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Issue #704 
Jan 17, 2020 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bears Fail to Follow Through, Meaning the Bulls have Established Control.
DOW Friday closing price - 30996
All indexes generated new all-time intraweek highs but the dichotomy between the DOW and the other indexes once again came through, given that the SPX and the NASDAQ both made new all-time high weekly closes and closed near the highs of the week, suggesting further upside above those highs will be seen this week (SPX above 3861 and NAZ above 13567) but the DOW did not make a new all-time high weekly close and closed in the lower half of the week's trading range, suggesting it will go below last week's low at 30865 this week. By the same token, this coming week's important earnings reports are mostly in DOW stocks, meaning that the traders are likely to key on the index for direction as 10 of the stocks in the index report earnings (AXP, BA, CAT, GE, HON, JNJ, MMM, T, V, AND VZ). The NAZ does have 2 reports of consequence this week in AAPL and FB.
The Biden administration was sworn in on Wednesday and immediately began issuing executive orders and yet the index market continued higher in the next few days after, meaning that the traders are not considering that the administration change will change the outlook for the market. This was a concern prior to the official start of the administration but that concern was put to rest as the week ended, meaning that the momentum that the market has been in is likely to continue. This (like all other instances) needs to be confirmed this week with further upside and another green weekly close, or at least a close above the most recent high weekly closes seen the first week of January. Nonetheless, the initial response suggests that the index market will continue with a bullish outlook for 2021, though the change of administration is likely to generate a move back to the normal peaks and valleys scenario that was prevalent before Trump took office. In simple words, the runaway freight train scenario that has been a norm under the Trump administration is not likely to continue under the Biden administration.
For this week, the concern that will continue to have an effect on the market is 1) the stimulus program that has some obstacles to overcome and could be a negative if Biden is unable to overcome them 2) the earnings reports due out this week, which could be a negative given that they are in DOW stocks and therefore not Tech oriented and fragile to the pandemic economic problems and 3) the economic reports due out this week, which do include some important ones including Consumer Confidence on Tuesday, Durable Goods on Wednesday, GDP on Wednesday, and Personal Income and Spending on Friday. Nonetheless, this latter concern is not likely to be catalytic as these types of reports have not been of much consequence of late.
One other concern that has not been addressed and is of consequence is that no close by support has been built, meaning that purchasing the indexes at these levels offers negative risk/reward ratios and therefore not conducive to aggressive buying. For example, the NASDAQ showed 5 green daily closes in a row this past week and that has not happened since July. The index is overbought at the highest point since September (when a big correction started) and is presently 11% above the previous all-time high daily close. In addition, the closest support level is at 12543, which is 7.4% below Friday's close, meaning that even within a continuing and uninterrupted bull market, a correction of that amount could occur without it meaning anything negative. It is evident at this time that the only thing pushing the market from these levels is momentum and momentum will change on a dime if there is any negative (or even possibly negative) that comes out. Momentum can also end if the rate of appreciation slows down and given that the last 2 trading days range in the NAZ were 106 points (low by previous standards), if that starts to shorten even more, it would be likely that the momentum is stopping.
To the downside, the DOW shows support at 30612 and then pivotal at 29881, in the SPX there is support at 3749 and pivotal at 3662, and in the NASDAQ there is support at 12949 and pivotal at 12543. If the former supports are broken, the momentum will stop and if the latter are broken, the indexes will officially be in a correction. Evidently the NASDAQ is the big key given that the closest support is 4.4% from Friday's close, meaning that "any" red daily close will immediate bring about some selling interest. As such, every day this coming week is likely to be of some short-term importance. The probabilities though, still favor the bulls.
OIL rally has come to a full stop, having generated 3 weekly closes in a row within pennies of each other at 52.24, at 52.36 and at 52.27. On an intraweek basis though, Oil did get up to 53.93 the previous week and given that a red weekly close occurred on Friday, it does suggest that the minor intraweek resistance that was built last February at 54.50 has been tested successfully. This is of note simply because that intraweek resistance is considered minor and should not have stopped oil from heading up to the more important and stronger intraweek resistance built 2 years ago between 54.94 and 55.13. Nonetheless, the action to the downside has not yet been sufficient to say that the rally is over but the probabilities now favor the bears, especially considering that on the daily chart, that 53.99 high was tested successfully this past week on the daily chart with a rally to 53.79 which was then followed by a new 11-day intraweek low at 51.44. Oil closed in the lower half of the week's trading range, suggesting further downside below last week's low at 51.44 will be seen this week. There is some minor support at 49.31 (likely to be seen this week) and then stronger and more pivotal at 47.18. Evidently, the 53.99 level is now resistance that if broken, would likely more oil up to the 55.00 level where resistance is stronger. Nonetheless, at this time, the probabilities favor the bears.
DOLLAR generated a negative reversal week, having made a new 4-week intraweek high and then closing red and near the low of the week, suggesting further downside below last week's low at 90.05 will be seen this week. The bounce upward that has been seen the past 3 weeks was only able to recover 33% of what was lost the previous 15 weeks prior and in addition, no resistance levels of any kind were broken on this minor rally, meaning that the bears remains in full control. Last week's high at 90.95 will become resistance if the Dollar goes below 90.05 this week. Minor but likely short term pivotal support is found at 89.92. Further support is found at 89.73 and then nothing of consequence is found until the recent low at 89.21 is reached. The big pivotal and long term intraweek support is found at 88.25 (on a weekly closing basis at 89.07). If that support is broken, much further downside is likely to be seen. Probabilities favor the bears this week.
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Stock Analysis/Evaluation
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CHART Outlooks
The action seen last week has likely changed the overall outlook for the market for the next few months. Nonetheless and based on that change, this coming week is not likely to offer many buying or selling opportunities, given that this week the traders are waiting to see what the earnings reports bring before committing any new money. The selling opportunities have lost some downside objectives and therefore picking better entry points is a must and with the indexes still with momentum to the upside but overbought, no clear entry points that offer reliable risk/reward ratios can yet be found. The same is true with purchases as this week is likely to be used to determine what stocks and at what prices they are good purchases with decent risk/reward ratios and high probability ratings.
By the same token, 2 purchase mentions given last week reached the desired entry points and were filled and the other purchase mention (given again below) is likely to be filled this week. As soon as other stocks that I follow offer the same type of risk/reward ratios and probability ratings, I will offer them in the message board or in the next newsletter, which I do expect to have new mentions.
PURCHASES
PFE Friday Closing Price - 36.55
PFE is an established health products company and has developed a vaccine that is presently being used strongly in the U.S. and other parts of the world. Right before the vaccine was accepted by the FDA, the stock rallied up to 43.08 level but like with many products, the adage of "buy the anticipation and sell the fact" kicked into play and the stock has now corrected 16% from the high made.
Chart-wise, PFE has several support levels below of importance, starting with the 200-week MA, currently at 35.85, the 200-day MA, currently at 35.38, and an intraweek support level at 34.98 (from which the rally up to 43.08 was launched) that are highly unlikely to all be broken as there is nothing fundamentally or chart-wise negative about the stock at this time. In addition, the stock is in a bull trend and a drop and close below 34.46 would be a 20% correction from the high, which would mean that the uptrend is over (highly unlikely). As such and as the stock gets down to and slightly below $36, the buying interest is likely to appear.
PFE continued lower last week, having generated a new 11-week low weekly close. Nonetheless, on Friday the stock stopped the down move and generated a rally above Thursday's high (in spite of the new 11-week low being made on Thursday) and ended up with a green close, suggesting that some new buying interest was being seen. Given that the downside objective has been reaching the 200-week MA, currently at 35.87, and the stock getting down to 36.15 this past week, it does increase the probabilities that the downside objective has been accomplished, especially when considering that the stock closed slightly in the upper half of the week's trading range and the chances are higher that the stock will go above last week's high at 37.00 than below last week's low a 37.00. As such, the stock is now likely a purchase around (or below) Friday's close at 36.55.
To the upside and on an intraweek basis, PFE shows resistance at the previous week's high at 37.83, at 38.84 and then nothing until 41.51 (minor). 42.24 (minor to decent) and at the rally high at 43.08. Further resistance is found at the all-time high, which is found at 44.05. To the downside, there is intraweek support at 36.02 (minor), at 35.71, at 35.29 and pivotal at 34.93. If the stock gets below last week's low at 36.15, probabilities will favor a drop down to 35.43, which is where the 200-day MA is currently at
PFE being an established company that depends on many other things not related to the Covid-19 vaccine, has a vaccine that is being heavily used, and is in the health industry, has potential to reach (and possibly break) the all-time high 44.05 made 2 years ago in December 2018
Purchases of PFE below 36.56 and using a stop loss at 34.46 (based on a daily stop close only basis) and having a minimum 42.24 objective, offers a 3-1 risk/reward ratio.
My rating on the trade is 4.25 (on a scale of 1-5 with 5 being the highest).
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| AU generated a positive reversal week, having made a new 5-week low and then turning around to close green and on the high of the week, suggesting further upside above last week's high at 23.53 will be seen this week. It is important to note that after the previous week's action, the stock could have had follow through of consequence to the downside but didn't (went only $.05 cents below the previous week's low), suggesting there is firm support at this level and meaning that the bulls now have the edge. To the upside, there is minor resistance at 24.10 and then minor to decent but pivotal at 25.75. Short term pivotal support is now found at last week's low at 21.98. Probabilities favor the bulls. AXP generated a new 11-month intraweek and weekly closing high but did reach a level of decent intraweek resistance at 129.34 with a high last week at 129.54. The stock backed off to close in the lower half of the week's trading range, suggesting further downside below last week's low at 124.24 will be seen this week. If that occurs, the probabilities will be high that a top to this rally has been found and that a correction back down to the $111 level will occur, spanning 10-12 weeks. The company reports earnings on Tuesday morning and the expectations are for $1.31, which is lower than last year's $2.03. Evidently, if last week's high is broken, the stock will likely head up to close the big and indicative gap from February at 133.89. If that does not occur, the stock will start heading lower with the $111 level (114.41 on a weekly closing basis) as the objective. That level is of great importance as a break of that level will put the stock back into a bear trend. For this week and on a daily closing basis, the 125.04 level is pivotal. If broken, a drop down to the $120 level is likely to occur. Probabilities slightly favor the bears this week. BTZI once again, did not do anything indicative this past week, having generated another week (8th of the past 9 weeks) in the very narrow trading range between .04 and .05 and closing around the middle of the range, something that has been seen consistently during this time. As such, there are no new comments to be made. Pivotal resistance is found at .055 that if broken, the chart shows open air above until .088. Support remains at .035. Probabilities slightly favor the bulls. CAT generated a red week and a close in the lower half of the week's trading range, suggesting further downside below last week's low at 189.31 will be seen this week. The stock seems to have reached at least a temporary high with the rally up to 120.11 and now some form of pullback is likely to be seen, with the previous all-time weekly closing high at 170.41 as a likely target for the near future. There is a double top built on the daily closing chart at 119.54/119.40 that is likely to be tested this week with a daily green close above a previous day's close (for example, the stock closed on Friday at 191.94 and if a green close occurs on Monday and is then followed by a red daily close, the retest will have occurred). There is no support close by below until the $180-$182 level is reached, meaning there is more profit potential this week for the bears than the bulls. Probabilities favor the bears. CNX generated an inside week but a red weekly close and in the lower half of the week's trading range, suggesting a slightly higher probability of going below last week's low at 11.86 than above last week's high at 14.08. Nonetheless, on Friday the stock generated a positive reversal day, having made a new 8-day low and then closing green and above Thursday's high, suggesting the first course of action for the week will be to the upside and above Friday's high at 12.71. There is no resistance above until 13.45 is reached. The chart continues to favor the bulls even though the 14.19 level continues to be decent to perhaps strong and pivotal resistance. The drop down to the $12 this past week was simply a drop down to support as there is quite a bit of it at that level, meaning that there was no chart negatives to this 15% drop. The likely key this week is at 12.93 based on a daily closing basis. If the bulls fail to close above that level, further downside is likely to be with the stock closing at the $12 level. A daily close above 12.93 would give the short-term edge back to the bulls. Probabilities are even this week. CRON generated an inside week but a red close and near the low of the week, suggesting further downside below last week's low at 10.41 is likely to be seen this week. Support is found at the $10 demilitarized zone (9.70-10.30) that is likely to be seen but not broken. By the same token, there is no established support until the $9-$9.50 is reached, meaning it would not be a surprise (or negative to the trend) if the stock fell to that level. To the upside, the $14 level remains as a viable target. Probabilities favor the stock trading down to the $10 and trading around that level for the next couple of weeks as building of that area as the new support level is what is likely to happen, before an attempt to reach the $14 level is seen. Probabilities favor the bears this week. FNV generated a positive reversal week, having made a new 9-month intraweek low and then closing green and in the upper half of the week's trading range, suggesting further upside above last week's high at 125.82 will be seen this week. If that occurs, it can be surmised that the downside objective (a retest of the previous all-time high daily closing high at 120.63) has been accomplished and that a new short-to-midterm rally is to be seen. Resistance is found at last week's high at 125.82 that if broken, opens the door for a rally up 131.71 as there is no resistance between those 2 levels. Pivotal resistance is found at 133.15 that if broken, would confirm the correction is over and that an uptrend has begun again. Last week's low at 120.44 is now likely to be the new support level. Probabilities slightly favor the bulls. FPRX generated a positive reversal week, having made a new 10-week low and then closing green. The stock closed in the middle of the week's trading range, suggesting equal chance of going above last week's high at 16.02 than below last week's low at 13.63. Nonetheless, the probabilities favor the bulls given that this correction was meant to retest the breakout above the 200-week MA, currently at 14.39, as that line had not been broken to the upside for 3 years and a successful retest of that line was required/needed before new buying interes would appear. With the stock closing at 14.22 the previous week and closing at 14.79 on Friday, that retest is now considered done. If confirmed next Friday with another green close this coming Friday, new buying interest is likely to be seen and a resumption of the uptrend begin, with a 27.73/27.81 upside objective to be reached within 8-12 weeks. Evidently, a drop below last week's low at 13.63 will be a negative. Probabilities favor the bulls. NEM generated an uneventful week, having closed $.011 below the previous week's close. Nonetheless, the stock did close in the lower half of the week's trading range, suggesting further downside below last week's low at 60.39 is likely to be seen this week. By the same token, the chart of Gold and other Gold stocks suggest that the probabilities favor the bulls this week and if that is the case and the stock goes above last week's high at 64.05, the downside is likely over. This stock has recently outperformed the other Gold stocks so it is possible that will be overturned this week and underperform. Nonetheless, it must be mentioned that the stock had a gap below at 60.53 that was a magnet and it was closed on Friday, likely meaning that the stock will outperform the other Gold stocks this week as well and not go below last week's low but go above last week's high. Pivotal resistance is found at 65.78. One thing to watch closely this week is the 200-day MA, currently at 62.42. If the bulls are able to generate 2 daily closes in a row above the line, the edge will shift to the bulls. Probabilities slightly favor the bulls. QQQ made a new intraweek and weekly closing high and closed near the high of the week, suggesting further upside above last week's high at 327.13 will be seen this week. Nonetheless, the stock is in the exact same boat as the NASDAQ, with the risk/reward ratio heavily favoring the bears, given that there is no established support below until 310.58 is reached and even then, that support is minor in nature. Short-term pivotal support is found at 305.18. Momentum is what is driving the bulls and if that wavers, profit taking is likely to occur, meaning a drop down to at least the $310 area. SRUTF had a very uneventful week, having closed $.002 cents below last week's close. This area between $.033 and $.047 has been the total trading range for the past 9 weeks and there seems to be no interest at this time from either the bulls or the bears to trade out of it. Nonetheless and given that Cannabis stocks are likely to be "in vogue" this year, the .047 level is now pivotal resistance as it also includes the 200-day MA, which is a line that has not been broken to the upside for the past 19 months. If broken and confirmed on a daily closing basis, the stock is likely to generate a rally up to at least the .0659 level. W generated an inside week and a red weekly close but it was basically meaningless given that the stock closed in the middle of the week's trading range and only $.06 cents below the previous week's close, meaning that the traders did not make any decisions this past week. By the same token and considering what happened the previous week, the action continues to support the bears more than the bulls as the indicative resistance at 301.36 and at 305.36 remain unbroken and after a new all-time intraweek high was made, the failure to close above those levels suggests a failure of the bulls' hopes. The traders are waiting for direction from other sources, such as internet product sales companies (such as AMZN), to decide which way to go and in that case, the probabilities slightly favor the bears as momentum is likely to begin to wane this week. A retest of the channel line that got broken (currently around $270) remains a highly likely scenario. On the opposite side, an intraweek break above 324.21 is likely to give the edge back to the bulls. Probabilities do favor the bears this week as AMZN does not report earnings until the following week, meaning that this week could be all about fulfilling the chart with a drop down to test the breakout.
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1) FPRXM/b> - Purchased at an average price of $14.285. Stop loss at 13.65 on a stop close only basis. Stock closed on Friday at 14.79. 2) BTZI - Averaged long at .215 (2 mentions). No stop loss at present. Stock closed on Friday at .0441. 3) CRON - Averaged long at 10.4275 (4 mentions). No stop loss at present. Stock closed on Friday at 10.65. 4) SRUTF - Purchased at .36. No stop loss at moment. Stock closed on Friday at .0398. 5) W - Averaged short at 86.61 (2 mentions). No stop loss at present. Stock closed on Friday at 299.94. 6) CAT - Averaged short at 109.616 (3 mentions). No stop loss at present. Stock closed on Friday at 191.94. 7) QQQ - Averaged short at 192.995 (2 mentions). No stop loss at present. Stock closed on Friday at 325.42. 8) AXP - Averged short at 93.953 (3 mentions). No stop loss at present. Stock closed on Friday at 122.15. 9) AU - Averaged long at 26.106 (6 mentions). No stop loss at present. Stock closed on Friday at 23.21. 10) NEM - Averaged long at 61.08 (6 mentions). No stop loss at present. Stock closed on Friday at 61.75. 11) CNX - Averaged long at 9.10 (2 mentions). No stop loss at present. Stock closed on Friday at 12.69. 12) FNV - Purchased at 120.62. Averaged long at 123.725 (2 mentions). Stop loss now at 118.65. Stock closed on Friday at 123.29. 13) QQQ - Shorted 323.07. Covered shorts at 323.71. Loss on the trade of $64 (per 100 shares) minus commissionsl.
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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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