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Issue #16 
April 22, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
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Market Tips |
Stock Indexes Update |
Stock Picks for Next Week | |
| The Mind Of A Professional Day Trader
Often we place stops at areas that we believe are strong support levels in the stock we are trading and are prepared to close out our position in the stock if the support level breaks. Unfortunately for us the stop-loss areas are generally known by the professional traders and are often considered a gold mine of opportunity for increase of profits.
PDT's have second tier level of information regarding buy and sell orders and can see in advance at what price those orders exist, how many are there, as well as who (what company or entity) is holding those orders. With that information a professional trader can make an assessment beforehand whether a particular support or resistance level can easily be broken or whether the level is likely to hold.
An individual PDT is not likely to have the strength to cut through a support or resistance level by himself but if enough PDT's are looking at the same thing the group (as an entity working in unison) can adversely affect the outcome of that support or resistance level).
What does this mean?
It means that if the PDT's believe that the underlying orders are not strong or in strong hands he can begin an attack on a support or resistance level of the stock and, if the rest of the PDT's also follow suit, they will ultimately be successful in breaking through the support level and hitting the stop loss orders below.
In this way they would help generate an artificial movement in price not based on any fundamental change or news.
Due to the fact that this type of action is not caused by a fundamental change or news in the stock and only stop loss orders are being triggered (no "new" positions are being instituted), the break in the price of the stock and triggering of stop loss orders will allow the PDT's to cover their positions at a profit, reverse direction to take advantage of what will likely be a turn-around, and do this while guaranteeing themselves liquidity in both sides of the trade.
In this case scenario the PDT will end up with not only one profit but two (a long and a short) and all within the same day with no change in price of the stock at the end of the day. In both cases it is the unwary and fearful investor that has literally taken money out of his own pocket and deposited it to the pockets of the PDT's without a fundamental reason for the change. This situation is caused by fear on the investor's side and greed and manipulation by the PDT.
1) JDSU - Stopped out of JDSU short at 15.70 with a loss of $34 per 100 shares plus commissions.
2) MOT - Liquidated MOT short at 18.16. Loss of $52 per 100 shares plus commissions.
3) MMC - Liquidated MMC short at 30.26. Loss of $141 per 100 shares plus commission.
4) COGT - Purchased at 13.00. Stop is now at 12.86. Stock closed Friday at 13.85.
5) RADN - Holding short position shorted at 9.63. Stop loss order now at 9.54. Stock closed Friday at 9.34.
6) FTEK - Liquidated FTEK short at 23.72. Profit of $600 per 100 shares minus commissions.
7) WIND - Shorted at 9.99 and 10.07. Stop loss order at 10.35. Stock closed Friday at 10.16
8) SONS - Purchased at 8.24. Stop loss order lowered to 7.53. Second position will be bought this week.
9) TGB - Purchased TGB at 2.98 and doubled up at 3.15. Stop-loss order at 2.80. Stock closed Friday at 3.13.
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Chart Analysis Indexes - Into new highs!
DOW Friday close at 12962
The DOW had another strong week and closed 352 points higher than last weeks' close. It was a breakout week.
It is important to note that even though the DOW had a huge week the NASDAQ was only able to go up 31 points (up to the previous high) and just closed 2 points above its previous high close. This simply proves that the rally in the indexes is basically addressing blue chip stocks and that the general market is not following through as strongly.
Psychologically speaking the 13000 level should be resistance as all major even numbers usually act as such. If the DOW is able to trade above 13000 it will likely use the 13000 level as a pivot point and establish a trading range between 12700 and 13300. It is probable, though, that it will first go back down and try to build support around the 12700-12800 area from which to launch a new rally above 13000 and up to the 13300.
Some volatility should now come back into the DOW as the bulls have now been able to overcome the bears and some profit taking from a strongly overbought condition is likely.
Support should now be strong between 12728 and 12795. Resistance can only be found from a psychological level at 13000.
New and now established highs take strength away from the bears and therefore the DOW should experience a sideways to upward trend during the next few weeks.
NASDAQ Friday Close at 2526
The NASDAQ has not been able to make new highs riding on the coat tails of the DOW. In contrast to the DOW's 2.7% rally this past week the NASDAQ was only able to rally 1.2% in price. In addition, its rally only took it up to the previous high at 2531 and though it closed 2 points higher than the previous high close at 2524, it failed to make new intra-day highs.
If it fails to rally past this level and reverses downward this week it will likely be considered a "double top".
This action goes to prove that the rally in the indexes this week was more of a "blue chip stock" rally than an overall bullish scenario for the economy.
It is also important to note that much of the news this week was based on good earnings reports from big blue chip stock companies but the news regarding sales within the U.S. (rather than abroad) was not as rosy. With the British Pound making new highs against the dollar it belies the fact that our currency and value of our products and services is continuing to decline.
The NASDAQ has strong resistance at 2531-2532 and support at 2490. On a closing basis support should be strong at 2502. Should that support level break the 20-day MA is around 2470 as well as many previous highs at that price. 2444 to 2448 should be considered "major" support.
The "cup and handle" formation that has been bandied about for many months has now been totally formed and if a strong foothold above 2531 is established, 2900 would be the objective.
I believe that the important levels that must be watched in the NASDAQ are 2531 on the upside and 2444 on the downside. Two closes above 2531 will probably establish the break out from the "cup and handle" formation and continuation of the rally whereas a break below 2444 would negate it.
S&Poors 500 Friday close at 1484
The SPX has been the leader to the upside even though this week the rally did not match the percentage that the DOW obtained. It was on Monday that the SPX made new highs whereas it was not until Wednesday that the DOW broke new ground. For this reason alone it bears watching the SPX.
In looking at the previous all-time high for the SPX made in 1999 at 1533 I believe that level is an objective. Strong support will now be found at its previous high close of 1459 and major support will be 1433 where the 50 day MA currently resides.
In watching the SPX it will be possible to gauge the DOW as the previous all-time high for the SPX is likely to be a major bone of contention. With the existing economic environment I personally see that level being close to impossible to break through.
As I mentioned last week this move up in the indexes was not only unexpected but, in my opinion, somewhat irrational. The slew of reports that have come in over the past 8 weeks, since the 850 point correction occurred, have not been particularly bullish, other than some good earnings reports on choice stocks.
It is evident that the bulls have the psychological edge at this moment and until that situation changes the indexes are likely to continue to move up. The bears, with this new high in the DOW and SPX, are likely in hibernation. Nonetheless the situation can be dangerous, as it will not take much to awaken the bears.
View Jan 29, 2007 Newsletter View Feb 19, 2007 Newsletter View Feb 26, 2007 Newsletter 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 View Apr 08, 2007 Newsletter View Apr 15, 2007 Newsletter |
Stocks CHART Outlooks
New highs in both the DOW and the SPX should lend support to purchasing stocks over the next few weeks. Mentions this week are all purchases.
SONS (Friday Close at 8.01)
SONS is a stock that has a very decent up-trend in place. Back in November of last year it broke out of a 3-year sideways trend and since then has rallied almost $3 while moving above a major weekly resistance at $7.00.
After a 12-week rally from 4.71 to 8.00 SONS had a 2-week correction that took it down to test the 20-week MA at 6.64. It then proceeded to re-instate the up-trend and generated a rally above the established high at 8.00 and up to a recent high of 8.77.
For the last 2 weeks SONS has been trading sideways and re-testing the breakout level at 8.00 with drops down to 7.95. The breakout level on a closing basis is 7.69 and there is a gap between 7.85 to 7.77 that is likely to get filled sometime this week. The 20-day MA was broken last week but the 50-day MA as well as the breakout closing price are both at 7.69.
The probabilities now exist that both of those levels will be tested in addition to closing of the gap area. Such a test should be used to purchase SONS
You have to go to the weekly chart and back close to 4 years to find the major resistance in SONS. That resistance is at $10, though there is also some minor resistance on the weekly charts at 9.24.
Purchases of SONS can be made at 7.78 (closure of the gap) with a stop-loss order at 7.53 with an objective $10, and a possibility of new highs as well. Risk/reward ratio is 8-1 with the possibility of more.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
MDTL (Friday close at 17.42)
MDTL just last week went from the 16.95 level all the way up to 24.00 in one day. It rallied due to a piece of news the company was starting to deliver the Fuel Cell units they produce. Friday it went back to 17.00 without any negative news to cause the drop. Evidently the news was good enough to cause the huge rally so the drop in price must be all technically oriented and due to the failure to maintain the higher prices.
Nonetheless the news certainly was not negative and with the stock back down to its major weekly support it is likely a good buy at these levels as the risk/reward ratio is certainly positive.
With the 20-day MA at 17.40 and the 50-day MA 18.30 as well as the 20-week MA at 17.20 and 50-week MA around 20.32 it is very probable that MDTL will trade between these two MA's this week.
Nearby support is found at 16.95 and 17.00, then strong at 16.50 and major at 15.90. Resistance is at strong at 18.75, 19.12, and 21.59.
Having rallied $7 last week and then giving it all up this week and dropping to the 17.00 level from which the rally started, as well as closing above both the 20 day and week MA, it is probable that MDTL will try the upside this week.
Purchases between 17.15-17.25 with a sensitive stop-loss order at 16.89 and an objective of 18.75 will offer a 5-1 risk/reward ratio. Longer term outlook purchases at the same level but with a stop-loss order at 15.84 and looking for a rally up to 21.59 will give close to a 4-1 risk/reward ratio.
Possibility does exist of rallying above 21.59 as MDTL was as high as $24 just last week. No negative fundamental news appeared this past week.
My rating on the trade is a 6 (on a scale of 1-10 with the strongest probability rating being 10).
ANGO (Friday close at 16.20)
ANGO showed some defined bottoming out action with a break below the 16.04-16.16 support level followed by a reversal on Friday to close above the important 16.16 weekly closing level.
On the weekly charts ANGO is now into a major support area between 15.22 and 16.04 where purchases should be attempted. Rallies back up to 17.53, 18.42, 19.13, and 20.13 are very possible.
ANGO shows three weekly support levels of consequence at 16.16, 15.77 and 15.22. With last week's drop to 15.72 and a weekly close above 16.16 I believe the upside will now be tested.
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 15.66 or a longer term outlook stop at 15.16 should be placed. Though last week's drop below 16.04 and subsequent rally likely means the downside is over for now it is still possible that the 15.22 level might be tested.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
TOA (Friday closing price 4.82)
TOA is a stock that has come down from 10.87 to 3.32 over the last 8 weeks and down from 31.29 over the past 2 years. At the 3.32 level TOA seems to have found a bottom. Last week it broke above the 20-day MA and with Friday's rally of 47 points it seems poised to test the previous low close and 50-day MA at 7.00.
This trade is to take advantage of what seems to be a short covering rally off of the lows.
Support will be found between 4.40 and 4.60 and a strong congestion area around 4.25-4.35 does exist. Resistance does not even begin to be found until the 5.85 level is reached.
Purchases of TOA between 4.66-4.70 with a stop at 4.16 and an objective of 7.00 will offer a risk/reward ratio of at least 4-1.
My rating on the trade is a 7 (on a scale of 1-10 with the strongest probability rating being 10).
Honorable Mention
INTC (Friday's close 22.16)
INTC closed just above a previous weekly close at 22.09 confirming the desire of the stock to go higher. INTC is overbought and does face stiff resistance at the 22.24-22.34 level. If it is able to establish itself with a couple of closes above 22.34 there is no evident resistance until the high $24's are seen.
This is not a buy mention but if this scenario happens it would likely be a profitable trade.
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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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