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Issue #14 
April 8, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Friday April 6, 2007 - Daily Closing Update |
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Market Tips |
Stock Indexes Update |
Stock Picks for Next Week | |
| The Mind Of A Professional Day Trader
Floor traders are such a breed.
Like most everything in life, most situations bring something good and bad to the "table", and professional day and/or floor traders are no exception.
(For the sake of this article we will refer to them as Professional Day Traders).
Professional Day Traders bring much needed liquidity to trading as they supply the constant trade flow that
is so necessary for accurate pricing as well as immediate resolution of orders.
On the negative side they can, on any given day, affect stocks adversely, without any fundamental reasons behind the action, thus causing many investors to lose money that otherwise would not have been lost.
Let's analyze the basic objectives and plan of action of this group.
The Professional Day Trader is simply trying to make a small profit every time he or she enters the market. With that thought in mind one must realize that they cannot take too much risk as one large loss would wipe out a series of small gains. Limitation of risk is their primary concern.
The Professional Day Trader realizes that one of the ways to accomplish a limitation of risk, as well as finding a profit opportunity, is to uncover where previously strong buying and selling occurred, where it is likely to be found again, and try to establish their trade as close to that price as possible.
In doing so, the Professional Day Trader will try to get involved just one small step ahead of that strength and hopefully run with it as long as it flows while, at the same time, limiting his risk by getting out with a small loss should the strength no longer be there.
This type of action, instituted as a deep-pocketed "group or bloc of traders" using the same trading strategy and objectives, can often be self-fulfilling
as it adds additional strength and liquidity to important support/resistance levels.
1) JDSU - Shorted at 15.36. Stop loss at 15.70. Stock closed Friday at 15.29.
2) MOT - Shorted MOT at 17.87 and 17.94 with stop at 18.31. Stock closed Friday at 17.59.
3) MMC - Short at an average price of 28.84. Original stop loss order rescinded. Stop loss order now at 30.37. Stock closed Friday at 29.29.
4) JNPR - Stopped out at 20.25 for a loss of $111 per 100 shares (including commission).
5) RADN - Holding short position shorted at 9.63. Stop loss order now at 9.54. Stock closed Friday at 9.29.
6) FTEK - Shorted at an average price of 26.755. Stop loss order now at 25.24. Stock closed Friday at 22.95
7) WIND - Shorted at 9.99 and 10.07. Stop loss order at 10.35. Stock closed Friday at 10.19
8) NDAQ - Shorted at 29.76 and 29.94 with a stop loss order at 30.09. Stock closed Friday at 29.67.
View Mar 04, 2007 Newsletter View Mar 11, 2007 Newsletter View Mar 18, 2007 Newsletter View Mar 25, 2007 Newsletter View Apr 01, 2007 Newsletter |
Chart Analysis Indexes - Decision Week?
DOW Friday close at 12560
The DOW had a strong week and closed 200 points higher than last week's close. In addition it closed above the 50-day MA on three consecutive days thus confirming a breakout. On a weekly closing basis there is strong resistance at 12580 but on a daily basis there is little resistance until 12668-12688 is reached.
The DOW was closed on Friday but received a positive piece of new with the unemployment figures dropped to 4.4%. Estimates had been for an increase to 4.6% so that news will likely be taken positively by the market and generate a higher open on Monday.
It is important to mention, in comparing 2004 to 2007, that in 2004 the DOW, on the correction rally up, failed to close above the previous weekly closing low (10488) prior to the year's high being made at 10753.
After the first drop of 6.8% the subsequent correction rally closed no higher than 10472 even though the week following that close the intra-week high took the DOW to 10570. That week, the DOW closed lower than the previous week at 10451 and two weeks later the DOW went into a new tailspin.
Whether the same scenario comes true or not, here in 2007, it bears mentioning it due to the uncanny similarities of these two years.
Should the same thing happen this year it would likely mean a rally intra-week up to the next resistance level up at 12668-12688 followed by a weekly close on Friday below 12560.
Intra-day support/resistance levels for Monday are as follows: Support at 12490-12500, 12408, and major at 12255-12562. Resistance levels are 12623 and 12680 (major). I do believe the key level to watch is the 12490-12500. If that level is broken further rallies back up will be tough to accomplish.
This week, the probabilities favor a strong market in the beginning of the week followed with some weakness toward the end of the week. Anticipated weekly closing on Friday is 12481.
NASDAQ Friday Close at 2471
The NASDAQ also had a strong week and managed to close slightly into the gap it left between 2492-2470. The resistance here at 2470 is copious and strong. If it clears above this level it will likely close the gap up to 2492 and attempt to get up to 2502-2508 where it will encounter new resistance.
It is important to note that even though the 2004 chart was quite different in the NASDAQ than in the DOW the rally in the NASDAQ from the first correction low was 9.1%. The 2471 closing price on Friday is exactly 9.1% correction from the 2331 low seen this year.
The NASDAQ does look like it wants to break above the 2470 resistance level and rally up to the 2502-2508 level. Certainly if the DOW rallies, as expected, due to the bullish unemployment report, the 2470 resistance will be broken, at least intra-week.
The key issue this week will be whether the gap is closed or not. Failure to close the gap, once this level has been achieved, will be viewed extremely negatively.
Support in the NASDAQ will now be strong at 2444 as that is an important low previous to the rally to new 4-year highs (back in February) as well as where the 50-day MA presently is at. There is also major support on a weekly and daily closing basis around 2435. There are only two resistances of consequence above 2470. The first one is at 2502-2508 and the 4-year high at 2531.
It is likely that we will see some of these questions answered first thing on Monday. With the help of the unemployment report being factored in, the indexes should show strength. If they don't then it is probable we have seen the high of this rally.
S&Poors 500 Friday close at 1443
The SPX, this week will likely trade between 1433-1453 and a breakout from either of those two price levels will likely generate additional follow through. A break below 1433 will likely generate a move down to 1423 and a break of that support a move down to major support at 1408. A break above 1453 will generate test of 4-year high at 1459 and possibly new highs.
This is a week that is likely to decide the direction for the next few weeks. If the strength in the indexes continues and by the end of the week has not faltered, the likelihood of new highs in all the indexes is strong. Any weakness from here will be considered a successful re-test of the highs and the indexes will shift their focus toward testing the lows made a few weeks ago
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Stocks CHART Outlooks
Mentions this week will be tricky because several of the stocks are at pivotal levels and depending on what the indexes do on Monday will cause these stocks to go in one direction of the other. Nonetheless, since the risk/reward ratios are bound to be excellent, there are several trades that are worth getting involved with due to the small amount of risk involved.
MDTL (Friday Close at 19.02)
MDTL recently broke above a major resistance level as well as weekly pivot point when it went above the 18.50-18.60 level. In addition it broke above what looks to be a weekly flag formation that offers an objective of 21.90.
Eight weeks ago MDTL found a floor at 12.63 to its 4 months drop which started at 30.63 on 10/13/2006. At that price a double bottom on the weekly chart, using the bottom on 12/9/2005, was confirmed. A short covering rally ensued with a rally up to 18.75. After a 5-week sideways trading range (flag formation) MDTL broke out of this formation last week and is now on a very evident rally.
The 18.50-18.75 level should now be considered major support.
Purchases between 18.50-18.65, using a stop-close-only at 18.38, offers a good risk/reward ratio of at least 4-1. First objective is the 50-week MA at 20.07. Resistance on the weekly chart is not seen until 21.59 and that should be the main objective. Using the daily chart, though, there is no major resistance until 25.07 is reached, that could ultimately be a real objective.
A purchase of MDTL between 18.50-18.65 will offer a risk/reward ratio of at least 4-1 with the possibility of a lot more. This is likely to be a trade you will know very soon if it will be profitable or not. The 18.50-18.65 support level is quite important and failure to continue to close above it will give a strong failure signal. A rally above the recent high at 19.80 is likely to be seen this week if the trade is good.
My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).
ANGO (Friday close at 17.00)
ANGO is a stock that has been hit with as much negative news as it could have had. Just two weeks ago the company suffered a legal loss as Diomed won its lawsuit against ANGO for patent infringement. That judgement will likely mean that ANGO will have to pay between $4 million to $12 million to Diomed. In addition, the same week, they revised downward their previous earnings report from a plus $.09 cent to a negative $.55 cents.
In anticipation of the lawsuit ANGO had come down from a high of 27.28 to 20.68 and after the earnings report came down to last weeks low at 16.31.
ANGO has now come down almost 40% from its highs.
Fundamentally speaking (not my strength) ANGO seems to have now absorbed all the possible bad news that could have come and is nearing major levels of weekly chart support where long trades can be explored.
ANGO shows two weekly support levels of consequence at 16.04-16.16 and 15.22. On a weekly closing price the 16.16 level seems to be the most important and with the oversold condition that now exists it is probable that dips to that level will not only be supported but that rallies will be seen.
A rally up to the 18.00-18.42 is highly probable and a rally back up to the previous island gap area at 19.16-19.34 could also easily be seen. The 18.00-18.42 level was a previous resistance just prior to the drop to 15.22 and will act as decent resistance, even though it cannot be considered a major area.
Purchases in ANGO between 16.04-16.18 should be attempted and a sensitive stop at 15.96 should be placed. If that level is broken purchases on dips close to 15.22 should be attempted using 14.90 as a stop loss point.
In looking at the chart it is probable that ANGO will break below the most recent low at 16.39. Whether it breaks below the 16.00 level or not is something that at this time cannot be measured. Both a purchase between 16.04-16.16 with a stop at 15.96 as well as a purchased around 15.22 with a stop-loss at 14.90 should be attempted as this stock has a lot more upside than downside potential at these prices.
My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).
NDAQ (Friday closing price 29.67)
NDAQ is a stock trading close to a very short-term pivot point and therefore the mention here has two entry points.
I already mentioned this stock last week and I am short at an average price of 29.84. During the last 9 trading days NDAQ has been unable to get above 30.00 (psychological resistance level). The chart of NDAQ shows a good probabilitiy of breaking above the level and run up early this week to test 31.25 (gap area) and 50-day MA. Since it is probable that the indexes will show strength on Monday and rally, it is also probable that NDAQ will follow that rally up.
Evidently if NDAQ continues to fail to get above the 30.00 level, especially if the indexes are rallying, then it is a strong short at these levels using 30.09 as a stop-loss point. Nonetheless, since the chart is now leaning toward a break above 30.00 (with the help of the indexes), the recent high at 30.40 will likely be taken out if the 30.00 level is broken. If that happens you want to be out of the present short (stop at 30.09) but re-institute the short on a rally above the 31.00 level.
A close above 30.79 on the daily chart might offer further upside moves but knowing how NDAQ has a habit of having large trading ranges it is probable that a rally up to 31.25 and a fall back below 30.79 will occur.
Because of these reasons I am giving NDAQ two-pronged entry and exit points. Especially here on Sunday as there are too many variables that are unknown at this time. Nonetheless, in looking at the overall daily and weekly chart, NDAQ still looks bearish and has an overall objective of the $24-$26 level.
Present short positions should move their stop loss order down to 30.09. If stopped out a re-entry into a short position should be attempted on rallies above 31.00 using a stop-loss order at 31.75 (closure of the gap).
In both scenarios the risk/reward ratio is in excess of 5-1.
My rating on the trade is a 6.5 (on a scale of 1-10 with the strongest probability rating being 10).
COGT (Friday closing price 13.24)
COGT is a stock that has been in a major short-term up-trend and recently was able to establish an important hold above 13.00-13.10 which has been an important pivot point and is now considered major support, on a weekly basis. The very well-defined chart levels now makes this trade an attractive one to consider. COGT has rallied over the last 8 weeks from a low of 10.18 to a recent high (Thursday) of 13.95.
COGT did break above the 20-week MA 6 weeks ago and above the 50-week MA 4 weeks ago. It is facing strong resistance at 14.74 but strong support at 13.00-13.10 (both from the 50-week MA as well as three daily and weekly lows at those prices.
A break above 14.74 could vault the COGT to the $17 level and perhaps an attempt at $20. Purchases between 13.00-13.10 can be attempted using a sensitive stop loss order at 12.92 or, if a longer-term position is being taken, a stop loss order below the previous weekly high close at 12.46.
Risk/reward ratio, using a sensitive stop-loss order at 12.92 and a near-term objective at 14.74, would offer a risk/reward ratio of 9-1. If the 12.46 stop loss price is used the risk/reward ratio would drop down to 3-1. Keep in mind, though, that if the 14.74 level is taken out (ultimately a high probability using the weekly charts) the risk/reward ratios would rise substantially.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
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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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