 |
 |
 |
 |
 |
 |
Issue #658 
February 16, 2020 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
|
| Corona Virus Keeps Bulls and Bears on Sidelines. Traders Await News!
DOW Friday closing price - 29398
The indexes continued their "runaway freight train" action with yet another round of new all-time highs, having confirmed the breakout off of a 2-week hiatus when the Corona virus was first announced. Nonetheless, the Corona virus continues unabated with now over 70,000 confirmed infections, over 1,400 deaths, and now found in 27 different countries and no solution yet found for it. In addition there have not been any changes in the economic picture to support the continued and relentless move higher, meaning that this now has the feeling of an exhaustion rally that when it ends, it will also be the end of the 12-year uptrend.
As such, trying to compare this rally with the ending rally seen in 1999 with the Dot.com push upward is likely to be the only way to evaluate what is happening. In 1999, the exhaustion rally took the NASDAQ from a correction low of consequence (33%) at 1357 to the exhaustion high seen March 2000 at 5132 (3775 points) over an 18-month period of time. That last month resulted in a negative reversal month, having made the 5132 high but then closing below the previous month's close at 4696. Nonetheless, the last 6 months of that rally from the previous new all-time high made after a minor correction, took the index up 42% in value. Forward to this year, and the index is now in its 15th month since a major correction occurred (24%) and the index has now rallied a total of 3558 points. In addition, the recent unrestrained rally from when the previous high was made is now in its 5th month and the rally seen during this period of time has been 21%, suggesting that there is still at least 1 more month of upside to be seen and at least another 200 points higher. Evidently, these type of runaway freight train rallies need a catalyst to turn them around, be it buying exhaustion or simply some event that triggers profit taking. At this time, the only possible catalyst is the Corona virus. Then again, one other potential catalyst is that the 2020 election is only 9 months away and at some point the traders will start considering what Trump's chances of winning are and given that things are happening in the Trump administration almost every day, it is impossible at this time to evaluate when that may happen. Nonetheless, make no mistake about it, this is an exhaustion rally that will signal the top of the market, be it within a few months or longer. Until then, the market will continue higher.
Given the information given above, there is little more to be said other than what support levels below are negative trigger points. At this time, there are none close by.
To the upside and on an intraweek basis, the DOW and the SPX have no resistance levels close by whatsoever. Nonetheless, the NASDAQ does have what can be considered a major psychological resistance at 10,000.
To the downside and on an intraweek basis, the DOW shows short-term pivotal support at 28995 and longer term pivotal support at 28169 that if broken, would signal an end to the rally. The SPX shows the same short-term pivotal support at 3313/3317 and the longer term pivotal support at 3214. The NASDAQ shows minor short term pivotal support at 949493 and longer term pivotal at 9088.
It is important to note that the DOW and the SPX are both showing a recent breakaway/runaway gap formation that was tested successfully this past week. The runaway gap in the DOW is at 28904 and the index got down to 28995 and in the SPX the runaway gap is at 3306 and the index got down to 3317. That breakaway/runaway formation does suggest quite a bit of further upside is to be seen, especially given that it was tested successfully this week. Closure of the formation would suggest that at least a pause is being seen in the rally but at this time, any pause would likely be indicative of a top having been found, given that this market can only continue higher on momentum and nothing else since there are no economic or earnings reports that could come out that would trigger selling. By the same token, it is the NASDAQ that is leading the pack and that is the index the traders will be watching and nothing less than a drop below 9088 will trigger selling interest and that is 647 points below last week's high. This means that it is highly unlikely that anything of that magnitude can happen this week that will cause that to happen. By the same token and 2 weeks from now, the only other thing that could be a signal is a close below last months close at 9150, strongly suggesting that no negative reversal will be seen this month.
This does suggest that the indexes will continue to move higher in the same inexorable fashion. One thing to look at though, is the FANG index that represents the 10 most innovative and successful companies in the Tech industry (AMZN, AAPL and GOOGL for example). The FANG closed at 3742 on Friday and it does show a short-term pivotal support at 3513 that if broken, would suggest the Tech industry is beginning to falter and that would also be a sign that a top may have been found. By the same token a drop of over 6.2% would need to be seen for that to occur, which is highly unlikely.
For this week, the probabilities continue to favor the bulls and further upside of consequence. Nonetheless, it does need to be mentioned that this is not a rally that involves the entire market as there are several industries that are not participating and in some cases, even heading down. It is like the Dot.com rally where only one part of the market participated and the other did not, suggesting that blanket buying across the board is not the thing to do.
OIL generated a small recovery rally, having made a new 10-day intraweek high. In addition, a small but short-term buy signal was given when the stock closed above the most recent high daily close at 50.95. Nonetheless, none of this was confirmed by the weekly closing chart, given that the weekly close breakdown point at 52.51 was not negated, having closed on Friday at 52.05. What this suggests is that the bears have lost the edge for now and that the traders are waiting for more news before deciding on whether to continue the downtrend or start a recovery rally. By the same token, none of this action was unexpected given that the $50 level is always a strong psychological support area. On an intraweek basis, there is no resistance above until the 54.84-54.90 level is reached, meaning that oil could continue to move higher this week up to that area. On a daily closing basis, there is some minor resistance at 52.45 but the daily chart has no level close-by that is pivotal to any consequence, meaning that the traders will be depending on the weekly chart for clues as to how to proceed. A confirmed weekly close above 52.51 will open the door for a bottom to this recent downtrend having been found. If that occur, the next upside objective would be the $57 level. Probabilities slightly favor the bears as there has not yet been any clear sign that the selling has dried up, only that a pause is occurring.
|
Stock Analysis/Evaluation
|
CHART Outlooks
With the bears unable to generate any kind of a sell signal in spite of the Corona virus and the end of the important economic reports for the month and the end of the important economic reports for the quarter, there is no reason to be shorting stocks aggressively. By the same token, with support levels being far away in most of the stocks participating in the rally, buy mentions in those stocks offer too much risk and no clear profit potential with which to be aggressive in buying. As such, I was forced to find stocks that have their own chart picture (not tied in to the index market) and that have not been particiating in the rally but find themselves near important support levels where a purchase can be considered, especially considering that there are no clear reason to believe they are heading much lower. They will be the purchase mentions given this week.
LNTH Friday Closing Price - 16.64
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, which is in the Healthcare industry offering imaging systems and is an industry that is supposed the be the strongest in 2020, the overall consensus is that the stock is more of a buy than a sell with most 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 $16 level that is unlikely to be broken. In addition, at that level, the 200-week MA is located, currently at 16.01, and since its existence (4.5 years), that line has never been broken, meaning that 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 on Tuesday (the 25th) and at these prices, the earnings report is likely to be more beneficial than not.
Since LNTH started trading, there have been 2 major corrections but the first correction occurred when the company had not established itself as it occurred in the first 1.5 years of its inception. As such, that correction is meaningless as far as using history of the stock is concerned. The last correction prior to this one, generated a correction of 48% from high to low and took 9 months to occur. This present correction started in June of last year, meaning that it is now in its 9th month and it has so far corrected 45%, meaning that it looks like the next leg in the uptrend could start within the next week or two. If the uptrend is to resume, the all-time high at 29.80 would like be broken within the next 12 months, giving a possible upside objective of $34 (based on what happened in the previous correction).
LNTH has been on a strong down move recently, with the stock generating 8 red weeks in a row and once again closed near the lows of the week, suggesting further downside below last week's low at 16.42 will likely be seen this week and that is likely to put the stock into the desired entry point area around the $16 level. With the 200-week MA, currently at 16.01, not ever have been broken, the probabilities of "automatic" buying interest being seen there is high. By the same token, this stock has been on a 3-year uptrend and the Health Care industry supposed to be one of the main growth industries this year, does suggest that unless some very negative fundamental news comes out on the earnings report, that this stock is ready to move up.
As far as resistance is concerned, LNTH shows no resistance above until 20.24 is reached, meaning that if a bounce does occur, that level has a very high probability of being reached. Above that level, the next resistance of any consequence is found at 24.45. If that resistance is broken, the all-time high at 29.80 would be the objective. Above that, and considering the $5 move that was seen when the stock made a new all-time high in February of last year after breaking above 24.45 and heading to 29.80, would suggest a possible upside objective of 34.25, if the uptrend resumes.
As far as support is concerned, the 200-week MA is currently at 16.01 but given that the line is only valid as support on a weekly closing basis, there is a chance that on an intraweek basis the stock could go lower. The closest intraweek support is minor to perhaps decent at 15.03, then at 14.60 and then pivotal to the trend at 13.86. The stop loss at this time cannot be placed any higher than 13.76, meaning that if purchased at 16.00 and the minimum upside target at 20.24 is used, the risk/reward ratio would be 1.9-1. By the same token, if the max objective is used at $34, the risk/reward ratio would be almost 8-1. Either way, this is a trade that using the chart has a high probability rating of success.
Purchases of LNTH at 16.02 or lower and using a stop loss at 13.76 and having a 20.24, 24. 45, 29.80, or the possible 34.25 objectives, will offer risk/reward ratios from a minimum of 1.9-1 to a max of 7.5-1.
AGCO Friday Closing Price - 66.76
AGCO was a recent mention that turned out to be a loser when the stock failed to hold on to a short-term pivotal support at the 69.82 level. Since then, the stock has continued lower and just this past week got down to 65.68 and did close near the low of the week, suggesting further downside below that level will be seen this week. Nonetheless, the stock is now getting close to a much more important support level 64.82 and 63.73 that includes the 200-week MA, currently at 64.23, which is a line that has been decent support the last 10 years, with the stock trading above the line 90% of the time.
AGCO is an agricultural company and given the recent trade deal with China, agricultural companies should at least be supported if not rallying upward in price. As such, the MA line should hold up under this fundamental picture.
The 52-week low in AGCO is at 63.73 and is considered a strong pivotal support, especially given that below that level there is no support of consequence found until $57 level is reached. As such, a purchase at (or near) the 200-week MA at 64.23 offers a very good risk/reward ratio as well as a decent probability rating.
To the upside, AGCO shows some minor to perhaps decent resistance at 67.43 but above that there is no resistance of consequence until the $74-$75 level is reached, which will be the objective of this mention. To the downside, there is support at 64.82 and pivotal at 63.73.
Having gotten down to 65.68 this past week and further downside below that level expected to be seen this week, the probabilities of getting down to at least 64.82 are high and perhaps even down to the MA, currently at 64.23. With a minimum objective of 67.43, a purchase at 64.82 or lower and using a stop loss at 63.63 would offer a risk of $120 for a minimum profit potential of $261, which is a 2.2-1 risk/reward. Nonetheless, the chart strongly suggests that if 63.73 is not broken, that a rally up to the $74-$76 level will occur and that would mean a risk/reward ratio of 8-1.
My probability rating on this trade is 3.25 (on a scale of 1-5 with 5 being the highest).
|
Updates
|
| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| ARNA made a new 24-week high as well as a weekly close above the previous multi-year high weekly close at 50.93 that was made in February of last year that when broken to the downside brought about the weakness seen for 20 weeks. The stock closed near the high of the week and further upside above last week's high at 55.00 is expected to be seen this week. There is no resistance above until the 58.00-58.57 level is reached and with the stock and the market in a bull rally right now, that level is likely to be reached this week. By the same token and looking at the weekly chart, there is decent weekly close resistance at 54.30, meaning that though the stock may get up to the $58 level intraweek this week, some consideration for taking profits should be given if toward the end of the week if those intraweek resistances are not broken and the stock starts to fade. Nonetheless, if the bulls can close next Friday above 54.30, there is no weekly close resistance above until the 5-year high at 63.03 is reached. As such, if the bulls can get the stock above 58.57 this week, positions should be held looking for further upside to the $63 level. On the other side of the coin, there is a lot of resistance seen on the chart that covers 12 years (back to 2008) of resistance between $60 and $67 that does not look breakable at this time, meaning that on any rally above $60, some consideration to taking profits should be given. As far as support is concerned, the 51.60 level is now support that should not be broken, at least not on a daily closing basis as that is where the 200-day MA is currently located. AU generated a positive reversal week, having made a new 10-week low and then turning around to close green and in the upper half of the week's trading range, suggesting further upside above last week's high at 19.98 will be seen this week. The reason this happened is that Gold generated a green close, above the pivotal 1571.90 weekly close and closed just $.20 cents below the 6-year high weekly close at 1582.90 and on the high of the week, meaning that Gold is ready to begin a new leg up toward the $1700 level. The stock shows no resistance above until 21.12 and that is the minimum objective for this week. If the stock does get above last week's high this week, then last week's low at 18.77 will become pivotal support that if broken would suggest the stock's upside is over for now. Probability favors the Bulls. BEN generated a new 11-year intraweek and weekly closing low and closed in the lower half of the week's trading range, suggesting further downside below last week's low at 23.96 will be seen this week. The weakness seen in spite of the strength seen in the index market, suggests this company and this stock continue to be in a negative scenario where much further downside is likely to come. The closest support found is at 21.83 and it is 11-years old and minor in nature. Below that, there is no support at all until decent support is found around the $15 level. Resistance on a daily closing basis, is now found at 24.64, that if the bulls are able to generate a confirmed close above (2 days in a row), would suggest this is a false breakdown. If that does not occur, the probabilities of the stock heading down to the $15 level over the next 2-3 months is high. Probabilities strongly favor the bears. CAT generated a new 3 week high and a close near the high of the week, suggesting further upside above last week's high at 140.50 will be seen this week. Nonetheless and in spite of the strong closing in the index market, the bulls failed to close above a minor to decent weekly close resistance at 138.36 (closed at 137.99) and that is indicative since the stock traded above that level all day Wednesday and Thursday and only fell below that level on Friday, in spite of the strong closing in the index market. This action suggests that the traders continue to favor the sell side, especially considering that the stock had gapped down 3 weeks ago and all that was accomplished this week was closure of the gap. The stock does have all kinds of decent intraweek resistance between 140.62 and 144.77 that is unlikely to be broken without some positive fundamentals new. Given that the company reported earnings 2 weeks ago and it was not helpful to the stock, the probabilities of the bulls getting control of the stock is minimal, though there is still some upside potential on the short term. The low seen the previous week at 129.30 is now pivotal support that if broken would suggest the stock will drop down to the $122 level. Probabilities slightly favor the bulls this week but it seems highly likely that a $122-$142 trading range is in place for the next few months and therefore rallies should be shorted. COF generated an inside week but a green close and in the upper half of the week's trading range, suggesting a higher probability of going above last week's high at 103.74 than below last week's low at 100.90. The only thing the green weekly close proved is that the stock is not yet ready to get into a short-term downtrend and that the bulls still maintain their edge. By the same token, the stock remains below the all-time high weekly close made 2 years ago at 105.43, so in essence the stock is in an idling pattern waiting for further news. One thing that did occur, is that the previous week's close at 99.80 have now become an important pivot point support that if broken would suggest a 10% correction would be seen after breakage. CRON bulls were able to generate a positive reversal week, having made a new 5-week low but then closing green and near the high of the week, suggesting further upside above last week's high at 7.49 will be seen this week. In addition, the bulls were able to negate the minor failure signal given the week before by closing on Friday above 7.28, which was the failure signal point that was broken the previous week. More importantly, the action seen does lower substantially the outlook of the stock heading down to the 5.50 level as it did 2 years ago with chart parameters much like what was seen up until this past week. It does suggests a bit more strength in the stock than what existed in the beginning of 2018. The next resistance level the bulls need to overcome is the 7.62-7.67 level of weekly close resistance. If they can close above that level next Friday, it will be a positive that will generate an immediate retest of the minor to decent weekly close resistance at 8.55, which if broken would open the door for a strong rally back up to the $10 and probably even up to the $12 level. Last week's low at 6.57 is now important pivotal support. Probabilities slightly favor the bulls. CVGW unexpectedly generated a positive reversal week, having made a new 58-week low and then closing green and near the high of the week, suggesting further upside above last week's high at 76.21 will be seen this week. The probable reason for the positive reversal is that this past week was the lowest volume week since October, suggesting the selling interest has dried up. In looking at the chart for the past 2 years, there have been several occasions on both the upside and the downside where low volume weeks were signals that the immediate trend was about to change. With no resistance above until 78.55 is reached and the probabilities being high that a retest of the break of the 200-week MA (currently at 79.18) will happen, especially considering that line had not been broken to the downside for 11 years, it does suggest that the stock is back on its way up to test that line before any further decisions are made by the traders. Last week's low at 73.82 is now the new pivot point support. Probabilities favor the bulls this week. ENG generated an inside week and another close within the recent 5-month trading range between .90 and 1.11. The traders continue to await the earnings report that was due out last week, postponed to this week and now further postponed to next Tuesday the 25th. This is not rare with this company as their earnings reports are rarely reported at the expected date. As such, another week of more of the same as seen recently is expected. The stock continued to trade in the now 5-month trading range between .90 and 1.11 levels (based on weekly closes) without giving any sign of a breakout or breakdown on the horizon. FNV resumed its inexorable upward climb, having negated last week's negative reversal week and making yet another all-time intraweek and weekly closing high. The stock once again closed near the high of the week and further upside above last week's high at 116.07 is expected to be seen. With Gold also having had a positive week and likely to see follow through this week and resumption of the uptrend, the probabilities favor the stock continuing higher. Short term pivotal support remains at the low generated 3 weeks ago at 110.21. Probabilities continue to favor the bulls with no upside objective able to be ascertained at this time. GS continues to show a lack of strength in spite of the indexes continuing to move higher, having generated a new 6-week low weekly close. By the same token, the last 3 weekly closes have not made any kind of a statement given that they have all been within $1 of each other (237.75, 238.00 and Friday's close at 237.08), meaning that even though the stock is not participating in the rally and showing weakness, it has not yet been decided by the traders that the stock is to go lower in any consequential way. The stock did close near the low of the week and further downside below last week's low at 235.46 is expected to be seen. Pivotal support is found at 235.01 that if broken would suggest the 229.49 level of support will be tested and likely broken. For now though, the traders seem to be awaiting some catalyst with which to make the decision whether to rally the stock back up to $245 or down to $230. Last week's high at 241.18 is now short term pivotal. Probabilities favor the bears this week. MCIG tested the recent weekly close breakout level at .046 with an intraweek drop down to.038. Nonetheless, buying interest was found at that level that caused a rally to occur toward the end of the week and a weekly close at .052. More importantly, Wednesday close at .0435, followed by a close on Thursday and Friday at .052, means that the 200-day MA, currently at .0475 has been tested successfully. Any rally this week above last week's high at .0657 will mean that this correction has been successful in testing the breakout and give the bulls a good reason to buy for further upside. The stock did close in the upper half of the week's trading range and that is the expected scenario for this week. In addition, the unexpected positive reversal in CRON, does suggest that the selling interest in the Cannabis industry has waned and at these prices, the probabilities are now starting to favor the bulls. Any drop below last week's low at .038 would now be a negative. Probabilities favor the bulls. SRUTF generated another green weekly close on Friday and that is the first two-in-a-row green weekly closes seen since August of last year. More importantly, the stock technically generated a positive reversal week, having made a new all-time intraweek low at .131 (below the previous one at .132) and then closing green and on the high of the week, suggesting further upside above last week's high at .1549 will be seen this week. Pivotal resistance is found at .1649 that if broken would be a statement that a bottom to this downtrend has been found. Given that both CRON and MCIG showed some signs that the negative problems of the Cannabis industry might be past, the probabilities now favor the bulls.
|
1) ENG - Averaged long at 1.616 (6 mentions). No stop loss at present. Stock closed on Friday at .94. 2) ARNA - Averaged long at 3.725 (4 mentions). No stop loss at present. Stock closed on Friday at 5.40 (new price (54.00). 3) MCIG - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .052. 4) COF - Averaged short at 91.73 (3 mentions). No stop loss at present. Stock closed on Friday at 102.64. 5) GS - Averaged short at 230.83 (2 mentions). No stop loss at present. Stock closed on Friday at 237.08. 6) FNV - Averaged long at 90.15 (4 mentions). Stop loss now at 109.65. Stock closed on Friday at 115.60. 7) CRON - Averaged long at 10.4275 (4 mentions). No stop loss at present. Stock closed on Friday at 7.34. 8) AU - Averaged long at 19.205 (4 mentions). No stop loss at present. Stock closed on Friday at 19.46. 9) BEN Shorted at 24.34. Averaged short at 25.353 (3 mentions). Stop loss now at 26.74 (stop close only basis). Stock closed at on Friday 24.36. 10) ARNA - Averaged long at 48.36 (3 mentions). No stop loss at present. Stock closed on Friday at 54.00. 11) SRUTF - Purchased at .36. No stop loss at moment. Stock closed on Friday at .148. 12) CVGW - Averaged long at 80.515 (2 mentions). No stop loss at present. Stock closed on Friday at 75.81. 13) CAT - Shorted at 134.55. No stop loss at present. Stock closed on Friday at 137.99. 14) CAT - Purchased at 135.62. Liquidated at 136.84. Profit on the trade of $122 per 100 shares minus commissions. 15) CAT - Shorted at 138.70. Covered shorts at 140.23. Loss on trade of $153 per 100 shares plus commissions.
Previous Newsletters
|
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. |
|
|
|