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Issue #680 
Aug 9, 2020 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| The Bulls Won! Charts Rosy! Confirmation Needed this Week!
DOW Friday closing price - 27433
The rally in the indexes continued this past week in a strong way, with the DOW and the SPX gaining over 3.5% in value and the NASDAQ gaining 2.5%. The dichotomy seen recently with the NASDAQ outpacing the other indexes by a large margin was overturned this week, suggesting that the rally will continue as the overall market is now seeing purchasing interest and not just the big Tech stocks. Once again, the indexes closed near the highs of the week and further upside above last week's highs is expected to be seen this week. More importantly, the first 3 weeks of the earnings quarter are now over and the important reports for the month (ISM and Jobs) came out last week, meaning that the bears now find themselves without any potential catalytic news that could turn the market around to the downside for at least another 4 weeks.
The NASDAQ now finds itself 13% above the previous high and the rally above the previous all-time high seen a year ago in July at 8338, generated a 18% rally up to 9838, meaning that just to mimic that rally, the index would now continue higher for another 556 points.
The SPX will now be the index that traders watch this week given that the previous all-time high at 3393 is now a magnet that without any possibility of negative catalytic news coming out this week will draw traders inexorably toward it, especially when there is absolutely no resistance above until it is reached. With the index having a high last week at 3352, only an additional 41 points is required to reach it (a 1.2% rise). The DOW did break a resistance of consequence this past week at 27071 and did generate a new 6-month weekly closing high at 27433 (above the previous one at 27110) and only has the previous intraweek high at 27580 to overcome before attempting to reach the March gap area at 28642 and 28892. A gap that was closed this past week by the SPX. As such, there is very little to stop any of the indexes from having another strong week.
On a potential negative note, the SPX and the NASDAQ did generate a gap this past week on the weekly chart and those gaps will both be magnets if another gap is not seen this week. In the SPX it could be a true negative given the now real possibility of a double top being created. With no news forthcoming this week that can help the bulls or the bears, the bulls are "committed" to making a new all-time high and unless a positive reversal week occurs in which the gap is closed and then new highs made thereafter, closure of the gap will be a negative and perhaps a big negative if a red close occurs next Friday. The gap is between 3272 and 3284. On the other side of the coin, a new gap on Monday, followed by a new all-time high made, would be about as bullish a sign as can be made. In the NASDAQ, closure of the gap is not necessarily indicative given that the index is well above the previous highs and any move down would be seen as only some profit taking.
There is one potential fundamental negative on the horizon for this week and that is the Stimulus program. Talks broke off between the Democrats and Republicans that threatens to partially dismantle the new stimulus program that is needed to keep money coming in into people's hands to pay rent, bills, etc. Trump said he would give an Executive Order to keep the help coming but such an executive order is not going to be of much help because it would only offer at most what the Republicans are offering now, which is less than what is needed. In addition, there are doubts as to whether an EO for economic help can be accomplished because the Constitution says that only the House can allocate funds for anything such as this. As such and either way, the EO would not give ammunition to the bulls to take the indexes higher. If no resolution for further meetings/talks between the Democrats and Republicans is announced by Monday morning, it could generate new selling interest.
One additional possible negative is that equity funds have begun withdrawing money from the market last week. Last month, $42 billion was withdrawn as funds believe the market may not be supported by the fundamental picture at this time. In addition, there was a rise in Bond yields last week that does suggest money is flowing out of equity funds and into the bond market. By the way, this is also one of the reasons given for the drop in Gold at the end of the week. This type of action suggests that investors are now longer looking to invest into the risky high growth stocks, which in turn would affect not only Gold but NASDAQ Tech stocks as well.
There are a lot of factors and under currents at this time that are confusing to everyone. As it is, the markets have acted as never before and therefore there is no history that can help traders make clear sense of what is happening. Chart-wise, everything looks extremely rosy for the bulls but fundamentally and because never before has there been such an economic mish-mash seen due to the pandemic and the also never seen before economic stimulus given, traders are unsure of what is to happen and "unsure" is not where the bulls want to be after such a huge rally having occurred.
Right now, evaluation of the market has to be on a day-to-day basis though at this moment, I can say that the "probabilities favor the bulls". This week though, is hugely important as the bulls are committed to higher prices and closure of the gaps followed by a red weekly close next Friday would be a "bucket of cold water" on the bull run.
OIL made a new 5+ month intraweek high but failed to do the same on a weekly closing basis, having closed below the high weekly close from 3 weeks ago at 41.29 (closed at 41.22). In addition, oil closed in the lower half of the week's trading range, suggesting a slightly higher probability of going below last week's low at 39.58 than above last week's high at 43.52. It was a disappointing week for the bulls as the breakout suggested that oil would continue to run higher due to the lack of resistance above but ultimately the rally failed to generate such a buying spree, suggesting that oil will continue to trade around the $40 level until more information comes out. Evidently, if the bulls can get their act together this week and go above last week's high, they will negate the action seen this past week. That is unlikely though, because there are no possible catalytic reports or events scheduled for this week where that kind of ammunition could be given. To the downside, the support at 38.52 remains short-term pivotal and unless broken, probabilities will favor oil trading between $39 and $43.
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Stock Analysis/Evaluation
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CHART Outlooks
No new mentions this week. Bulls won the battle last week and further upside is expected but with all the news out, traders are likely to decide this coming week what to expect for the next 3 months until the next earnings quarter comes out. It does need to be mentioned that the dollar strengthened last week, bonds started to be bought as large amounts of money flowed from equity funds into them. This is a conservative move as money now seems to be flowing out of speculative high risk stocks and into safer investments. This would change some of the outlook of the market, especially with Tech stocks that have been the backbone of the market on the way up.
I did keep one mention from last week that is in a Tech stock that has its own reason for being bought, if and when the desire entry point is reached.
AAPL Friday Closing Price - 444.45
AAPL reported earnings a week ago Thursday night and they were better than expected. The company has been a strong beneficiary of the corona virus due to being a Tech Company and is expected to maintain those benefits the rest of the year. Nonetheless, the stock is overbought at present and if the NASDAQ does not make new all-time intraweek highs this week, the stock is likely to at least retest its previous all-time daily closing high at 393.43 at some point.
Normally, this would not be a stock I would be buying (in spite of its strong fundamentals) given that it is at a new all-time high and strongly overbought. Nonetheless, the company announced they will be having a stock split on August 24th of 4-1, which makes the company more available for lower funded individuals to purchase, which at these prices they are not able to do so. In addition, it has been my experience during my 43 years of trading the market, that stock splits normally generate a move back up toward the previous price, meaning that when the stock splits down to around $100, that it will begin working toward getting back to the $400 level.
With a strong possibility that the stock will retest the previous all-time high at some point in the next few weeks and that previous all-time high will be around the very strong psychological level of $100 (after the stock split), this does suggest that if the desired entry point can be obtained, that the stock would be a good purchase.
This is not a mention that is likely to reach the desired entry point this week, which is around the $393-$397 level, meaning this mention is good until cancelled. Nonetheless, with the stock split already announced, purchases of AAPL can be made before the stock split occurs at lower amount of shares. For example, if 100 shares is what you want to own of the stock at $100, you could purchase 25 shares around the $400 level.
The only level where a stop loss can be placed at this time is at 356.48, which is 10 points below the previous week's low (which is now considered strong and pivotal support). This does suggest that a purchase around $397 will offer a $41 dollar risk (about a $10 risk after the split) per 100 shares. The upside objective would be long term with a rally back up toward the $400 level (once the stock split has occurred), meaning a risk of $4 to pick up $300 dollars. Evidently, this is certainly not a short-term objective but I will update every week what the viable objective is once the purchase is done at the desired entry point.
My rating on the trade is a 4 (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 |
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AU followed through to the downside this past week, not only on an intraweek basis but with another red weekly close. The stock closed near the low of the week and further downside below last week's low at 30.16 is expected to be seen this week. There is no recent support found until the previous 7-year weekly closing high is reached down at 27.75. Nonetheless, having broken a minor to decent intraweek resistance from 8 years ago at 38.15, the support around the $30 level built during that time should offer some chart buying interest. On a negative note, Gold dropped at the end of the week due to strengthening of the dollar and a rising bond market, meaning that money was being shifted from speculative and high risk products into more conservative ones and Gold at this level has to be considered a speculative high risk investment, meaning that Gold could go lower for the short term and affect the stock as well. As such, the support at $30 is likely to be broken and a drop down to around $27 likely to occur. There is some minor but recent support at 29.80 and the bottom of the $30 demilitarized zone is at 29.70 and if that level holds up and a rally above last week's high at 33.75 occurs, then the bulls will be back in at least short-term control. Probabilities favor the bears. AXP generated a new 7-week intraweek and weekly closing high and closed on the high of the week, suggesting further upside above last week's high at 99.30 will be seen this week. The action does suggest the bulls are now back in control and the short positions should now be covered as there is no resistance close by above. The stock did close on Friday at the 200-week MA, currently at 99.24 and a green close next Friday would be a bullish statement, while a red close would be a negative given that the long term downtrend MA will have been tested successfully. As such, this is an important and pivotal week for the stock. The $100 demilitarized zone will be in play this week and it is the only resistance (though only psychological) where the bears can mount resistance. In addition and from March, there is an intraweek high at 99.69 that will also help the bears defend the demilitarized zone. Nonetheless, a break above 100.30 shows no resistance above until the 200-day MA, currently at 106.87, and then intraweek resistance at 109.06. Consideration should be given to covering shorts if 100.30 is broken. There has been no news that is supporting this rally but chart-wise, it was a statement that still needs to be confirmed but a statement that needs to be watched closely as it seems to be meaningful. The 93.32 level is now pivotal support that if broken, would give control back to the bears. Probabilities favor the bulls. BTZI was formerly MCIG. The name got changed 4 weeks ago. Two weeks ago, the stock generated a mini breakout, having closed on a weekly closing basis above .032 and then confirming the breakout with 2 weeks in a row closing above the line. On Friday, the stock closed back at .032, suggesting this is a retest of the breakout that occurred. This suggests that if the breakout is real, a green close will be seen next Friday. Daily and weekly close resistance is now found at .04/.042 that if broken would generate a new buy signal. Any daily or weekly confirmed close below .031 will once again put the stock in the same limbo it has been in for the past 3 months. Probabilities favor the bulls. CAT generated a green weekly close but other than pausing the weakness that has been seen the past 2 weeks, the green weekly close did not break any resistance, meaning the traders are presently awaiting movement in the index market before deciding what to do. The stock did close in the upper half of the week's trading range, suggesting further upside above last week's high at 135.94 will be seen this week. Above 135.94 there is no resistance until 138.33 is reached. Decent to strong resistance is found between 139.94 and 141.08. The stock has been trading sideways but with mostly higher lows for the past 10 weeks and the chart is leaning more toward the bulls than the bears. Nonetheless, the resistance at $140 is strong and likely needs a catalyst (news on the stock or the index market heading strongly higher) to break. There is some short-term support at the $130 demilitarized zone that if broken would likely cause the stock to drop down to the 200-week MA, currently at 127.07. Probabilities favor continuing the sideways trading but if there are any surprises, it will likely be to the upside. CNX had a strong week up and closed above a minor to decent weekly close resistance at 10.84 that means the 9-month high at 11.50 will be tested this week and given the strength seen recently, likely to be broken. The 11.50 and up to the 12.02 level where the 200-week MA is currently located, is a resistance area of consequence going back 5 years. Any weekly close above the 200-week MA would be a statement of strength that would open the door wide for a run to the $16-$17 level. Support is now found at 9.80 and pivotal at 9.20. Probabilities favor the bulls. CRON generated a new 11-week intraweek and weekly low this past week due to a disappointing earnings report that showed losses versus profits from a year ago. The stock closed on the low of the week and further downside below last week's low at 5.60 is expected to be seen this week. With this drop coming 1 week after getting up to the 200-week MA, currently at 7.33, and having dropped 14% in value from the previous week's high, the stock continues to be in a bear market and the bulls in a defensive position. There is some minor support at 5.50 and a bit stronger at 5.12. Pivotal support is found at 4.62. The company statement after the earnings report was not encouraging as they see no short-term relief from the pressures the Cannabis industry is experiencing, though they did state that those pressures do not affect the company itself as much as other companies. Nonetheless, the pressures are not likely to allow the company to prosper in the short-term. In looking at the daily chart, it seems likely that the stock will fall down to the $5 demilitarized zone and stabilize there. No break of pivotal support is likely to happen but the stock will now find minor to perhaps decent resistance around 6.00 and stronger around 7.00, suggesting a $5-$6 trading range will be in effect for the next few weeks. Probabilities favor the bears. ENG unexpectedly reported earnings this past week and even though they were better than last year, the stock sold off and the bulls were unable to confirm the 200-week MA breakout that had occurred the previous week. Nonetheless, the report itself was not bearish given that the company reported even earnings for the year and a +$.04 cent profit in earnings for the past 6 months and since I have been trading the stock (since 2013), the company has never shown a plus earnings report. One of the reasons I read that perhaps is what caused the stock to fall is that they did say that the pandemic had brought about some problems with workers having caught the virus and that had made producing conditions difficult. Nonetheless, the guidance given was still strongly positive so the drop in price is likely to be short-term. It also needs to be stated that this stock is now showing 5 spikes up to a downtrend line that started 11 years ago and usually there are 5 spike up (followed by drops) before a true breakout occurs. With the now 5-point trend line at 1.58 and the stock having rallied to 1.55 a few weeks ago, it does suggest that after this fall ends, the next rally will be "the one" and sustainable. In spite of the drop in price after the report, no support levels were broken. The stock dropped down to the 200-day MA, currently at .99, with a drop down to .98 on Thursday and an inside day on Friday. The stock did close on the low of the week and further downside below .98 is expected to be seen this week but unless the support between .93 and .96 is broken, no damage to the chart will be done other than to say that further chart work will be needed for the next few weeks before the 6th attempt to break the trendline occurs. The news was not really negative so the bears do not have anything tangible to hold on to other than the initial profit taking binge occurred last week. The stock did gap down between 1.21 and 1.13 and there is some established intraweek resistance at 1.20 and important and pivotal daily close resistance at 1.23. If the gap can be closed and a close above 1.23 obtained, the bulls will be back in control. Probabilities favor a trading range between .96 and 1.20 for the next few weeks. MRNA generated another uneventful week in a row, having closed at the exact same price that it closed at the previous week and having had the smallest trading range 7 weeks. Nonetheless, the stock did go below the previous week's low and that now opens the door for some type of new support level to be built when some new buying comes in. The stock did close in the lower half of the week's trading range, suggesting a higher probability of going below last week's low at 73.01 than above last week's high at 78.62 but the fact that the trading range shrunk and no gain or loss occurred over the previous week does suggest that the price range now represents the real value of the company at this time. The trading range between resistance and support is now set at 83.85 to the upside and 66.54 to the downside. The stock is likely to trade within that trading range until some new news comes out. The company did start its Phase 111 of the clinical trials for the Covid-19 vaccine and it looks promising, meaning that the bulls have a better chance of resistance being broken than support being broken. Nonetheless, until something more tangible comes out, the stock is likely to continue trading in this $19 trading range. The bears have a very slight edge for this week. NEM generated negative reversal week, having made a new all-time intraweek high but then closing red and in the lower half of the week's trading range, suggesting that further downside below last week's low at 67.30 will be seen this week. The all-time weekly closing high at 69.61 was not broken and the red weekly close does open the door for a potential double top with the previous week's close at 69.20. Nonetheless, the close on Friday at 68.91 was not convincing enough for the traders to pay all that much attention to the double top at this time, meaning that next Friday's close will be very important as another red weekly close will confirm the double top but a green weekly close is likely to confirm that the new all-time intraweek high is a sign of further upside to come. As stated above in the Gold comment, some of the sell pressure seen was due to the strengthening of the dollar and the shift in equity funds from speculative high risk positions to a safer environment. If that continues this week, it may be a statement for weeks to come. Important level to watch is the previous 8-year daily closing high at 67.90 or the intraweek low at 64.53. If either gets broken, especially if a daily close below 67.90 is confirmed, consideration to taking profits should be given. Probabilities continue to slightly favor the bulls. QQQ made a new all-time intra-week and weekly closing high but closed exactly in the middle of the week's trading range, meaning equal chance of going above last week's high at 274.98 than below last week's low at 267.87. Nonetheless, the same thing that affected Gold at the end of the week, affected the index as well as the index closed red on Friday while the other indexes closed green. In addition, at 5:00 pm on Sunday, early trading was showing the NASDAQ trading about 100 points lower while the DOW and SPX were trading green. This does suggest a lower opening will occur Monday morning. The stock and the index both gapped up on Friday with the stock showing a gap between 265.95 and 267.87. If that gap is closed on Monday and a daily close below the previous all-time daily high close at 266.68 occurs, a failure signal will be given. If confirmed on Tuesday, new selling interest will occur and a drop down to or close to support at 252.76/251.32 will likely happen. Evidently, if the stock gaps up on Monday above Friday's high, it would be a strong bullish statement. Probabilities do favor the bears as Tech stocks are heavily overbought and likely overvalued and the shift from high risk stocks was evident last week with the dollar strengthening and the bond market rallying, as well as the $42 million in equity funds that went out of stocks and into bonds. W reported earnings this past week and they were better than expected. The stock made a new all-time intraweek and weekly closing high and above the $300 rating objective. The stock did close in the upper half of the week's trading range, suggesting further upside above last week's high at 323.15 will be seen this week but on Friday, the stock generated a negative reversal day, having made the high for the week that day but then closing red on the daily chart and in the lower half of the day's trading range, suggesting the first course of business for the week will be to the downside below Friday's low at 300.77. If that occurs, the stock will find itself close to the midpoint of the week's trading range (at 297.75) and if the NASDAQ closes its gap and also closes below its previous high at 10767 then the bulls are likely to begin a strong profit taking binge. As it is, the stock is showing 3 gaps on this latest rally and the 3rd gap is at 267.43 and closure of that gap will become a magnet if the momentum to the upside is lost. There is absolutely no support below until 209.12 is reached and if the momentum is lost, there is no level close by where the bulls can gather to support the stock. With the earnings report now out and the stock having more than doubled in price in the last 10 weeks, a correction is now much more likely that further upside. Probabilities favor the bears.
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1) ENG - Averaged long at 1.616 (6 mentions). No stop loss at present. Stock closed on Friday at 1.02. 2) BTZI - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .0321. 3) CRON - Averaged long at 10.4275 (4 mentions). No stop loss at present. Stock closed on Friday at 5.64. 4) SRUTF - Purchased at .36. No stop loss at moment. Stock closed on Friday at .0532. 5) W - Averaged short at 97.47 (3 mentions). No stop loss at present. Stock closed on Friday at 309.68. 6) CAT - Averaged short at 109.616 (3 mentions). No stop loss at present. Stock closed on Friday at 134.92 7) QQQ - Averaged short at 192.995 (2 mentions). No stop loss at present. Stock closed on Friday at 271.47. 8) AXP - Averged short at 93.953 (3 mentions). No stop loss at present. Stock closed on Friday at 99.16. 9) AU - Purchased at 31.25. Averaged long at 25.65 (4 mentions). Stop loss at 26.48. Stock closed on Friday at 30.66. 10) NEM - Averaged long at 60.0125 (4 mentions). No stop loss at present. Stock closed on Friday at 68.91. 11) MRNA - Averaged long at 55.395 (2 mentions). No stop loss at present. Stock closed on Friday at 74.10. 12) QQQ - Day Traded 6 times at different prices. End result of all those trades after commisions subtracted - Profit of $214. 13) CNX - Purchased at 8.01. No stop loss at present. Stock closed on Friday at 11.09. 14) W - Day traded 3 times at different prices. End result of all those trade after commissions subtracted. Loss of $386.
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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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