when the trade deal gets done, taking profits around those support levels should be considered. Then again, if the trade deal fails, the stock is likely to head lower and perhaps make new lows below the recent low at 62.87, given that the 200-day MA has been tested successfully and the stock remains in a long-term downtrend. Any intraday rally above 68.91 would now be seen as a positive (after last week's drop) and consideration can be given to placing a stop loss at 69.01 to lock in some profits. Probabilities favor the bears. ENG continued to show indicative volatility, having had 2 weeks in a row of wide trading ranges, with the previous week showing a $.70 trading range and last week a $.29 trading range (normal trading ranges are about $.12). The volatility being seen is strongly suggestive that a change in the fundamental picture is occurring and given that the stock has no debt and is trading near its book value, the probabilities favor the change being in favor of the bulls. The stock did get back up to the 200-week MA, currently at 1.16, with a high this week at 1.19 and that is now 2 weeks in a row that line has been seen. Previously, the line had not been seen or approached for 12 weeks in a row. The stock closed at a minor weekly close resistance at 1.06 but it did close in the upper half of the week's trading range, suggesting a rally above last week's high will be seen and another attempt to close above the MA line will occur. The MA has not been broken to the upside for the past 31 months, meaning that if it is broken, it would be a strong sign that the downtrend is over and that another spike high rally, such as seen 4 times before in the last 10 years, will occur again. The trend line using all the previous spike high rallies is presently at 1.88 and that would be the objective is this scenario occurs. This stock has been a favorite of the bears to short since 2009 but the past week the bears have attempted but failed to drive the stock lower. Lows of .78 (a new 21-week low) and last week's low at .90 failed to generate new selling interest and the bears had to cover their shorts. It seem more likely every week that goes by that the bulls are slowly but surely gaining the edge. Probabilities favor the bulls this week. FNV reported better than expected earnings this week and made a new all-time weekly closing high at 99.04, above the previous one at 97.66. The stock closed near the high of the week and further upside above last week's high at 100.70 is expected to be seen this week. If that occurs, the all-time intraweek high at 101.19 is likely to be broken and other than general resistance at $103, there would be open air above. This stock is sensitive to the price of Gold so watching Gold this week is important. See the gold chart picture above in the AU held stock update. Based on the better than expected earnings report, pivotal support is now found at 95.47 (last week's low). Probabilities strongly favor the bulls this week. MDT generated a new all-time intraweek and weekly closing high this past week and closed on the high of the week, suggesting further upside above last week's high at 112.15 will be seen this week. The reason for the rally was news that one of their products has received "Breakthrough Device" designation for the FDA for fully implantable Left Ventricular Assist Device for patients with advanced heart failure. With the help of an index rally, the stock was strongly bought this week. The previous all-time intraweek high was 112.05, meaning that if the index market opens lower and the stock does that as well, a double top would occur. In spite of the good news, the stock had shown some weakness in previous weeks and therefore this breakout is not yet a "done thing". By the same token, if the stock is able to follow through to the upside this week, the short positions need to be covered immediately. A drop below Friday's low at 109.90 will generate a double top and positions can be held until further chart action is seen. Probabilities favor the bulls. SRUTF generated an uneventful inside week, suggesting the selling interest may be fading. The stock closed near the highs of the week, suggesting further upside above last week's high at .20 will be seen this week. Short-term pivotal resistance is found at .202 that if broken would suggest a short covering rally could occur with no resistance above until the .24 cent level is reached. Nonetheless, there is important and pivotal weekly close resistance at .2066 that if broken would generate a failure signal against the bears and if confirmed the following week with another close above that level, would suggest a rally up to the $.29-$30 could occur. The stock did generate a positive reversal day on Friday that created the possibility of a double bottom on an intraweek basis on the daily chart, which if the.202 level is broken this week would confirm that scenario. Possibilities slightly favor the bulls this week.
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1) ENG - Averaged long at 1.616 (6 mentions). No stop loss at present. Stock closed on Friday at 1.06. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 4.58 (new price (45.81). 3) MCIG - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .0295. 4) COF - Averaged short at 91.73 (3 mentions). Stop loss now at 100.35. Stock closed on Friday at 97.38. 5) DIS - Covered Shorts at 136.74. Averaged short at 134.42. Loss on the trade of $456 per 100 shares (2 mentions) plus commissions. 6) FNV - Averaged long at 90.15 (4 mentions). No stop loss at present. Stock closed on Friday at 99.04. 7) CRON - Averaged long at 12.80 (4 mentions). No stop loss at present. Stock closed on Friday at 6.28. 8) AU - Averaged long at 19.205 (4 mentions). No stop loss at present. Stock closed on Friday at 19.56. 9) MDT - Shorted at 102.35. No stop loss at present. Stock closed on Friday at 112.06. 10) ARNA - Averaged long at 48.36 (3 mentions). No stop loss at present. Stock closed on Friday at 45.81. 11) DD - Averaged short at 71.03 (4 mentions). Stop loss now at 69.01. Stock closed on Friday at 67.64. 12) SRUTF - Purchased at .36. No stop loss at moment. Stock closed on Friday at .19.25. 13) MDT - Shorted at 108.85. Covered shorts at 110.35. Loss on the trade of $150 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.
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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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