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Issue #663 
March 22, 2020 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bear Market Now In Place in all Indexes!
DOW Friday closing price - 19173
The indexes generated big drops this past week with losses (based on weekly closes) totaling between 14% and 17% in value. The falls seen this week have not been seen or replicated since 2008, meaning that the traders are looking at this collapse of the market being as bad or worse than the economic malaise seen that year. All indexes have now given bear market signals with the DOW having dropped 35.2%, the SPX 32% and the NASDAQ 29.2% (a 20% drop signals a total change of trend).The indexes all closed near the lows of the week, suggesting further downside below last week's lows (DOW below 18917, SPX below 2280, and NAZ below 6686) will be seen this week.
More importantly, intraweek support levels of importance (decent to major) that have been in place since 2017 have been broken in 2 of the 3 indexes (in the DOW and the SPX at 22396 and at 2408), with the DOW having broken its support the previous week and the SPX this past week, the possibilities of a negation of the break have become low to perhaps negligible. By the same token, the leader and main index of the market during this entire bull run (the NASDAQ) has not yet broken its pivotal intraweek support found at 6190. Nonetheless, the NASDAQ did close on Friday below the 200-week MA, currently at 6996, and that line had not been broken or even pierced intraweek since 2010 (10 years) and if that break is confirmed with another close below that level next Friday, a break of the pivotal intraweek support will become highly likely to follow. If all of that occurs, additional panic selling will be seen as the next level of support of any consequence is not found until the 4700 level in the NASDAQ is reached (2700 points below Friday's close). As such, this coming week is extremely important and indicative to the bulls.
Using 2008 as a possible comparison period, the NASDAQ fell 52% in value during that period (from high weekly to low weekly close) and if that occurs this time, it would suggest that a drop down to 4760 could occur.
At this time there doesn't seem to be anything (from an economic basis) that will stem the tide of this downtrend other than some potential cure or solution to the pandemic. The Fed cut interest rates close to zero before last week's trading began and it did not help the bulls in any way and having cut so much, the Fed is basically unable to do anything more to stem the selling. Economic reports expectations are already being cut down but there is no assurance that even though lower expectations are given that those may not be surpassed in reality. This past week the Trump administration stated that there were 2 or 3 established medicines (such as Chloroquine for Malaria) that have shown promise in helping recovery occur in patients that have caught the virus but it was also stated that those medicines require further study before being made available for use in the pandemic. Evidently, the news was not sufficiently positive to stem the big in-the-know bull traders (hedge and institutional funds) selling on Friday (3 days after the news came out) to prevent the new and strong sell signals from being given. Evidently, if these medicines were considered to be the panacea for the virus, the big bull traders would not have allowed these new sell signals from being given as sell signal of this magnitude generally bring about automatic computer and algorithm selling and are tough to turn around without confirmation of a positive resolution to the crisis. As such, the action seen in the market suggests that this drug is no panacea for the virus "at this time". Nonetheless, it bears watching the news on this medicine closely for sign of effectiveness, given that if it is effective, it will turn the market around (fundamentals rule over charts).
To the downside and on an intraweek basis, the DOW only shows very minor support at 17883 and then minor to perhaps decent at 17063 and decent at 16093. The SPX shows very minor support at 2083, minor to perhaps decent at 1991, minor to decent at 1867 and decent at 1810. The NASDAQ shows minor to perhaps decent support at 6630 and then decent as well as longer term pivotal at 6190.
To the upside and on an intraweek basis, the DOW shows very minor resistance at 19999, again at 20774 and again at 22179. Nonetheless, the latter resistance is also close to a pivotal previous low close resistance at 22445 that if broken and confirmed on a weekly closing basis, would negate the break. The SPX shows very minor resistance at 2400 and again at 2490 but on a weekly closing basis, any confirmed close above 2416 would negate the break. The NASDAQ shows minor resistance at 7319 and then minor to perhaps decent at 7505 and minor to decent at 7637. On a weekly closing basis, the 200-week MA, currently at 7000, is pivotal if a confirmed close above that line occurs.
The NASDAQ is the only index remaining that has not broken a previous and major intraweek support and as such, will be the index everyone watches for confirmation or negation of the breaks. Evidently, the 200-week MA that got broken this past week is likely to be tested this coming week, meaning that it is more likely than not that by next Friday, if not only on that day, that the indexes will trade around the 7000 level ((121 point above Friday's close). Intraweek rallies are meaningless during the week unless the bulls can begin to break the intraweek resistances, which in the index begins at 7319. By the same token and to the downside, with the break of the MA on Friday, a retest of the weekly close support at 6332 is as likely to be seen this week as a rally to 700m suggesting that the index could be down as much as 500 points at some point during the week.
Evidently, the medical aspect of this crisis remains pivotal and as such, potential medical solutions to the crisis can upset any chart projections or evaluations, meaning that all ears and eyes are likely to be on news rather than on Charts. By the same token, if nothing "tangible" regarding a medical solution comes out, the computers and algorithms will rule and having broken important supports this week across the board, as well as having a drop that has not been seen since 2008, means that the probabilities continue to strongly favor the bears. Simply stated, nothing on the chart will help the bulls until the NASDAQ reaches the next support level at 6332. One additional factor that is now in place is Monday's likely approval of a $2 trillion aid/bailout package being proposed that if agreed to would be a great expense to the nation that even if a medical solution is found, the economic loss to the nation and all the companies in the nation will be "set in stone", meaning that "any" recovery will be minimal in nature. Probabilities continue to strongly favor the bears.
OIL fell an additional 25% in value (based on weekly closes) and closed once again in the lower half of the week's trading range suggesting a higher probability of going below last week's low at 19.46 than above last week's high at 32.48. Nonetheless, oil is now reaching support levels of consequence seen 19 years ago with 16.70 on an intraweek basis and 19.44 on a weekly closing basis being decent support, unlikely to be broken unless the fundamental picture gets worse. Based on the chart, the probabilities favor another red week, both on an intraweek as well as on a closing basis but probabilities also favor buying interest starting to show up. The chart suggests that on a weekly closing basis, the $20 level will hold up (give or take $.50 cents to $1) on either side. With oil closing on Friday at 23.66, a further drop of about $3-$4 is to be expected. On an intraweek basis, the 16.70 level should hold up. On the opposite side of the coin, the $33.75 level (on a weekly closing basis) will now be decent to perhaps strong resistance until such a time that the fundamental picture changes. If oil does get down below last week's low at 19.44 this week, purchase of oil or oil related stocks should be considered.
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Stock Analysis/Evaluation
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CHART Outlooks
With the indexes all giving bear market signals this past week, trading will now shift toward selling rallies rather than buying dips. By the same token, this week and though the probabilities favor further downside, the downside even for a short-term trade is somewhat limited from the closes on Friday and the risk is high as dependable resistance levels above are too high to give any decent risk/reward ratios, meaning sales this week are not a viable option. By the same token, big losses have been taken recently and attempts to recoup some of those losses should be made while the volatility ratio is high as that offers fast and larger profit potentials that will be available a few weeks from now when moves to the upside (and the downside) will be slower and offering less profits.
Nonetheless, there are few high probability trades at this time and with such an economic collapse occurring worldwide, most industries will be affected in some way, shape, or form, meaning that choosing stocks and industries to trade is where buying interest may be found. I believe that the medical industry and the mobile phone industry may get the most buying interest given that the virus will generate more buying interest in medical companies that can help and the social separation policy that is now in effect around the world will help mobile phone and internet companies. In addition, some interest will also be found in oil related companies as they suffered a double whammy with the index market falling and oil prices falling as well due to the infighting of the oil companies. Oil seems to have found (or is near) a low of almost historical consequences and therefore highly unlikely to go lower, meaning oil stocks will offer some value.
As such, I have come up with 2 mentions this week and two other stocks (one of which is in the Chinese medical community) to watch that if desired chart entry levels are reached, I will be a buyer.
PURCHASES
XOM Friday Closing Price - 32.74)
XOM mention can be found below among comments on Held Stocks as it is presently a held stock.
TCEHY Friday Closing Price - 45.25
TCEHY is a Chinese advertising company that produces ads for Mobile and Internet usage, both areas where increased public interest is likely to be seen.
TCEHY has held up splendidly during this whole market crisis given that the stock generated a weekly low close the last week of January (when the virus started hitting China hard) at 47.91 and on Friday (8 weeks later) the stock closed at 45.25, meaning that the crisis the last 2 months has only caused the stock to drop 5.6% (based on weekly closes). The stock did make a new 15 month intraweek low last week but then reversed to close in the upper half of the week's trading range, not only suggesting further upside above last week's high at 46.74 will be seen this week but also that the new multi-month low did not bring in new selling interest and given that the trading range was 20% of the price of the stock and the stock closed 85% higher than the low of the week, strongly suggesting that there is strong buying interest in the stock. This was also again supported by the fact that the stock broke a decent intraweek support level at 40.04 but then did not see any follow of consequence to the downside, or confirm the break, and thereafter closed way above that level on Friday.
TCEHY started trading in 2008 and as such, the 200-week MA did not start to be counted until 2012 (200 weeks later) and since the line started, it has not ever been broken on a weekly closing basis, meaning that at this time that line is considered major support. During the entire 8 years, it had only been tested once in December 2018 when the line was at 31.50 and on that occasion, the stock got down to 31.54 and then popped back up to 48.74, which was a 35.4% rally. The MA line is presently at 40.58 and the stock did break the line intraweek with a low last week at 38.74, meaning a tiny bit more weakness seen than in December 2018 but still showing that the line is strong support and from which buying is being seen. Should the same bounce of 35.4% from the line occur now, it would suggest an upside objective of 54.90. Nonetheless and given that the line was broken intraweek now (unlike what happened in 2018), I would venture to say that a rally up to the psychological resistance level at $50 will be seen but anything more than that would be gravy.
By the same token, and in order to make the purchase of the stock attractive with at least a 4-1 risk/reward ratio, the stock would need to drop this week back down to the 200-week MA, which chart-wise is a high probability, meaning that if the desired entry point of this mention is achieved, the 4-1 risk/reward ratio would be in effect.
From purely a established chart support and resistance levels point of view, TCEHY shows support at the previous established intraweek low support at 40.04, which I do expected will be seen at some point this week. As far as an established intraweek resistance level, there is decent resistance at 51.24, which was the high seen a year ago this coming April. On a weekly closing basis, there is copious resistance from both low and high weekly closes around the $50 level with the high end being 50.37 and the low end being 49.03. Simply stated and if there are no new fundamental changes, the probability of the stock trading between $40 and $50 during the next 2-4 months is very high.
Purchases of TCEHY below 40.30 and using a stop loss at 38.64 and having a $50 demilitarized zone objective offers a minimum 5-1 risk/reward ratio.
My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
As far as medical stocks, I did mention ZLAB on the message board this week. Nonetheless, that mention was for a day or overnight trade and the stock never reached my desired entry point. This mention will not be a day or overnight trade but a regular mention. By the same token, it is looking a bit doubtful that the stock will get down to the desired entry point this week. As such, this mention will be in place until that level is either reached or the actions causes the mention to be changed.
Desired entry point into ZLAB is around the $40 demilitarized zone (39.70-40.30) as that is where the 200-week MA is currently at (39.88). Stop loss would be at 38.45 and upside objective would be 58.22, meaning a 9-1 risk/reward ratio.
I am also considering purchasing ARNA but I do not have any clear desired entry point at this time. If that becomes clear at any time this week, I will let you know on the message board.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AU generated another lower intraweek low as well as a red close and on the bottom half of the week's trading range, suggesting further downside below last week's low at 12.66 will be seen this week. Nonetheless, the bulls were able to rally enough to close above the 200-week MA, currently at 13.21, meaning that no new support levels were broken or sell signals given. Pivotal intraweek support remains at 11.29 that if broken would change the long term outlook that remains as of now, bullish. Short term indicative intraweek resistance is now found at 15.86 (15.51 on a daily closing basis) that if broken would suggest further upside to the 17.61 level would like be seen. Stock remains highly volatile but no new signals were given this past week. As such, probabilities continue to slightly favor the bulls. CAT continued the downtrend as it generated a red weekly close below a minor (but clearly established) weekly close support at the $100 demilitarized zone. The stock closed on the lower half of the week's trading range, suggesting further downside below last week's low at 88.50 will be seen this week. There was some minor to perhaps decent intraweek support at the $90 demilitarized zone that was broken last week with the drop down to 88.50 but given that it was only by a small amount and not confirmed, it could once again be support this week. By the same token, if 88.50 is broken, there is no support below until the $80 level is reached. That support is copious and not likely to be broken unless things get worse than presently expected. As such, covering the short positions at that price makes chart sense. Intraweek resistance is now found between 98.20 and the $100 demilitarized zone. Above that level, next resistance is found at 111.76. Probabilities favor the bears. CRON generated a positive and possibly key reversal, having made a new 28-month low and then going above the previous week's high and closing green. The stock closed in the upper half of the week's trading range and further upside above last week's high at 6.21 is expected to be seen. The bulls failed to generate a failure signal against the bears having closed below the 6.28 level and also failed to close above last week's high at 5.70, meaning that the amount of meaning or strength seen with the positive reversal is not yet indicative. By the same token, with the stock going against what the index market did, it does suggest that the stock (and perhaps the Cannabis industry itself) has now seen the low and will no longer be at risk of further downside. Intraweek support is now found at 5.15 and at 4.79, the former likely to be seen at some point this week. Intraweek resistance is now clearly defined at last week's high at 6.21 that if broken would suggest a rally up to 6.98 would occur. Any daily close above 6.14 would now be a positive sign that the worst is over and that some upside is to come. Probabilities slightly favor the bulls this week. ENG generated a new 7-year intraweek low at .46 and below the low seen 11-months ago at .48 but in the end, the weekly close seen last April at .49 was not broken as the stock closed on Friday at .51. The stock reports earnings on Thursday and given that its earnings are more dependent on government contracts, is it somewhat unlikely that they will be disappointing as other earnings of other companies may be. Throughout the last few months since October, the earnings outlook for the company has been optimistic but with the drop in the marketm and more importantly in oil, the stock has fallen in excess of 50% in value, which may prove to be a negative to the bears and a positive to the bulls even if the earnings report is not quite as good as it may be. Nonetheless and from a chart perspective alone, any weekly close below .49 next Friday would suggest the stock will fall to the all-time low at .30. One of the likely reasons the stock has fallen in price recently is not the index market falling but oil prices falling. Oil at these levels is more inexpensive to use than the clear energy products that the company produces. This means that the stock is more sensitive to oil prices than to index prices. With oil likely to be near (or have found) a bottom and some upside likely to occur, the same is likely to happen to the stock. Probabilities favor the bulls this week. FNV generated a positive reversal week, having made a new 9-month intraweek low but then closing green. More importantly, the stock bounced from the 200-week MA, currently at 76.55, having opened on Monday at 77.18 and moving up from there all the way up to 113.65 (a 65% bounce). Nonetheless and with the selling seen in the indexes the stock fell back to close in the lower half of the week's trading range, suggesting a slightly higher chance of going below last week's low at 77.18 than above last week's high at 113.65. Nonetheless, any time a stock bounces 65% in value in just 2 days, it normally means high buy interest and low sell interest is being seen. On a negative note though, the stock has fallen 26% in value from the high to low weekly close and that is a bear market signal that was not negated this past Friday, with the stock still closing 21.3% lower, meaning that the 6-year weekly closing high at 119.18 is now likely to be a major top to this rally. If that gets confirmed on the 31st of the month (7 trading days away) with a monthly close below 90.91, then the uptrend in gold and gold stocks is likely over. Weekly close resistance of indicative importance is now found between 105.85 and 107.50. If a confirmed daily close above 107.50 happens, all that was said above will be negated. I mention this because so much of the recent fall in gold and gold stocks was abnormal due to margin calls on stocks that generated strong selling in Gold, meaning that things are not as chart or fundamentally clear in Gold as they may be in the stock market itself. Daily close support is now pivotal at 87.98. If the stock closes below 87.98 any day this week and is confirmed with a second close below that level, traders will turn decidedly bearish on Gold and the stock itself. Probabilities very slightly favor the bulls. MCIG generated no new signals (up or down) this past week on any of the charts but on an intraweek basis, the stock did drop down to .258 and to .25 on two different days, meaning that a potential double low at that level may be in the building process. What makes this particular double low possibly even more indicative is that the .25 level was the level from which the stock broke out of when the news of the new contracts the company accomplished recently came out. As such, the .25 level has become a very strong pivotal level that in effect should not be seen again as it would mean a triple bottom would be built, that normally would be broken. The stock is showing short-term pivotal resistance at .4 that if broken this week would confirm the double low and give the bulls new ammunition. With CRON also showing some positive action, it does increase the possibilities that all Cannabis stocks have bottomed out and that the industry itself may be ready to move higher. As such, the chart parameters this week are clearly defined at .25 (support) and .4 (resistance). Probabilities slightly favor the bulls. NEM generated a positive reversal week, having made a new 9-month intraweek low but then closing green. Contrary to Gold, FNV and AU, NEM did close slightly in the upper half of the week's trading range, suggesting a slightly higher possibility of going above last week's high at 46.87 than below last week's low at 33.00. The stock closed just $.14 cents below the breakout level at 40.70, meaning that the failure signal given the previous week was not negated. Then again, the charts seems to suggest that the stock is acting better than Gold and the other 2 gold stocks held, and that the possibilities mentioned in the other 3, regarding further downside this week below last week's lows, is not as possible/probable as it might look. Simply stated, there are a lot of question marks right now on all Gold related products that are not clearly based on charts but on the panic and fear the traders have displayed in trading all markets. A week ago Friday (and stated in last week's newsletter), the stock closed slightly below the 200-day MA, currently at 40.55, and that break was negated on Monday and the negation confirmed the rest of the days of the week. Nonetheless, the close on Friday was exactly on the line, meaning that a green close on Monday will confirm the successful retest of the important MA line but a red close, especially if below the previous Friday's close at 39.50 occurs, would be a negative sign. As such and considering Gold and all other gold stocks, NEM could be the early week chart key to what Gold is now likely to do. Pivotal daily close resistance is found at 45.80 and the same as support at 39.50. Whichever gets broken first, will likely give a strong edge to either the bulls or the bears. Probabilities slightly favor the bulls. QQQ made a new 13-month weekly closing low and closed near the low of the week, suggesting further downside below last week's low at 166.80 will be seen this week. Nonetheless, the weekly closing price is amid a level of minor but copious weekly closing support that covers 5 previous high or low weekly closes between 170.93 and 171.17 spanning 26 months and therefore of some importance (though minor - not decent or strong). With the strength being seen in the bears and not the bulls, probabilities favor more downside with the next level of important support being the 200-week MA, currently at 160.93. With the stock representing the NASDAQ with almost on a one-to-one basis and the index having broken its 200-week MA this past week, the probabilities do favor further downside to the $160 level. Nonetheless, with the market being so sensitive to fundamental news regarding the medical and economic damage being caused by the virus, any support level needs to be watched closely. Short-term pivotal resistance is found at 183.49, meaning the stop loss at 183.59 cannot be lowered at this time. Nonetheless and for those that want to "lock in some profits", the 200 10-minute MA is currently at 177.80 and there is some intraday resistance on that same chart at 179.00, meaning that a stop loss at 179.45 can be used if locking in some profits is the desired approach. Drops down to $160 might be reason to consider taking profits and any drop down to $150 would be a strong reason to take profits. Probabilities favor the bears. SRUTF continued making new all-time lows and shows absolutely nothing on the chart of any positive nature, at this time. XOM made a new 18-year intraweek and weekly closing low and closed near the low of the week, suggesting further downside below last week's low at 31.23 will be seen. Nonetheless, the stock closed on Friday just $.34 cents from the 22-year weekly closing low at 32.40 (my chart does not go farther) and the probabilities do not favor further downside for 2 reasons 1) oil has fallen to a strong support area and 2) this company is strong fundamentally, meaning that purchasing shares of this stock this week on any drop below last week's low at 31.23 or even around the 22-year low weekly close at 32.40 makes a lot of sense, given the risk/reward ratio is good and the probabilities favor at least a bounce occurring here. There is (and will be for at least 2-3 months unless fundamentals change drastically) resistance of consequence around the $44 level but with a purchase around the $32.40 level and using a 29.65 stop loss and a $44 objective, means the risk/reward ratio is at least 4-1. As such, I will be doing just that this week, irregardless of news and as long as the stock does not open below 29.75. This is an official mention.
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1) ENG - Averaged long at 1.616 (6 mentions). No stop loss at present. Stock closed on Friday at .51. 2) MCIG - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .0325. 3) FNV - Purchased at 77.19. Averaged long at 87.558 (5 mentions). No stop loss at present. Stock closed on Friday at 93.88. 4) CRON - Averaged long at 10.4275 (4 mentions). No stop loss at present. Stock closed on Friday at 5.55. 5) AU - Averaged long at 19.205 (4 mentions). No stop loss at present. Stock closed on Friday at 14.05. 6) NEM - Purchased at 35.32. Averaged long at 40.88 (3 mentions). No stop loss at present. Stock closed on Friday at 40.56. 7) SRUTF - Purchased at .36. No stop loss at moment. Stock closed on Friday at .07. 8) ABBV - Liquidated at 73.05. Purcased at 82.80. Loss on the trade of $975 per 100 shares plus commissions. 9) XOM - Purchased at 41.83. No stop loss at present. Stock closed on Friday at 32.75 10) CAT - Shorted at 103.39. Stop loss at 105.95. Stock closed on Friday at 95.50. 11) QQQ - Shorted at 182.71. Stop loss at 183.59. Stock closed on Friday at 170.70.
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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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