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Issue #8 
February 26, 2007 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Thursday March 1, 2007 - Daily Closing Update |
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Market Humor |
Stock Indexes Update |
Stock Picks for Next Week | |
| Think about it!
An American investment banker was at the pier of a small coastal Greek village when a small
boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna.
The American complimented the Greek on the quality of his fish and asked, "How long does it
take to catch them?" The Greek replied: "Only a little while". The American then asked why
didn't he stay out longer and catch more fish? The Greek said he had enough to support his
family's immediate needs. The American then asked, "But what do you do with the rest of your
time?" The Greek fisherman said, "I sleep late, fish a little, play with my children, take
siesta with my wife, Maria, stroll into the village each evening where I sip wine and play
cards with my friends, I have a full and busy life." The American scoffed, "I am a Harvard
MBA and could help you. You should spend more time fishing and with the proceeds, buy a
bigger boat with the proceeds from the bigger boat you could buy several boats, eventually
you would have a fleet of fishing boats. Instead of selling your catch to a middleman you
would sell directly to the processor, eventually opening your own cannery. You would control
the product, processing and distribution. You would need to leave this small coastal
fishing village and move to Athens, then London and eventually New York where you will
run your expanding enterprise." The Greek fisherman asked, "But, how long will this all
take?" To which the American replied, "15-25 years." "But what then?" The American laughed
and said that's the best part. "When the time is right you would announce an IPO and
sell your company stock to the public and become very rich, you would make millions."
"Millions ... Then what?" The American said, "Then you would retire. Move to a small
coastal fishing village where you would sleep late, fish a little, play with your kids,
take siesta with your wife, stroll to the village in the evenings where you could sip
wine and play cards with your friends."
Updates on last week's mentions and previous stock positions
1) TRAD - Short initiated at 13.19. Stop at 13.48. Stock closed on Friday at 13.05.
2) NUAN - Closed out long position at 14.95 for a $256 dollar profit per 100 shares (after commission).
3) SNDA - Liquidated the other half of my positions at 24.95. Profit on the trade was $338 (including commissions) per 100 shares. Looking to re-purchase on dips down to the mid 23's.
4) NENG - Holding stock purchased at 2.53. Long term Buy and Hold. Stop at 2.00. Stock closed Friday at 2.28.
5) ANGO - Purchased positions on Friday at 23.80 and 24.13. Mental stop at 23.39. Stock closed Friday at 23.95.
6) RADN - Short initiated at 9.63. Stop loss at 10.40. Stock closed on Friday at 9.70
7) PMCS - Holding stock purchased at 6.73. Stop-loss order now at 6.56. Stock closed Friday at 7.40
8) KGC - Got stopped out of short, initiated at 13.24, at 13.66 for loss of $56 per 100 shares (including commissions). Long position initiated at 13.66. Stock closed Friday at 14.04.
View Jan 29, 2007 Newsletter View Feb 19, 2007 Newsletter |
Chart Analysis Indexes - Signs of a top?
DOW Friday close at 12647
The DOW was able to make yet another new high this week but was not able to generate further buying and came down over 140 points from the intra-week high. One level of support at 12633 was able to hold any further drop and the DOW settled the week down 120 points from last week's close.
CPI figures came out on Wednesday and reflected higher inflation numbers and the DOW reacted accordingly by giving up its most recent gains. Reports over the past two weeks have, at best, been neutral to bearish but investors have not been willing to sell aggressively as it would mean standing in front of the 8 month "runaway train" that the DOW has shown itself to be.
On Friday the DOW closed once again at the 20-day MA. The short-term chart indicates likely follow-through to the downside beginning the week. If that does happen the DOW will be getting close to an area of support of consequence. If the index closes below 12536 it will mark the first time in 8 months that the DOW has given a sell signal.
There is strong support beginning at 12575 and continuing on down to 12536. There is some minor support at 12628-12631 but if that level is broken it is likely that 12575 will be seen. Resistance should now be strong at 12700. If the top has been seen it is very unlikely that the DOW will be able to get above 12700-12704 and that level should be considered an important pivot point.
The 20-week MA is presently around 12337 and that should be the first objective if the 12536 level is broken.
It is important to note that in 2004 the actual intra-day high of the DOW came on the 4th week of February even though the high weekly close was seen the previous week. In 2004 the DOW surpassed the previous 3rd week intra-week high by 7 points. This past week the DOW surpassed the previous intra-week high by 25 points but also closed lower, as in 2004. Could it be that we have seen the high?
NASDAQ Friday Close at 2515
It is evident that the NASDAQ is now the leader of the indexes as it was not only able to go above last week's high but was also able to generate a higher weekly close. Over the last 2 weeks the NASDAQ has rallied 4% in price (from low to high) whereas the DOW has only rallied 2%.
Here is an interesting fact. The NASDAQ has rallied 45% in value since the low was made in August of 2004 whereas the DOW has only rallied 32% during the same period of time. The interesting fact is that DOW has rallied 13% in value since the April high last year and the NASDAQ has only rallied 7% during the same period of time. What this means to me is that the money is likely to flow back into the NASDAQ and the blue chip stocks are likely to take the brunt of that.
Support in the NASDAQ is now 2502 and then 2479. Critical support continues to be at 2418. The 20-day MA is presently at 2479 and the 20-week MA is at 2435. Minor resistance on the NASDAQ is at 2524 and 2531.
Same scenario as with the DOW the NASDAQ has not yet had a weekly low that is lower than a previous corrective weekly low. The previous corrective low in the NASDAQ is 2418. Any intra-day drop 5 or more points below 2418 will signal that the mid-term top in the NASDAQ has been seen.
S&Poors 500 Friday close at 1451
The SPX came close to negating the rally of the last two weeks when it closed on Friday only 1 point higher than the high close two weeks ago. In addition, on Thursday the SPX had a reversal day when it made new highs and then proceeded to close lower than the previous day's low. This is the first time this has happened since the rally began 8 months ago. A strong sell signal would have been given if the SPX would have managed to close below 1449 on Friday. It failed to do that by only 2 points.
Support on the SPX should be decent at 1443 (previous highs and 20-day MA) but below that there is nothing until 1433-1431 which is major support. Below that you will find very little until 1416. A close below 1416 will give a major sell signal on the SPX. Resistance will now be found at 1452, 1457, and 1461.
Based on the reversal day on Thursday and the bearish tinge starting to permeate the SPX a break below 1448-1449 is likely to generate increased selling and a drop down to the strong support at 1433-1431.
Watch the SPX closely as the first mini sell signal in the indexes was given this week by the SPX and it is possible it will be the first one to point the direction downward.
As with the DOW and the NASDAQ the SPX has also been able to maintain higher closing weekly corrective lows throughout the trend over the last 7 months. Any print 3 points or more below 1416 will break that trend and give a signal that the index has found a mid-term top.
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Stocks CHART Outlooks
Once again with the thought that the indexes may be at or near their mid-term top it seems right to be looking at short positions.
TRAD (Friday close 13.05)
One week ago TRAD released their most recent earnings report and it was higher than anticipated. TRAD was able to rally above a previous daily high at 13.30 (resistance) and pierce, intra-day, the 50-day MA. By the end of the day TRAD was unable to confirm the breakout and closed below the MA line as well as below the previous 13.30 resistance level.
The 13.30-13.40 resistance level was an important previous support level (for many weeks) and when broken to the downside generated the drop into the low 12's. It now must now be considered a strong resistance level and until broken above and confirmed (two closes above) will continue to act as a potential top to any rallies.
It is very evident with the shrinking daily ranges in TRAD that something of consequence will be happening soon. With 13.30 on the upside and 12.96 on the downside it seems probable that a break above or below will happen this week.
I do believe that the chart is leaning toward the downside and therefore a short position would be the way to go but, by the same token, a break above 13.40 could stimulate a rally up to the 14.00-14.33 level. It is a trade where either side could be played. Nonetheless not only do I believe it is more likely the break will occur to the downside but the profit potential is larger.
Risk/reward ratio on this trade is very attractive. Sales between 13.10 to 13.30 and using a stop at 13.48 and an objective of 12.06 or 11.64 (previous weekly support levels) will offer a risk/reward ratio of 4-1. You may want to wait until the 12.96 level is broken (a print of 12.90) to institute a short position. If that happens, not only will the support level be broken but the 50-day MA as well.
TRAD overall, seems to have broken it's weekly up-trend and may now be in a sideways to short-term downtrend mode with a possible trading range between 13.40 and 11.64.
My rating on the trade is a 6 (on a scale of 1-10 with the strongest probability rating being 10).
PACT (Friday Close at 6.17)
PACT looks like a great short using the daily charts. The weekly charts, though, do not give a clear picture. Nonetheless the risk/reward ratio, on a short position, is very good and the risk is clearly defined.
From December 4th through January 11th PACT made an impressive rally from a low of 4.20 all the way up to a high of 7.60 where it found an area of previous consolidation and began retracing itself. PACT was unable to re-establish itself in that consolidation area after the rally.
After one month of trading between a low of 6.34 and a high of 7.41 (considered a re-test of the high made a few weeks before) last Friday it gapped down below 6.34 and fell down to 5.81 (20-week MA), all in one day. This past week PACT has attempted to rally back and close the gap up to 6.50 but has been unable to get above the 6.34 level. On both Thursday and Friday of this week it
touched 6.34 as well as the 50-week MA it broke the previous week and on both occasions it failed to get above. On Friday it closed on the lows of the day at 6.17.
Other than the low made 10 days ago at 5.81 there is no visual support level until PACT gets down to the 4.95-5.25 area. Using the weekly charts, if PACT breaks below 5.81 (20-week MA) the objective would be a minimum drop to 4.95 and a possible drop down to 4.50.
On the weekly chart it is also very evident, over a period of 3 years, that the 6.34-6.42 level has been a major pivot point (both support and resistance) for a long period of time. Now, with two weekly closes below the 6.34 level, it seems that PACT will be trying to test the 4.50-4.95 support.
A short position can be instituted between 6.17 and 6.30 with a stop loss at 6.50. The objective would be 4.95 and therefore the risk/reward ratio on the trade would be at least 4-1.
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
ANGO (Friday close 23.95)
ANGO has been in a strong weekly up-trend since Sep06. The daily up-trend was interrupted two weeks ago, with a break below the 20-day MA, and a short-term downtrend went into effect.
On Friday ANGO reached the 50-day MA and strong support at 23.70-24.00 with a drop to 23.79 and a close at 23.95.
The strong weekly up-trend is still intact and the move down to this level was technically correct and needed once it found resistance above the $27 level. .
The weekly chart shows a very bullish scenario with strong probabilities of ANGO reaching the $27-$28 dollar level and perhaps even $29. A breakaway and runaway gap formation exists as well as an "island" bottom. This formation generally is seen with stocks that are getting into strong long-term trends.
Evidently, the gaps are important and should not be filled. The "runaway" gap is at 22.21-23.14 and already once ANGO dropped down to 23.49 to test that area and held. A second re-test of support is not be uncommon and therefore this week's drop can be considered as such. Support in the 23.70 -24.02 should be considered strong. Purchases can be made at Friday's close of 23.95 and stop-loss orders can be placed at 23.39.
Considering an objective of 27.28 a purchase at 24.00 will yield a risk/reward ratio of 5-1
My rating on the trade is a 7.5 (on a scale of 1-10 with the strongest probability rating being 10).
RADN (Friday close 9.56)
RADN is a stock that was downgraded two weeks ago and broke below the 20-day MA a two weeks ago Friday and broke below the 50-day on Tuesday of last week (dropped over $1 that day). After the fall RADN has rallied back up to the previous major low weekly close at 9.69 (closed 9.70 Friday)..
With this break it is possible that RADN will get into a trading range for the next few months between a low of $6 and a high of $10. If this break is confirmed next week with another weekly close below 9.69 it is likely RADN will get hit strongly thereafter.
There is some congestion support around 9.00-9.30 but the strong support doesn't start until the low 7's are seen.
It is possible that RADN will try to rally back up to the 20-day MA at 10.14 and the 50-day MA at 10.30 but the 9.69 weekly closing level will be tough to get above. Even if it accomplishes an intra-day rally to either one of those levels I do not expect for it to be confirmed with two weekly closes above it.
This is one of the stocks that Motley Fool is recommending and this past week they (Motley Fool) aggressively pushed it and perhaps it was the reason there was little follow-through to the downside. The 10.00-10.30 level looms very difficult to break should the stock be able to rally intra-day to those levels.
Sales of RADN between 9.69-10.14 and using a stop loss of 10.40 and an objective of 7.15 and then 6.00 offers a 3-1 to 5-1 risk/reward ratio, depending on the entry point.
Due to the fundamental downgrade of the stock and very evident break of long-term support this trade offers high probability percentages of success. Add to that the possibility of the stock indexes correcting makes shorting RADN a very attractive trade.
My rating on the trade is an 7.5 (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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