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Issue #655 
February 2, 2020 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Correction has Likely Started! Confirmation (or not) at End of Week!
DOW Friday closing price - 28256
The index rally came to a screeching halt this week, having made (on the monthly chart) new all-time highs across the board and then having the DOW and the SPX generate key negative reversal months by closing red on Friday (monthly close). The NASDAQ was the only index that was able to stay green, having been supported with key stocks in the index reporting better earnings this past month as in the case of AMZN's blowout earnings this past week. Nonetheless, that did not prevent the index from also selling off to generate a red weekly close and a close in the lower half of the month's trading range, suggesting that at least a correction is on the horizon.
On the DOW, the last time such an occurrence happened (key reversal on the monthly chart) was in October 2018 and on that occasion at 19.5% correction was the end result. The same (key negative reversal on the monthly chart) has "not occurred" in the SPX over the past 20+ years, suggesting that this time it might not be just a correction but a major top to the uptrend. Unfortunately, that will not be known for at least another 2-4 weeks.
By the same token, all indexes generated a second red weekly close and a close on the lows of the week (or near the lows), suggesting further downside below last week's lows (DOW at 28169, SPX at 3214 and NAZ at 9088) will be seen this week. There is still one important Tech Industry earnings report due out on Monday with GOOGL reporting after the close and this coming week the 2 most important economic reports for the month are also scheduled with the ISM Index report on Monday morning (expected to be 48.5) and the Jobs report on Friday (expected to be 175k). Nonetheless, these reports are not likely to make a difference unless way out of line to the upside. The ISM Index guideline is 50 and anything below that number would still suggest contraction in manufacturing is occurring and the Jobs report has been coming in around the same number (that is expected) for several months now and only if substantially higher, would it have any effect. Evidently, lower numbers would benefit the bears given the weakness shown the past 2 weeks in the index market. As far as the earnings report on GOOGL, it probably won't be a positive catalytic number even if higher given that AMZN was as good as it can get and did not help the indexes close green on Friday.
It must be mentioned that one of the reasons (in fact, in some minds the main reason) for the drop in the indexes is the Corona Virus that sprung up in China a week ago. Already there are over 200 dead and over 10,000 infected and such an outbreak would tend to reduce trade in the world. As such, it is a viable reason for the weakness seen. It is unlikely though, that a cure/antidote for the virus will be found this week and distributed around the world to stop the fear of further downside in trade, meaning that this coming week the bears are likely to continue to have the edge. The virus could ultimately determine whether this is just a correction or the top of the bull market but for now, this correction is likely to continue for the simple reason that there is no established support base nearby from where a new leg to the uptrend can resume and the traders are likely to use the virus as an excuse for for dropping down to the previous all-time high weekly closes and creating that support base (as well as a retest of the breakout) that is direly needed in order to keep the risk of new buying low and limited. The previous all-time high in the DOW is at 27339, in the SPX at 3025 and in the NASDAQ at 8336 meaning that using the SPX as the key index, a further drop of about 6% could be seen.
To the upside and on an intraweek basis, the DOW shows minor but short-term pivotal resistance at 28944 and then decent to perhaps strong resistance at 28373, the SPX shows the same at 3294 and then at 3337 and the NASDAQ 9329 and at 9451.
To the downside and on an intraweek basis, the DOW shows minor support at 27801 and then decent and pivotal at 27325. In the SPX there is minor support at 3212 and then again minor at 3126 and decent and pivotal at 3070. In the NASDAQ there is minor but 9088, again short-term pivotal support at 8909 and then nothing until 8600.
The NASDAQ continues to be the important index and given the strong earnings showing in stocks in the index, unlikely to see as much selling as is likely to be seen in the other indexes. The DOW is the most likely index to test the previous all-time high at 27335, which means another 3.7% drop from Friday's close. Such a percentage drop would mean that the SPX would only drop down to around 3105. Nonetheless, it is unlikely that NASDAQ will see even a drop of 3.7% from current levels, meaning that the downside objective for the index is 8811 or higher. With some short term pivotal support in the index at 8909, that may be the objective, which is only 2.7% lower. All of this is based on the idea that this is just a correction and not a top. As such, this outlook is what is most likely to happen. Anything further than the levels mentioned, would start being indicative, especially if the DOW and SPX give failure signals by closing below the previous all-time highs.
This week and because there are still important earning and economic reports due out and nothing will be totally clear until after Friday's Jobs report, it does suggest that the action during the week will have a bearish bias but not likely an aggressive one unless Monday's reports (GOOGL and the ISM Index) disappoint. If those reports disappoint, the bears will take advantage and go big to the downside with the Jobs report on Friday giving the bulls the possibility of a bounce. Simply stated, it is possible that the downside objectives mentioned above will be reached early in the week, even though a retest of the previous all-time highs is more likely to be done on a weekly closing basis, meaning that at least 2 more weeks of weakness are likely to be seen. By the same token and using the monthly chart, the negative key reversal and the correction seen in October 2018, a downside objective in the DOW would be 23645 and that is a real possibility.
To the upside, there seems to be little hope at this time that a rally can occur this week given that the indexes fell strongly on Friday in spite of the blockbuster earnings report on AMZN. By the same token, if the virus death toll does not climb over the weekend and some antidote is found and the spread contained, that would be something the bulls will take advantage of to "buy this dip".
With so many intangible in play, nothing is totally clear at this time, but as it stands right now, probabilities favor the bears, at least for this week.
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Stock Analysis/Evaluation
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CHART Outlooks
I took a look this week at about 50 different stocks with the idea of mostly finding something to short. Nonetheless, among those stocks I could only find two that offered a good risk/reward ratio and even then, only one is a short. The other one is based on further weakness being seen this week, causing the stock to get down to a level of support where a purchase is a good option.
Given that it is still unclear whether the market will head lower this week and also to the fact that if it does head lower it is not yet clear if it is only a correction or a top being found, it is tough to get aggressive with anything. Nonetheless, these 2 mentions have clear scenarios as to chart action and therefore not necessarily attached to what the market does, or doesn't do.
PURCHASES
LNTH Friday Closing Price - 17.51
LNTH dropped 15% in value in December and has been in a 6-month downtrend from the all-time high made in July at 29.80. Nonetheless, in reading the fundamentals of this company, who is in the Healthcare industry offering imaging systems and in an industry that is supposed to be the strongest in 2020, the overall consensus is that the stock is more of a buy than a sell with most rating analysts giving it a 3 rating (on a scale of 1-5). It is an established company that is unlikely to fail in any big way and is now reaching a level of established support around the $15 level that is unlikely to be broken. In addition, at that level, the 200-week MA, currently at 15.86, is located and since its existence (4.5 years), that line has never been broken. If nothing else, a bounce up to minor to perhaps decent resistance is likely to occur after the MA line is reached, which in turn offers a nice risk/reward ratio.
LNTH reports earnings in 2 weeks (2/18) and at these prices, the earnings report is likely to be more beneficial than not.
By the same token, the desired entry point is still down another 9% from where it closed on Friday, so purchase of the stock at the desired price that offers a good risk/reward ratio is not a given. If the desired entry point is not reached, the trade will not be done as this is more of a chart trade than a fundamental one.
LNTH closed near the lows of the month and the week and further downside below that level at 17.35 is expected to be seen this week/month and given that it broke an established support on Friday, the subsequent move down this week might easily cause the stock to reach the desired entry point. Whether it is reached this week or not, is not important. This is a trade that retains its viability even if it takes another week or two to reach the desired entry point.
As stated, the 200-week MA is currently at 15.86, but there is no intraweek support of consequence found until 13.82, suggesting the desired entry point will be between one of those two levels. The minimum upside objective is the $20 level, meaning that even if purchased at the high end of the desired entry point, the trade would still offer at least a 2-1 risk/reward ratio. The chart does suggest that at some point this stock could get up as high as 24.45 (max upside potential at this time), which would mean a 4-1 risk/reward ratio. Nonetheless, the mention is going to suggest a lower entry point between 14.61 and 15.05, using a stop loss at 13.66 and having a 20.45 objective will offer a risk of no more than $139 for a profit of $521 or more (per 100 shares), meaning at 3.75-1 (or better) risk/reward ratio. Given the chart and the fundamentals, and if the desired entry point is obtained, the probability rating is high (4 on a scale of 1-5).
LNTH is presently strongly oversold and if further downside is seen this week (as expected), it will be further oversold, meaning that a bounce is likely to begin soon.
SALES
BEN Friday Closing Price - 25.30
BEN is a financial asset management company that has been in a downtrend of consequence for the past 5 years (since the all-time high at 59.48 was made in 12/2014). The stock has not lost over 50% in value and now the stock just made a new 11-year low this past week, having broken a 5-week support level and closing near the low of the week, suggesting further downside below last week's low at 24.47 will be seen this week. The break was of consequence as there is mostly open air below. The closest but very minor support is found at 21.11 and then absolutely nothing until the $15 level is reached, suggesting this trade on the short side has a high probability of success based on the well-established downtrend and 5 year history of weakness in spite of a rallying stock market. I don't know the fundamentals of this company but the action suggests that they are not good. In addition, the next earnings report is not for another 8 weeks, and that allows for the chart traders to "feast on the short side".
BEN generated a reversal week this past week, having gone above and below the previous week's high and low. The close was green but only by 4 points and it was in the middle of the week's trading range, meaning that the stock is likely to follow what the index market does this week and the probabilities there favor the bears. By the same token, the reversal and pivotal scenario in the index market offers a clearly defined short-term pivotal resistance/stop loss point that is valid but gives the short trade an excellent risk/reward ratio though a lesser probability rating.
Last week's high in BEN was 25.99, meaning that a stop loss at 26.35 will be used. With the downside objective being the $15 level, a sell around Friday's closing price offers a risk of approximately $100 for a profit potential of $1000 (per 100 shares) and therefore a 10-1 risk/reward ratio.
Given the established downtrend, the break of the 5 week support level and the empty air below void of support, the probabilities definitely favor shorting the stock.
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Updates
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| Monthly & Yearly Portfolio Results
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Closed Trades, Open Positions and Stop Loss Changes
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Status of account for 2007: Profit of $9,758 per 100 shares after losses and commissions were subtracted.
Status of account for 2020, as of 1/1 Profit of $0 using 100 shares per mention (after commissions & losses) Closed out profitable trades for January per 100 shares per mention (after commission)
GS (short) $280 GS (short) $455 GS (short) $1106 Closed positions with increase in equity above last months close minus commissions. NONE Total Profit for January, per 100 shares and after commissions $1841 Closed out losing trades for January per 100 shares of each mention (including commission)
AGCO (long) $524
GS (short) $48 Closed positions with decrease in equity below last months close plus commissions.
SGMO (long) $157 Total Loss for January, per 100 shares, including commissions $1748 Open positions in profit per 100 shares per mention as of 1/31
NONE
Open positions with increase in equity above last months close.
FNV (long) $4140
ENG (long) $5 COF (short) $900 MCIG (long) $9 ARNA (long) $81 ARNA (long) $8 Total $5143 Open positions in loss per 100 shares per mention as of 1/31
CVGW (long) $2483
IBM (short) $56 Open positions with decrease in equity below last months close.
AU (long) $792 Total $5380 Status of trades for month of January per 100 shares on each mention after losses and commission subtracted.
Loss of $144
Status of account/portfolio for 2019, as of 1/31
Loss of $144 per 100 shares.
ARNA generated a positive reversal week, having made a new 9-month low and then turning around to close green and near the high of the week, suggesting further upside above last week's high at 46.20 will be seen this week. What made the reversal possible was an upgrade by JP Morgan who changed their rating on the stock from neutral to buy and gave a $58 objective. If the stock does go above last week's high this week, a second double low will be created with the first double low made in March and April of last year at 42.68/42.45 and this one made over the last two months at 43.09/43.01. The previous double low generated a 34% rally and this one (if made and confirmed) would give a $60 objective, which would suggest a 28% rally is to come. Confirmation will come if the bulls are able to get above the most recent intraweek high at 47.70, which also represents the top of a downtrend channel that has been in place since October of last year. If the stock goes above last week's high, the double low at 43.09/43.01 will become important and strongly pivotal support. Probabilities favor the bulls. AU generated a negative reversal week, having gone above and below last week's trading range and then closing red. Nonetheless, the stock closed exactly in the middle of the week's trading range, meaning that this week the stock could go either way. What the traders will be watching is whether confirmation of the breakout in Gold above $1571 (closed at $1588) comes. Such confirmation will offer a $1700+ objective and give the bulls in the stock new ammunition to continue higher. If confirmation in Gold does happen, the reversal low in the stock at 19.32 will become important and pivotal support, suggesting that the stop loss on the held positions now be raised to 19.22. The wild action and rally above and below the previous week's trading range was not unexpected as it was a pivotal week for Gold in which at some point during the week the bears had the edge. Pivotal weeks are often like this. Minor to perhaps decent resistance is found at 22.94 and then strong and pivotal at the double top at 23.85/23.70. It must be stated that just because Gold would continue higher toward the $1700 level does not necessarily mean the stock will make new highs, given that the stock has been underperforming Gold and has clear resistance levels above though Gold does not. As such, blindly following Gold is not the way to go. It is highly likely that if Gold does continue higher that the stock will at least get up to 22.94 but from there on, the bulls in the stock itself will have to prove the commitment to higher prices. Probabilities favor the bulls this week. COF generated a negative reversal week, having made a new all-time intra-month high and then turning around to close red and near the lows of the month, suggesting further downside below last month's low at 99.21 will be seen this month. Using that chart, there is no intra-month support until 86.95 is reached. Using the weekly chart, the stock confirmed the monthly chart reversal, having generated a new 9-week low and given a new sell signal with the break of the previous low weekly close at 101.55. On this chart, there is no support below until 96.63 is reached and even then, that support is minor to perhaps decent. It is important to note that the stock barely participated this past week when the index market rallied, suggesting more weakness than in the indexes is found in the stock. A small door was left partially open on Friday when the bears failed to close below the $100 demilitarized zone (closed at 99.80) and there is some established minor support at this level in addition to the psychological support of the level itself. The door being left open is probably because of the important reports due on Monday (GOOGL and the ISM Index), meaning the bears were not yet willing to go "all out" with their short positions. Nonetheless, any red daily close below 99.70 will strongly suggest that 96.63 will be tested. To the upside, last week's high at 103.33 will now become pivotal resistance that if broken would offer a rally up to 105.70 and a possible negation of the monthly chart reversal. Nonetheless, the chart is now looking short-term bearish and the only question in my mind at this time is "what is the most likely downside objective". I will know more about that by the end of next week. CRON generated what could end up being a failure signal on the most recent breakout but given that the close on Friday at 7.18 is only 10 points below the weekly close breakout at 7.28, it is still in doubt. Evidently, another red weekly close next Friday would be a bearish sign but a close above 7.28 next Friday, would mean that breakout level has been tested successfully. As such, this coming week is important for the stock. The stock did close near the low of the week and further downside below last week's low at 7.02 is expected to be seen. On an intraweek basis, there is likely pivotal support at 6.38 (6.66 on a daily closing basis) so that is the level the traders will watch closely this week. By the same token and using the monthly chart, the chart still suggests that the stock is in a trading range between $6 and $8 dollars and that until some fundamental news comes out, that range will continue for a few more months. It is important to note that the weekly close 3 weeks ago at 8.55 does match up with an semi important high weekly close at 8.48 seen 2 years ago this month. From that close, the stock fell to 5.51 and the possibilities of that happening right now are as much as 50-50. The company does not report earnings for another 3+ weeks so the charts this week will clearly give a short-term signal direction. Probabilities are even for both sides. CVGW generated a strong down week as well as a break of the 11-year 100-week MA and the 3-year 2-point uptrend line that had kept the stock in an uptrend. The weakness came when a rating company lowered their rating from a buy to neutral with an $80 objective. The weakness in the index market was a contributing factor. This action, if confirmed next Friday, does change the chart picture, suggesting that the uptrend is over and that a sideways trend will then be in place. The bulls were able to salvage a tiny bit of hope when a previous all-time high and double top on the weekly closing chart at 67.15/67.70 held up in spite of the fact that 30 minutes before the close on Friday the stock was below that level. The close above that level does suggest that some short-term rally (likely back up to the 200-week MA, currently at 79.00), will be seen sooner rather than later. Nonetheless, and in looking at the monthly chart, if in fact the stock is to get into a sideways trend for this coming year, the downside target would likely be the $59/$60 level and the upside target be the $90-$92 level for the entire year. On a shorter term basis and using the weekly chart, there is decent support at 67.52 and resistance at 76.75 and then at 84.00, meaning that is a likely trading range for the next few weeks. If this break is confirmed this week (likely), it will mean that looking for a decent exit point is important. Being averaged long at 82.53 suggests the trade will be a loser so trying to keep the losses at a minimum is the objective. It is possible and probably even likely that this week or the following that the 200-week MA, currently at 79.00, will be tested. That will now be the desired exit point. Nonetheless, with more risk than potential recovery being seen in the chart, some consideration should be given to start liquidating on any rally. By the same token and just in case it happens, any intraweek rally above 81.64 would suggest the break is being negated and consideration to keeping the positions used. Probabilities favor the bears. ENG (same thing as last week) continued to trade in the now 4-month trading range between .96 and 1.11 levels (based on weekly closes) without giving any sign of a breakout or breakdown on the horizon. The company does report earnings the following week (2/11), suggesting more of the same will continue to be seen. On a weekly closing basis, pivotal support is found at .90 and resistance at 1.11. With the stock closing at .099 on Friday, there is no indication of either one likely to be broken this week. Probabilities favor another uneventful week this week. FNV continued on its runaway freight train path, having blown through the previous upside objective of $110/$111 (based on the previous all-time) to get up as high as 114.50 and then closing near the highs of the week, suggesting further upside above that level will be seen this week. With Gold breaking above an important level of resistance and that likely to be confirmed this week, the stock is likely to continue as a runaway freight train. No likely upside objective can be found and given at this time. As far as support is concerned, the same levels as given last week (below) remain in place. Minor intraweek pivotal support is found at 107.30 that if broken would open the door for a drop down to all-time high daily close at 103.88. This is now one of those rare instances where a top to this rally is to be found "when the buying interest abates". Probabilities remain in favor of the bulls but careful attention to the action should now be given to any negative action. GS made a new 21-month intra-month high but on a monthly closing basis, the bulls failed to close above a minor to decent resistance at 237.81, having closed on Friday at 237.75. In addition, the stock closed slightly in the lower half of the months trading range, suggesting a slightly higher probability of going below last month's low at 229.49 than above last month's high at 250.46. Using the weekly chart, the same thing applies as far as the weekly close is concerned as there was resistance (now support) at 237.81 and that means that this coming week's close is pivotal. A green weekly close will give the bulls back the edge as the breakout level will have been tested successfully and a red weekly close would give the bears ammunition for not only further downside but also perhaps a drop below last month's low at 229.49. In using the daily chart, this could all be decided on Monday as the stock closed slightly below the most recent low daily close at 238,14 (closed at 237.75) and if that sell signal is confirmed with another red close on Monday (after the ISM Index report comes out), the immediate objective would be the $230 level as there is no support found until then. Pivotal resistance is now found at 246.50. Probabilities favor the bears. IBM generated a rally against the index market when it was reported that a change of CEO occurred. The stock closed at a minor to decent weekly close resistance level at 143.67 (closed at 143.73) and closed on the high of the week, suggesting further upside above last week's high at 144.05 will be seen this week. Nonetheless, the stock remains in a long term downtrend on both the weekly and monthly charts and sideways on the daily chart. On the daily closing chart, there is decent and short term pivotal resistance at 145.42 and on the weekly closing chart, strongly indicative resistance at the 200-week MA, currently at 147.78 and trend pivotal resistance at 151.36. The change of CEO is not necessarily a dependable positive so liquidating short positions is not yet a must. By the same token, the stock is now close to levels that will start bringing in new buying interest, such as the daily close resistance at 145.42, meaning that consideration to covering the shorts at that price has to be given. The probabilities favor the stock getting up to 145.46 on Monday and that is where the traders will decide what they want to do. The stock gapped up on the news between 136.97 and 140.79 on Monday and that gap will become a magnet if resistance is not broken. What the indexes do on Monday after the ISM Index report comes out will likely have some effect on what the stock does. Probabilities currently favor the bulls but much could be decided on Monday by the close. MCIG came to life 3 weeks ago when the company announced a joint venture with another company that opened a whole "new" set of options for the company to start producing and being profitable. In these past 3 weeks, everything negative that had occurred over the past 7 months was erased and the immediate downtrend was broken when on Wednesday the 200-day MA, currently at .0487, was broken convincingly and the break confirmed with 2 subsequent closes above the line on Thursday and Friday. The stock did close near the high of the week and further upside above last week's high at .078 is expected to be seen. Nonetheless, there is established resistance at the .08 level that goes back to April and again in July that is pivotal given that up until now there has been no clearly defined resistance broken, meaning that this rally has likely been more short-covering than actual new buying. A break above the .08 level will be indicative that the changes announced by the company do suggest the company might now be a viable entity, as far as profits in the Cannabis industry are concerned. The stock did close on Thursday at .077 and then generated a red close on Friday, meaning that the established daily close resistance is at .0775 has now been tested successfully, making this coming week very pivotal with the level broadly indicative. Support will now be found at the 200-day MA and the possibilities of the stock dropping down to that level are decent, as a retest of the breakout. Any daily close below .0479 would be considered a negative sign. A daily close above .0775 would suggest the stock will double in price up to at least the .14 or even the .16 level where the 200-week MA is currently located. The probabilities do favor the bulls given that this rally is based on a fundamental change and not just on chart short covering. SRUTF made yet another new all-time low weekly close, having closed below the previous one made the previous week at .145 (closed on Friday at .14). The all-time intra-week low at .133 did not get broken but it did get reached with a low this past week at .1339. The bears remain in control but the downside thrust has diminished to a minimum, suggesting that at these prices, the company is fairly valued. The stock closed near the low of the week and further downside below last week's low at .1339 is expected to be seen this week. The Cannabis industry saw general weakness this past week and that was likely to have been the cause of weakness in the stock. Using CRON as a guideline, the stock does show this week is likely to be short-term pivotal so the stock is likely to follow what CRON does. 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 .99. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 4.57 (new price (45.69). 3) MCIG - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .066. 4) COF - Averaged short at 91.73 (3 mentions). No stop loss at present. Stock closed on Friday at 99.80. 5) GS - Averaged short at 230.83 (2 mentions). No stop loss at present. Stock closed on Friday at 237.73. 6) FNV - Averaged long at 90.15 (4 mentions). Stop loss now at 96.13. Stock closed on Friday at 113.64. 7) CRON - Averaged long at 10.4275 (4 mentions). No stop loss at present. Stock closed on Friday at 7.18. 8) AU - Averaged long at 19.205 (4 mentions). No stop loss at present. Stock closed on Friday at 20.36. 9) SGMO Liquidated at 7.43. Averaged long at 8.11. Loss on the trade of $136 per 100 shares (2 mentions) plus commissions. 10) ARNA - Averaged long at 48.36 (3 mentions). No stop loss at present. Stock closed on Friday at 45.69. 11) SRUTF - Purchased at .36. No stop loss at moment. Stock closed on Friday at .14. 12) IBM - Shorted at 143.17. Averaged short at 138.64. No stop loss at present. Stock closed on Friday at 143.73. 13) CVGW - Averaged long at 82.83 (4 mentions). No stop loss at present. Stock closed on Friday at 76.61. 14) GS - Shorted at 246.00. Covered shorts at 24131. Profit on the trade of $469 per 100 shares minus commissions.
Previous Newsletters
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Encyclopedia of Chart Patterns. A must have for chart aficionados! |
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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