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Issue #657 
February 9, 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 - 29102
The indexes generated a wild and unexpected week with all of them reversing the direction of the past couple of weeks and making new all-time intraweek highs across the board. The original reason for the 3.1% dip that occurred over the past 2 weeks was the announcement of the Corona virus that threatened to become an economic malaise in the world. Now, after 700+ deaths and over 34,000+ cases announced (and growing) and with the virus spreading across the world (now reported in 27 countries), it seems that the traders are not as worried about the possible economic malaise of the epidemic as they originally were, given that the NASDAQ has now rallied 5.1% from the mini correction low and 1.6% above the close when the virus infection was first announced. It does not make a whole lot of sense, especially considering that the market rallied in spite of a negative earnings report on GOOGL but then fell on Friday after a better than expected Jobs Report. The market is trading in unexplored waters that have many surprises attached.
The NASDAQ made not only a new all-time intra-week high at 9576 and a new all-time weekly closing high at 9520 (above the previous 9451 and 9402) but closed near the high of the week, suggesting further upside above last week's high will be seen this week. By the same token, the DOW and the SPX were not able to make a new weekly closing high even though they did make a new all-time intra-week highs (DOW at 29408 above the previous at 29373 and the SPX at 3347 and the previous at 3337), having closed at 29102 (below the previous weekly close at 29348) and at 3327 (below the previous one at 3329). The lack of confirmation among all 3 indexes does put the new highs in question, especially considering that a red weekly close next Friday will generate a successful retest of the all-time high in the DOW and a double top in the SPX.
Even more confusing was the reaction to the Jobs report on Friday. The Jobs report was expected to come in at 165k but came in at 210k, meaning a lot more jobs were created than expected. Jobs reports have had a strong tendency over the past 10 years to generate strong rallies immediately after being reported, even in cases when the number was less than expected. Nonetheless, in this case, the report was better than expected but instead of a rally, a sell off of some consequence occurred, causing traders to scratch their heads and ask "what is going on?" I have not yet been able to answer that question.
The first 3 weeks of the earnings quarter is now over and all of the possibly catalytic reports are gone and with the ISM Index and Jobs reports having come out last week, there is nothing in the immediate horizon on the economic front that can be of help or hindrance to the traders. The Corona virus continues to expand in scope and even though there seems to be some advances as to a possible cure for it, nothing has yet been found that is an established effective cure for it. As such and of this writing, the virus continues to be a threat to the market.
With Friday's unexpected action after the Jobs report, the charts are of no help at the time of this writing. Next Friday's closes could be indicative but on an intra-week basis and given that the indexes still closed in the upper half of the week's trading range but sold off to close red and near the lows of the day on Friday, the normal expectation for follow through to the upside this week has become unsure, especially since the first course of action for the week should be to the downside. It is evident that the traders are as clueless as I am at this time given that there was no consensus among the indexes itself as to whether this rally will continue or not.
By the same token and on an intra-week basis, the DOW and the SPX both generated a breakaway and runaway gap this past week and the runaway gaps are an immediate target for Monday. In the DOW, the runaway gap is between 28904 and 29000 and in the SPX it is between 3306 and 3313 and given that further downside below Friday's lows (DOW at 29056 and SPX at 3322) is expected to be seen on Monday, it does suggest the traders will be following the charts with closure (or no closure) as a key as to what to expect this week. Evidently, if the runaway gaps are closed, the breakaway gaps will become the target (DOW at 28630 and SPX at 3268) for closure and a drop down to those levels will mean that a 2.4% drop has occurred and under this present scenario of no news on the horizon, that would likely negate the rally totally. Evidently if the indexes go below Friday's low and the runaway gaps are not closed, the traders will turn around and buy with confidence. By the same token, why did they not do that on Friday?
To the upside and on an intraweek basis, the DOW shows minor resistance at the all-time high at 29408, the SPX at 3247 and the NASDAQ at 9575.
To the downside and on an intraweek basis, the DOW shows minor support at 28376 and strongly pivotal at last week's low at 28169. In the SPX it is the same thing with minor support at 3244 and strongly pivotal at 3212 and in the NASDAQ there is minor support at 9150 and pivotal at 9088.
The NASDAQ will not be the index to watch this week as there a no further earnings report of consequence scheduled and the index is far away from any pivotal areas of support that realistically could be reached this week. The DOW is evidently the weakest chart of the three and therefore not all that indicative even if support levels are broken. As such, it is the SPX that will have everyone's attention this week and given that closure of the runaway gap is still 31 points below Friday's close, the probabilities are not favoring the bears at this time. It is evident that the Corona virus remains a catalytic piece of news but then again can these high prices be supported even if that problem is in the rear view mirror?
I submitted a study to you a couple of weeks ago (via the newsletter) that showed through the RSI (Relative Strength Indicator) a situation very similar in 2017 to the one happening now and in that case, the SPX made a new all-time high at 2916 and 5 weeks later a new high at 2936 occurred and from which a strong correction happened. With the selloff seen this past week, the RSI dropped to the same low seen in 2017 and then went up to highly overbought over the next 5 weeks, suggesting that if the same thing is happening now, a new high in the index will be made by about 23 points (to about 3370) and then a big correction occur. This study is not dependable at all as the fundamental situation then and now are totally different but at least it gives a chart scenario that might occur, contrary to the one now which is without any viable resolution.
I have to say that the probabilities still favor the bulls this week as it is highly likely that the Corona virus situation will be resolved and it seems that right now that is the only negative that exists in the runaway freight train market.
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Stock Analysis/Evaluation
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CHART Outlooks
Given that the traders were unable to clearly establish direction this past week, I have no new mentions. Nonetheless, last week's mention in LNTH remains viable. In addition, if BEN makes a new low, I plan to add short positions. I am also looking at the possibility of adding long positions in MCIG and short positions in any or all of the existing held short positions (COF and GS). Nonetheless, at this point, I have nothing set in stone as I am awaiting further action in the index market before making any decisions.
PURCHASES
LNTH Friday Closing Price - 17.04
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 next week (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 the week and further downside below last week's low at 16.51 is expected to be seen this week and given that it broke an established support a week ago 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.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA made a new 5-month high and in so doing, the downtrend that had been in place since July got broken. In addition, the stock closed on Friday above the 50.93 weekly level that was the previous 4-year high weekly closing level made in February of last year, meaning that if another green weekly close is made next Friday that the failure signal against the bears that occurred on Friday will be confirmed. By the same token, this will be no easy task given that there is decent intraweek resistance between 51.47 and 51.63 and the 200-day MA is currently at 51.40, meaning that the bulls will have to prove that this rally has legs to it. The stock did close on the high of the week and further upside above last week's high at 51.40 is expected to be seen, meaning that the bulls have the edge this week and it is the bears that have the onus to defend these resistance levels. If the 200-day MA is broken and the break confirmed, as well as the intraweek resistance at 51.63, the bull will take control back from the bears. Short term pivotal support is now found at 49.18 and then nothing until 47.70. Probabilities favor the bulls but it is a short-term pivotal week where the battle lines are clearly defined. AU generated another red weekly close and a close near the low of the week, suggesting further downside below last week's low at 18.92 will be seen this week. Nonetheless, the stock will follow what Gold does and Gold did have a trading range of 1593.30 t0 1547.70 but closed at 1573.65, which is slightly in the upper half of the week's trading range but more importantly above the previous weekly close resistance at 1571.45 that got broken the previous week, meaning the breakout was confirmed and further upside likely to be seen. If that occurs, the stock will head higher. By the same token and given that the stock underperformed Gold, the probabilities of a top at 23.85 having been established have risen. By the same token, if Gold can generate a green weekly close next Friday or the stock get above 21.47 on an intraweek basis, the bulls will gain control and the 23.85 high be targeted. As important as anything else, the stock got down close to the 200-day MA, currently at 18.61 with the drop down to 18.92 this week and if the stock does go below last week's low but does not break the line on a daily closing basis, it will become a successful retest of that very important line that has not been broken to the downside since October 2018 (16 months). The probabilities strongly favor the bulls, especially considering the confirmed breakout in Gold, suggesting that the stock should start moving higher this week with the intent of making a new high above 23.85. BEN generated a green weekly close and a new 8-week intraweek high but the bulls failed to confirm the potential mini breakout, having still closed below the most recent high weekly close at 25.74 (closed at 25.60). In addition, the stock closed on the lower half of the weekly closing range, suggesting a higher probability of going below last week's low at 25.50 than above last week's high at 26.69. The chart remains overall strongly bearish with the probabilities of the downtrend resuming after 6 week pause being high. Evidently, a rally above last week's high would be a short-term positive. Pivotal support is found at 24.47 and with the stock having dropped $1.09 from the high of the week to the close and the support being $1.13 from the close on Friday, there is a good possibility that by the end of the week, another bear statement will be made. Important short-term support is found at the $25 demilitarized zone (down to 24.70). Probabilities favor the bears. COF generated a green weekly close but then closed in the lower half of the week's trading range, suggesting a higher probability of going below last week's low at 99.46 than above last week's high at 106.00. If the stock goes below last week's low, last week's high will become a perfect successful retest of the all-time at 107.59. In addition, the high last week was also up to an already established resistance level at 105.70, meaning that the chart will be fulfilled and a correction of consequence likely to occur. Pivotal support is found at 99.21, which is also last month's low. 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 is showing strong volatility and that suggests the bears are likely to come out the winners. Any red daily close below 99.70 will strongly suggest that 96.63 will be tested. To the upside, last week's high at 106.00 will now become pivotal resistance that if broken would suggest a new high would be made. 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 the 3rd red weekly close in a row and confirmed the failure signal given the previous week in which the recent mini breakout was negated. The stock closed near the low of the week and further downside below last week's low at 6.72 is expected to be seen this week. Recent news in the Cannabis industry has been negative and that means that fundamentally it does not look like the bulls can generate enough buying at this time to make the stock go higher. 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 a 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 2+ weeks so the charts favor the bears this week with the only question being whether the supports mentioned above will hold up or whether the 5.51 2-year low will be targeted. CVGW confirmed the break of the 200-week MA and the 3-year 2-point uptrend line, having generated another red weekly close and a close at the low of the week, suggesting further downside below last week's low at 74.74 will been this week. There is no established support below until the $70 level is reached, meaning that is the downside target, likely to be reached over the next 2-3 weeks. The chart and low volume being seen is showing that no buying interest is being seen. Using the intraday chart, the stock has maintained itself below the 200 10-minute MA, currently at 76.39, and in that same chart, there is pivotal intraday resistance at 76.09, suggesting a decent chance of the level being seen this week before further downside is seen. I liquidated half my positions last week and may liquidate the rest if that level is seen. Pivotal resistance is now found at 78.59 that if broken, would give the bulls some ammunition. Nonetheless and as seen in the charts right now, the bears are in full control. ENG generated another red weekly close in a row but closed in the middle of week's trading range, suggesting an even chance of going above last week's high at 1.01 or below last week's low at .90. The company was supposed to report earnings this Tuesday 2/11 but now it is due out the following Tuesday 2/18. The stock 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 (2/18), 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 .095 on Friday, there is no indication of either one likely to be broken this week. Probabilities favor another uneventful week this week. FNV generated a negative reversal week, having made a new all-time high at 114.63 (above the previous week's high at 114.50) and then closing red. Nonetheless, the weakness seen was mostly because of the weakness seen in Gold and given that Gold rallied enough to close above the previous weekly close resistance level, the stock rallied enough to close in the upper half of the week's trading range suggesting a higher probability of going above last week's high than below last week's low at 110.21. It is important to note that the low for the week was in the $110 demilitarized zone and if Gold moves higher and the stock makes a new all-time high, the $110 demilitarized zone will become new support. As such, support should now likely be at 109.70. Probabilities continue to favor the bulls and no upside objective can be ascertained at this time. GS generated an inside week and a small green weekly close but with the indexes having made new all-time intraweek highs, the action in the stock was disappointing to the bulls. The stock did close near the low of the week, suggesting further downside below last week's low at 236.55 will be seen. With pivotal support found at 235.03, a lower low than last week does have the possibility of being a bear statement. The green weekly close was also disappointing as there is important weekly close support at 237.64 and with the previous week's close being at 237.75, a green close this past Friday should have been substantially higher than at 238.00, meaning that the bears do not have to do much this week on a weekly closing basis other than generate a close next Friday at $.50 cents or lower to make a bear statement. By the same token, the edge still lies with the bulls as the bears have not yet been able to generate a failure signal over the past 2 weeks of trading in this area. The stock did gap down on Friday between 241.18 and 240.52 and if the stock gaps down on Monday below 235.03, it will be a viable breakaway/runaway gap formation that will bring a strong profit taking drop. Downside target remains the $230 level but if the stock gets below last month's low at 229.49, a drop down to $220 would become a high probability. Pivotal resistance is found at 245.47. Probabilities favor the bears. MCIG generated a negative reversal week, having made a new 10-month intraweek high but then closing red and near the low of the week, suggesting further downside below last week's low at .056 will be seen this week. More importantly, the red weekly close made the previous weeks close at .066 into a successful retest of the decent weekly close resistance from June and July of last year at .073 and .07, meaning that the downtrend has not yet been confirmed as over. Much of this was due to the negative news that came out this past week regarding the Cannabis industry. Not all was negative this past week as the stock has now spent 9 days above the 200-day MA, currently at .0482, and a retest of that line was expected to occur at some point as the stock spent 15 months trading below the line and without a successful retest of that line it would have been a magnet in the future. If the line is tested this week (likely) and a successful retest of the line occurs, it will give the bull's new and likely stronger ammunition to start a short-term uptrend to the .14 or .16 level. Daily close support is found at .0479 and more indicative at .04. Any daily close above .088 would be a strong short-term buy signal. Probabilities favor the bears this week but only as far as a drop down to the 200-day MA. SRUTF showed a bit of life this past week, having gone above the previous week's high and then closing green. Nonetheless and after the negative news on the Cannabis industry came out, the bulls were unable to extend the gains and the stock fell back into the trading range it has been in for the for the past 8 weeks. A daily close above last week's high daily close at .1593 would be a positive sign. A new daily close below the double bottom at .14 would be a negative. Probabilities are even for this week.
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1) ENG - Averaged long at 1.616 (6 mentions). No stop loss at present. Stock closed on Friday at .95. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 5.13 (new price (51.30). 3) MCIG - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .06. 4) COF - Averaged short at 91.73 (3 mentions). No stop loss at present. Stock closed on Friday at 101.80. 5) GS - Averaged short at 230.83 (2 mentions). No stop loss at present. Stock closed on Friday at 238.00. 6) FNV - Averaged long at 90.15 (4 mentions). Stop loss now at 96.13. Stock closed on Friday at 112.95. 7) CRON - Averaged long at 10.4275 (4 mentions). No stop loss at present. Stock closed on Friday at 6.88. 8) AU - Averaged long at 19.205 (4 mentions). No stop loss at present. Stock closed on Friday at 19.08. 9) BEN Shorted at 25.53 and at 26.19. Averaged short at 25.86. Stop loss now at 26.79. Stock closed at on Friday 25.60. 10) ARNA - Averaged long at 48.36 (3 mentions). No stop loss at present. Stock closed on Friday at 51.30. 11) SRUTF - Purchased at .36. No stop loss at moment. Stock closed on Friday at .1434. 12) IBM - Shorted at 134.11. Covered shorts at 152.35. Loss on the trade of $1824 per 100 shares plus commissions. 13) CVGW - Averaged long at 80.515 (2 mentions). No stop loss at present. Stock closed on Friday at 75.08. 14) CVGW - Liquidated at 76.88. Averaged long at 85.145. Loss on the trade of $1653 per 100 shares (2 mentions) plus commissions.
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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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