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Issue #747 
Jan 9, 2021 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| New Year Starts. Probabilities Favor Investors Keying On Depressed Stocks.
DOW Friday closing price - 36231
All across the board, it was a negative week for the indexes with all indexes generating a red close and each and every one of them giving some form of negative signal. In the case of the DOW, the red close generated a double top (when put together with the previous all-time high weekly close at 36327 and the previous week's new all-time high weekly close at 36338) that now looms like a possible end of the bull market. In the case of the SPX, a negative reversal week occurred (made a new all-time intraweek high at 4818 (above the previous one at 4808) and then closing on Friday below the previous all-time high weekly close at 4712 (closed at 4677). In the case of the NASDAQ, the index generated a new sell signal, having closed below the low weekly close for the past 11 weeks at 15172, as well as giving a failure signal in closing below the previous all-time high weekly close at 15652 (closed at 15559). In the case of the RUT, it generated a negative reversal week (made a new 6-week intraweek high and then closed below the previous week's low) and also failed to confirm the previous week's breakout close above the 200-day MA. As such, the weakness signals given were in unison and not just one index or the other showing weakness. More importantly, all of this happening on the first week of the New Year, which is seasonally a bullish week and without any specific negative catalyst to generate profit taking or new selling interest.
The negative action and signals given are not likely to be reversed without some positive fundamental news and though there is one important report this week on Wednesday (CPI Inflation report), the report is much more likely to be an added negative than a signal negating report. On the other side of the coin, the earnings quarter begins on Friday and earnings continue to come out higher than expected, meaning that for the next 3+ weeks, it is unlikely that the bears will have enough ammunition to generate any further breaks of support of consequence. As it is, January is usually a supported month with the seasonal selling usually coming in February.
In addition to all of the negative chart action seen this past week, the dichotomy between the DOW and the NASDAQ has clearly reversed. Over the past 6 weeks, the DOW has fallen 1.3% while the NASDAQ has fallen 7.3%. This is confirmation that the rampant positive speculation seen in 2021 (as shown with the SPX making 68 new intraweek and weekly closing prices in 2021 and also shown by the Tech Industry leading the way higher), has ended.
It is evident that at this time there is not enough tangible information to ascertain whether this is the end of the bull market or not and as such, the traders will treat it as a correction only. Such information as to whether a permanent or temporary top has been formed will not be available for months. The reason for that, is the uncertainty of how bad the inflationary pressures are going to be and how much the Fed will feel comfortable in raising rates to combat it. As such and for the time being, ascertaining the parameters of where the indexes will trade for the next month or two is what the traders will be attempting to do this week.
The DOW will likely continue to the dependable-support index as it is considered to be the "safe" index. The chart shows a clearly defined uptrend line that began in June of last year and that presently is around the 34100 level (a drop of about 2100 points from Friday's close. As such and until a clearer fundamental picture becomes available, that line will be considered strong support. In the SPX, there is support between 4535 and 4538. The probabilities do favor the index heading down to that level under the present circumstances. Nonetheless, the support that is pivotal for the longer term is at 4278. A weekly close below 4535 will weaken the chart but would not be a signal of anything more that short-to-midterm weakness. A break below 4278 would be a signal that the bull run is over. In the NASDAQ, there is some chart-line support at 15109. Under a bull market, that line would not be broken but given that the action last week suggests that a correction of some consequence is occurring, that line is likely to be broken and a drop down to 14800 is likely to occur. The next support below that is at 14384 that is beginning to look breakable, if and when a strong correction is occurring. The level which if broken would mean the bull market is totally over is down at 12208. The RUT is likely to be a key for the short term as the probabilities favor this being just a correction but also likely being the beginning-of-the-end to the bull run. As such, the RUT should begin to outperform the NASDAQ and even perhaps the SPX but is also likely to be affected by the correction somewhat. A daily close break below 2159 will bring in the selling and given that it closed on Friday at 2179, the break could be seen this week. If no break occurs but the other indexes head lower, it will be evident that the traders are keying on small cap stocks. I don't yet see that happening this soon). As such, the next level of daily close support is at 2073 and a close below there, will open the door for a drop all the way down to the 1737 level, which is a level that should hold even if the other indexes are breaking their pivotal supports. Any break of support that is followed by a negation of the break, would suggest the traders will enter the index in a big way, and possibly in a dichotomy way versus the other indexes.
On the other side of the coin, the only solution to the short-term chart action seen this past week is for a negation of the negative signals to occur "this week". The DOW would need to negate the double top, the SPX would have to negate the failure signal and generate a weekly close above 4712, and the NASDAQ would need to negate both the sell signal and failure signal with 2 closes in a row above 15712.
The probabilities favor the bears this week but only for some limited additional downside.
OIL generated another green close week and closed in the upper half of the week's trading range, suggesting further upside above last week's high at 80.47 will be seen this week. On a possible negative note though, Oil closed on Friday at 78.90 and that was the upside objective (between 78.81 and 79.20 on a weekly closing basis) to this recovery rally. This suggests that next Friday, Oil is likely to generate a red close even if it goes above last week's intraweek high this week. This resistance level is old but established and the fact that the bears were able to sell off about $1.50 in the last hour of trading to close at 78.90, is strongly suggestive that the resistance level is being supported at this time. There is no clear intraweek resistance above other than minor to perhaps decent between 81.80 and 82.15. To the downside, there is pivotal intraweek support at 74.27, which if broken would be a tangible sign that the recovery rally has ended. Probabilities slightly favor the bears.
DOLLAR continue to trade in the intraweek trading range it has been in for the past 6 weeks between 95.52 and 96.94, having gotten down intraweek to 95.63 and closing at 95.75. Once again, the Dollar closed on the low of the week and further downside below 95.63 is expected to be seen this week. There is short-term pivotal support at 95.52 and then nothing below until 95.03 and pivotal at 94.65. The only thing that was confirmed this past week is that further upside is going to require fundamental help that is not likely to be available in January. As such, the Dollar is likely to get into a trading range for the next month between 94.65/95.00 and 96.64 (based on intraweek trading. Nonetheless, for this coming week, the probabilities favor the bears.
BITCOIN made a new 15-week intraweek, daily and weekly closing low and closed near the low of the week, suggesting further downside below last week's low at 40570 is expected to be seen this week. This area is strongly pivotal for the short-term chart with important daily close support at 40664 and important weekly close support at 40171. A confirmed break of that area is likely to thrust it down to the 35000 level. The chart is leaning decently in favor of the bears, especially considering that a daily close above 46193 is needed to give the bulls a chance to recover. With Bitcoin making the intraweek low at 40570 today (Saturday) and not closing out the week until tomorrow (Sunday at 12:00pm), there is still a possibility the break could come this week. Probabilities favor the bears.
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Stock Analysis/Evaluation
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CHART Outlooks
The indexes are likely to be under pressure this week but on a limited basis as the earnings season starts on Friday. As such, I have one sell mention that is likely to be filled at the beginning of the week and one buy mention that is likely to be filled near the end of the week. Both of these mentions are short-term plays that may only be working for 1-3 weeks at most.
SALES
LNG is a stock in the energy market and given that Oil reached its weekly close upside objective on Friday but should see some intraweek appreciation at the beginning of the week. The stock is likely to give a good entry point at the beginning of the week and likely reach its downside objective near the end of the week or the week after.
LNG generated a new 13-week intraweek and weekly closing high and did close near the high of the week, suggesting further upside above last week's high at 110.23 will be seen this week. Nonetheless, it should be noted that the $110 level has been an established intraweek resistance on 2 prior occasions (up to 110.30 on the 2nd week of November and again up to 109.95 on the last week of November. On those two occasions, the stock generated a negative reversal week but on this occasion, the stock closed green, meaning that intraweek resistance area is likely to be broken. The all-time intraweek high is at 113.40 and the all-time weekly closing high is at 110.49. As such, it is likely that the stock will get up to at least 110.49 but not above 113.40.
To the downside, LNG gapped up on Tuesday between 103.02 and 103.37 and there was no news to support the gap, suggesting that closure of the gap is likely to occur unless a new gap is generated in conjunction with a new all-time high made. Intraweek support is found at 100.39 and pivotal at 97.85.
The all-time daily closing high in LNG is at 111.51 and if the stock gets above last week's high, it is likely to test that area before selling appears. As such, the desired entry point will be anywhere between 110.49 and 111.51. Stop loss will be placed at 113.50 and downside objective will be at least the 101.35 level (based on support found on the intraday chart). Such a trade will offer a 3-1 (or better) risk/reward ratio.
My rating on the trade is a 3.5-1 (based on a 1-5 rating with 5 being the highest).
PURCHASES
QQQ generated a big down move last week and closed near the low of the week, suggesting further downside below last week's low at 378.04 will be seen this week. There is short-term pivotal intraweek support at 377.47 that is likely to be broken on Monday and trigger stop loss selling and a drop down to the 200-day MA, currently at 363.36. In addition, there is an open gap between 360.69 and 363.01 that will become a magnet for closure if the stock breaks the support level, given that there is no support below and no reason now for the gap to remain unclosed.
If the gap is closed, there are two supports below. The first one is at 356.48, which if broken would likely thrust the stock down to the 350.32 level which is pivotal support. A break below 350.32 would be a longer term negative and would confirm that a major top has been formed. It is unlikely either of those supports will be broken, especially since a break of either of those supports would also suggest that the MA has been broken decisively as well. As such and for a purchase, QQQ can be purchased around the $360, using a stop loss at 356.38 and having a 382.78 level as the upside objective. As such, the risk/reward ration would be 6-1. My rating on the trade is a 4-1 (on a scale of 1-5 with 5 being the highest).
Honetheless, consideration can also be given to shorting the stock on Monday on a small rally and considering the downside the same downside objective as the purchase mention. The rating on the short is lower as there is yet no firmly established resistance but considering that the stock is "likely" to break support, the 382.78 level is "likely to be" resistance. as such, the stock can be shorted on a rally to somewhere around 381.51-381.93 and using a stop loss at 382.88 and having a downside objective of 360.69 will offer a 14-1 risk/reward ratio, Nonetheless, the probability rating at thise time (and before the 377.47 level is broken, is only 2.75-1 (on a scale of 1-5).
As such, shorting QQQ on Monday around the closing price of 379.81 and using a stop loss at 382.88 and having a 360.69 objective will offer a 6-1 risk/reward ratio but the rating is 2.75-1 given the lack of dependability of the resistance level in play. The purchase toward the end of the week around the 360.69 level with a stop loss at 356.38 and the objective of 382.78 will offer a 6-1 risk/reward ratio but the rating jumps up to 4-1 (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 failed to generate follow through to the upside and ended up having a red week and a close near the low of the week, suggesting further downside below last week's low at 18.77 will be seen this week. Nonetheless, the stock has stayed above the 200-week MA, currently at 18.10, for the past 11 weeks and at this time it is unlikely that line will be broken. By the same token and if the 10-week intraweek low at 18.73 gets broken this week, a drop down to that level is a high possibility. Pivotal short-term resistance is found at 21.12 and midterm pivotal at 22.47. Wednesday's inflation report is likely to be a catalyst this week. Probabilities favor the bulls. BTZI generated a second inside week but and once again closed near the low of the week, suggesting that on an intraweek basis, further downside below last week's low at .038 will be seen this week. The stock has now established the .038-.04 level as decent weekly close support that is unlikely to be broken without some new negative fundamentals coming out. The sideways action seen the past 3 weeks has shown little interest in either direction. Then again, that I a positive as Bitcoin has been moving down and it has not affected the stock negatively. With Bitcoin sitting now at the pivotal 40000 level, something is likely to happen this week based on what happens to Bitcoin. Daily close and short-term pivotal resistance is found at .0585 and longer term pivotal at .08. Any daily close below .03 would now be a negative sign. CALM generated a new 9-month intraweek and weekly closing high and closed on the high of the week, suggesting further upside above last week's high at 39.42 will be seen this week. There is no intraweek resistance above until 40.83 and that is considered a minor to perhaps decent resistance. The 200-weeo MA is currently at 41.83 and that is a magnet now after the bulls have overcome 9 months of sideways trading and a lower than expected earnings report the previous week. On a daily closing basis, support is now found at 37.83. Probabilities favor the bulls. CHUY generated a negative reversal week, having made a new 6-week intraweek high at 32.14 and then turning around to close red and on the low of the week, suggesting further downside below last week's low at 29.60 will be seen this week. The weakness seen is likely due to the general market weakness see this past week but in essence, this move down is likely to become the needed/required retest of the 52-week low made the 2nd week of December at 26.42. That 26.42 low became a successfully test of the 200-week MA (currently at 26.50) and that successful retest must now also be successfully retested before the traders turn into new buyers. A drop below last week's low would be sufficient to make it into a successful retest, if and when the stock goes above the week's high the following week. Important and short-term pivotal intraweek support is found at 28.27, which if broken would weaken the chart. Minor but likely short-term indicative intraweek resistance is found at 30.34 and then shot-to-mid-term pivotal at 32.15. Probabilities favor the stock having a trading range this week between 28.67 and 31.43. ENG continued low and generated a failure signal, having closed below the breakout price level at 1.28, which was broken to the upside 14 months ago and that took the stock up to the $9 level. The failure signal is a negative but needs to be confirmed this week before it become a new negative factor. The fundamentals do strongly suggest that the failure signal will be negated due to the "fact" that the stock has a book value of $1.37 and therefore is properly valued at this price. Daily close resistance is found at 1.63 and at 1.78. On a weekly closing basis, a close above 1.70 would generate a failure signal against the bears as well as a close above the 200-week MA, currently at 1.60. Any daily close below 1.23 would now be a new negative. Probabilities do favor the bulls this week. FSLR generated a negative reversal week, having gone above the previous week's high and then closing below the previous week's low. The stock did close in the lower half of the week's trading range, suggesting further downside below last week's low at 81.10 will be seen this week. Nonetheless, the stock has now generated 10 red close weeks in a row and has fallen 34.2% from the high made the first week of November and has reached a level of important weekly close support between 80.00 and 82.95. This a support level that likely requires "new" negative fundamental news to break and it is unlikely that further downside will (or can) occur until the earnings report comes out on February 4th, and then only if further weakness is seen in the clean energy sector. Intraweek support is found at 78.93, which if broken would open the door for a drop down to the $74 level. Last week's high was 91.36 and the 200-day MA is currently at 91.39, and that is likely why the stock reversed this week. Probabilities do favor a return to that line as some point between now and February 4th when the earnings report comes out. The stock is showing some short-term daily close resistance at 85.76, which if broken would give the bulls a short-term edge. Probable trading range for this coming week is $80 - $86. IDCC generated a negative reversal week, having made a new 7-week intraweek high and then closing red and near the low of the week, suggesting further downside below last week's low at 68.91 will be seen this week. Nonetheless, the stock has been trading totally sideways for the past 22 weeks between $65 and $75 and it is unlikely that will change before the stock reports earnings on February 3rd. Intraweek support is found at 67.43 and resistance at 72.88. It is likely this trading range will be in effect until the earnings report comes out. NEM 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 57.87 will be seen this week. Nonetheless and other than the bulls failing to confirm the breakout above the 200-day MA, currently at 60.83, no chart damage occurred. The stock remains sensitive to what Gold does and Gold is supported around these levels. The chart suggests the stock will be trading between 57.16 and 60.83 for the next couple of days and then depending on the inflation report, a breakout or a breakdown is to occur. A rally above the recent high at 62.18 would be a breakout of note, while a drop below 57.16 would weaken the chart. Probabilities slightly favor the bulls. RBLX has dropped 41.7% in price over the past 7 weeks and the downtrend is likely to continue, having made a new 8-week intraweek low and a new 9-week weekly closing low. The stock closed near the low of the week and further downside below last week's low at 82.58 is expected to be seen this week. The stock did generate a 2nd failure signal, having closed below a previous high weekly close from September at 87.88, and closed near the breakout weekly close resistance at 83.92 (closed at 84.37 on Friday), that would nullify the entire rally to 141.60 if a close next Friday below that level occurs. Pivotal intraweek support is found at 76.83 but any daily close below 83.92 would increase the probabilities of a drop down to that level, meaning a daily close stop loss at 83.82 should be used. This is a volatile stock that likely has a strong future as its premise is new and popular from the perspective of social media. Probabilities favor a positive turn around this week. SNDL generated a green weekly close that suggests that the 56-week low at .564 has now been retested successfully with the previous week's close at .578 (closed on Friday at .595). Nonetheless, the stock remains trading sideways as the bulls have not yet been able to make any kind of a statement. The stock needs to generate a close above short-term pivotal daily close resistance at .67 in order to generate new buying interest. Any daily close below .56 would generate new selling interest. Probabilities slightly favor the bulls. SRUTF generated a failure signal against the bears, having closed above the previous low weekly close at .028 on Friday (closed at .029). On another positive note, the stock did generate a signal that a bottom is now in place, having closed on Wednesday above a daily close resistance at .0309 (closed at .0319), meaning that the sellers have lost their edge. The stock closed in the middle of the week's trading range, suggesting equal opportunity of going above last week's high at .034 than go below last week's low at .0236. Nonetheless and based on what happened this week, the probabilities favor the bulls. A new low below .0203 would be a new negative. A rally above .0505 would give short-term control back to the bulls. ZLAB generated a new 21-month weekly closing low and closed near the low of the week, suggesting further downside below last week's low at 53.16 will be seen this week. The stock gave another failure signal on the weekly closing chart, having closed below the original weekly close breakout point from February 2020 at 60.53, that does effectively erase the rally up to the $195 level that occurred a year ago. The intraweek low seen 4 weeks ago at 49.21 was not broken and remains as the only possible support level of any consequence left. If broken, the chart will likely suffer irreparable damage for the long term. As it is, the break of 60.53 will need to be reversed this week or the same chart damage will apply. The weakness seen this past week is unexplained given that on Thursday it was announced that their breast cancer treatment was approved by the Chinese government. The stock is teetering on the brink of obscurity with this week (and the intraweek low seen 4 weeks ago) being the open opening for some recovery to occur. The company reports earnings on February 7th but that is 4 weeks away and unless that report is unexpectedly better than expected, the chart action this week will determine what the stock does for the midterm. Short-term intraweek resistance is found at 66.83 and midterm pivotal resistance is found at 73.85. Probabilities slightly favor the bears but this is an important week.
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1) SNDL - Averaged long at .905 (2 mentions). No stop loss at present. Stock closed on Friday at .596. 2) CHUY - Averaged long at 30.75. Stop loss now at 28.40. Stock closed on Friday at 29.60. 3) SRUTF - Averaged long at .0738 (3 mentions). No stop loss at moment. Stock closed on Friday at .0293. 4) BTZI - Averaged long at .0935 (4 mentions). No stop loss at present. Stock closed on Friday at .0387. 5) ZLAB - Averaged long at 113.081 (5 mentions). No stop loss at present. Stock closed on Friday at 55.08. 6) AU - Averaged long at 26.106 (6 mentions). No stop loss at present. Stock closed on Friday at 19.85. 7) NEM - Averaged long at 60.137 (4 mentions). No stop loss at present. Stock closed on Friday at 59.43. 8) ENG - Averaged long at 4.0325 (4 mentions). No stop loss at present. Stock closed on Friday at 1.25. 9) MRGE - Purchased at .28. No stop loss at present. Stock closed at .01 on Friday. 10) CALM - Purchased at 34.99. Stop loss at 33.65. Stock closed on Friday at 38.88. 11) IDCC - Averaged long at 69.475 (2 mentions). Stop loss at 65.69. Stock closed on Friday at 69.18. 12) RBLX - Purchased at 86.35. Stop loss at 83.92 on a stop close only basis. Stock closed on Friday at 84.37. 13) FSLR - Purchased at 81.98. Stop loss is at 81.26. Stock closed on Friday at 84.68. 14) QQQ - Purchased at 380.29. Liquidated at 280.97. Profit on the trade of $68 per 100 shares.
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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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