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Issue #823 
August 06, 2023 , | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Index Market set to begin a corrective phase.
DOW Friday closing price - 35065
The indexes all generated short-term indicative red weekly closes and all closed on the lows of the week (DOW at 35033, SPX at 4474, NASDAQ at 15258, and RUT at 1949), suggesting that further downside will be seen this week. The fact that this happened on a week where important earnings reports came out much better than expected and those stocks rallied strongly (CAT and AMZN) does strongly suggest that what is happening is an overdue correction from the highly overbought condition that the indexes were at.
There was a catalyst that got the correction started and it was the downgrade from Fitch from a AAA to a AA status of the U.S. credit. Such a downgrade means that fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations, threaten the government's ability to pay its bills. It is a potential (not imminent or tangible) problem that did pour cold water over the minds of the bulls regarding the upward "runaway freight train" condition that has been seen over the past few weeks and that has forced them to treat the market in a "normal" trading way from here on in.
With the first 3 weeks of the earnings quarter now over and all the important economic reports (with the exception of the CPI report) out, the traders are now likely to treat this market in a normal way and that is through charts. As such, there are now clear downside targets that are likely to be reached this week or the next. In the DOW, there is no established intraweek support found on the weekly chart until the 34000 level is reached. There is support there and on down to 33613. In the SPX, there is open air down to 4278 and in the NASDAQ, there is open air down to 14455/14378. On a weekly closing basis, the supports are at 34326, at 4357 and at 14791, respectively. These support levels have a decently high probability rating of being reached but in no way would mean that the bull market run is over. These levels are simply chart levels where automatic computer and algorithm support will appear.
To the upside and on a daily closing basis, resistance will be found in the DOW at 35276, in the SPX at 4536 and in the NASDAQ at 15448. With all of those levels being somewhat close to Friday's closes, it does suggest that for this coming week, it is likely to be mostly red.
For the time being and likely for the next 3-6 weeks (until the next set of important economic reports come out), this market is likely to trade technically and not based on any fundamental factors and that means chart support and resistance levels will be used and likely respected. If any of those are broken, a new evaluation of the charts will need to be made.
OIL generated a buy signal on the weekly closing, having closed on Friday above the highest weekly close since November at 82.52 (closed at 82.82). Nonetheless, the buy signal was not confirmed on the daily closing chart or in the the intraweek chart as the 9-month intraweek high is at 83.53 and the 9-month daily closing chart high is at 83.26 and the intraweek high last week was 83.24 and the daily closing high last week was 82.82. By the same token, Oil did close near the high of the week and likely will go above last week's high at 83.24 this week, meaning that the probabilities do favor a breakout of resistance occurring. Then again and at this time, the bulls have a bit more to do before it is said that this breakout is significant and not only be a clear signal that the downtrend is over. There is intraweek resistance at 85.39 (84.65 on a daily closing basis) that would need to be broken, in order to say that a short-to-midterm breakout has occurred. If that does occur, there would be open air above to the $91-$92 level. Pivotal intraweek resistance is now found at 78.69 (79.49 on a daily closing basis). The probabilities favor Oil trading for the next few weeks between $79 and $85.
DOLLAR generated a failure signal against the bears, having closed on Friday above 2 previous low weekly closes of some consequence at 101.03 and at 101.67 (closed at 102.02). This does suggest that the downtrend that started in October of last year has ended. Nonetheless, the bulls did not do anything that would suggest that the bull market has returned. As such, the Dollar is likely to find itself in a sideways market for the next few weeks, between 101.01 and 103.34.
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Stock Analysis/Evaluation
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CHART Outlooks
The index market is likely to be in a corrective phase and as such, the only thing that can be done this week, with any amount of confidence, is shorting stocks. Nonetheless, the only short positions that can be considered at this time are those that have already reported earnings and that still have clear resistance levels above. Below, you will find one stock that fits the requirements perfectly.
Due to the fact that I am already short 4 other stocks, all of which are at a loss, I will only be looking to put on 1 more short trade.
DD is a DOW stock that did make a new 16-month intraweek high the previous week after the company reported earnings. Nonetheless, the high made was right around an intraweek, daily close, and weekly close resistance area at $78 that spans 3 years and that has stopped rallies on 5 different occasions over that period of time. The intraweek high made on July 27th was 78.74 and the daily closing high was 77.81, which does create a resistance area of strong note given that over the past 2 years and on a daily closing basis, the stock has closed at 78.30, at 78.07, at 78.00, at 77.79 and 10 days ago at 77.81. From this area, the minimum drop seen was to the 69.07 area.
Last week, DD was supposed to go above the previous weeks high at 78.74 but it failed as the high was only 78.66, meaning that it generated an inside week. The stock then proceeded to close very slightly lower than the midpoint of the week's trading range (midpoint was 77.08 and it closed at 77.03), suggesting a very slightly higher probability of going below last week's low at 75.31 than above last week's high at 78.66. The failure to follow through to the upside, the fact that it reached a resistance level of note and the fact that the DOW is likely to be heading lower, does make this a very attractive short trade.
To the downside, DD does show some intraweek support between 71.96 and 71.46 but it is considered minor support. Below that, there is no intrawek support shown until 66.83/66.62 level is reached. In addition, the 200-week MA is currently at 66.26, making that area the perfect chart objective for the trade. By the same token, the 200-day MA is currently at 70.02, which is a clear magnet that could stop the correction from going lower. Either way, both objectives offer a better than a 4-1 risk/reward ratio.
Sales of DD between Friday's close at 77.03 and 77.50 (and above if possible) and using a stop loss at 78.84 and having a minimum downside objective of 70.02 will offer a 3.9-1 risk/reward ratio. My rating on the trade is a 4 (on a scale of 1-5 with 5 being the highest).
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Updates
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| Monthly & Yearly Portfolio Results
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Closed Trades, Open Positions and Stop Loss Changes
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Status of account for 2007: Profit of $9,758 per 100 shares after losses and commissions were subtracted. Status of account for 2023, as of 7/1 Profit of $8,703 using 100 shares per mention (after commissions & losses) Closed out profitable trades for July per 100 shares per mention (after commission)
CAT (short) $403
Closed positions with increase in equity above last months close minus commissions. ATNI (long) $86 Total Profit for July, per 100 shares and after commissions $489 Closed out losing trades for July per 100 shares of each mention (including commission)
NONE
Closed positions with decrease in equity below last months close plus commissions. CAT (short) $966 Total Loss for July, per 100 shares, including commissions $966 Open positions in profit per 100 shares per mention as of 8/1
PAAS (long) $258
Open positions with increase in equity above last months close.
VET (long) $342 PLNHF (long) $25 TCEHY (long) $345 VWDRY (long) $14 SNDL (long) $60 ZLAB (long) $1030 BTZI (long) $30 Total $2,104 Open positions in loss per 100 shares per mention as of 8/1
CAT (short) $300
Open positions with decrease in equity below last months close.
LXRX (long) $28 Total $992 Status of trades for month of July per 100 shares on each mention after losses subtracted.
Profit of $635
Status of account/portfolio for 2023, as of 7/31
Profit of $9,338 per 100 shares.
AMZN reported earnings this week and they were much better than expected and the stock made a new rally high. The most important thing for the week and on the chart is that the stock closed convincingly above the 200-week MA, currently at 133.96, and that will now be seen as support. The stock did close in the upper half of the week's trading range and further upside above last week's high at 143.63 is expected to be seen this week. By the same token and based on the outlook for the week for the indexes, at some point during the week a drop back down to (or close to) the MA line is likely to be seen. Intraweek resistance is found at 146.57 and intraweek support is found at 133.57. At this time, it is unlikely that either will be broken. Nonetheless, if either is broken, it will change the outlook. The stock did close on the low of the day on Friday and further downside below Friday's low at 139.32 is likely to be seen. The immediate objective is a retest of the daily close breakout at 135.36. Consideration can be given to covering the shorts at that price. The stock is now showing a breakaway/runaway gap formation with the runaway gap being down at 129.84. Closure of that gap would be a big negative to the stock. This short position is now likely to be a losing trade and covering of the shorts at the best price possible is the objective.
CAT reported much better earnings than expected and made a new all-time high in a spike up fashion. Nonetheless, the stock did close in the lower half of the week's trading range, suggesting a higher probability of going below last week's low at 261.66 than going above last week's high at 293.88. As such and if that happens, the spike up high will become a top to the rally, unlikely to be broken anytime soon. The stock is highly overbought and has not seen any type of down move for the past 7 weeks. In addition, the stock has now rallied 43% since the last correction occurred and is way overdue to have one. One very important chart factor for this week is that the stock now shows a breakaway/runaway chart formation with the runaway gap being at 265.21. Closure of that gap would be a negative, especially if it comes with a daily close below 264.54. As such, consideration can be given to covering the shorts around the $266 level, which is where the stop loss was originally given. Nonetheless, this chart, with the possibility of a spike high top having been built and then closing in the lower half of the week's trading range, is open for a failure signal to be given if the DOW does continue lower to the objective at 34000. The likely best course of action is to cover the shorts on a drop down to (or hopefully below) the low made the day when the earnings report came out, which is at 270.50. Such a drop is likely to be seen on Monday or Tuesday at the latest. ENG generated another uneventful inside week (the 2nd in a row) but closed red and below last week's close by $.01 cent. The area between $.30 and $.40 continues to be pivotal. A close above or below one of those levels will generate movement. The company reports earnings on August 15th and it is unlikely that much will happen until then. LXRX reported earnings on Friday and they were slightly lower than expected. The stock then made a new 8-month low and reached an important and short-term pivotal intraweek support at 1.71 with a low of 1.74. Nonetheless, the bulls managed to rally and close on the high of the day, suggesting further upside above Friday's high at 1.87 will be seen on Monday. The stock closed in the middle of the week's trading range, suggesting equal chances of going above last week's high at 2.03 than below last week's low at 1.74. Nonetheless and based on the rally after the report came out, as well as the fact the pivotal support held up, does suggest the upside is likely to occur. A rally above 2.03 would creat open air above to 2.26. A break below 1.71 would open the door for a drop down to 1.31. The stock has seen 8 weeks in a row of red and the last time that occurred, on the 9th week a rally began to helped the stock appreciate 33% over the next 5-weeks. That would mean a rally up to the 2.31 level. There is no established resistance above until the 2.42 level is reached, meaning that it is a real possibility (probability?) that such a rally will occur. PAAS generated a negative reversal week, having made a new 12-week high but then turning down to close below the previous week's low. There is no support below until the 14.67 level is reached and with Gold also likely to head lower, it is likely the stock will get down to that level this week. It does seem that the Gold chart is favoring the bears for the midterm and as such, consideration should be given to liquidating the positions this week. The upside objective (o9n any rally) is now no more than 16.42 but then again, there is resistance at 16.17. As such, the probabilities favor the stock trading between 14.67 and 16.12 for the next week or two. PLNHF continued to trade in this .52.63 trading range that it has been in for the past 11 weeks. Nonetheless, it is trading near the low of the trading range, meaning that at this moment the bears have a better chance of a breakdown than the bulls of a breakout. The company does not report earnings until August 29th. By the same token, neither side has been able to do anything for the past 3 months and that scenario continues to be the most probable this week. TCEHY generated a negative reversal week, having made a new 7-week high but then turning red and closing on the low of the week, suggesting further downside below last week's low at 43.31 will be seen this week. Nonetheless, the stock has been in a trading range the past 8 weeks between 41.04 and 46.46 and until one of those levels gets broken, the stock will continue to trade sideways. On a possible positive note, the Chinese index chart seems to be suggesting that the correction is over and that a sideways trend is in effect, meaning that the stock might be in the same scenario. The 200-day MA is currently at 42.06 and the stock has stayed above that line for the past 7 months except on 1 occasion for a period of 5 days. TNC reported better than expected earnings and made a new 26-week high this past week. The stock came within $.60 of making a new all-time intraweek high but the bulls failed to accomplish it and the stock fell back 3.6% from the week's high. In addition, the bulls failed to close above 3 previous weekly close resistance levels at 85.35, 85.25 and 84.10 (closed at 83.71, suggesting the earnings report was not "good enough" to generate a new leg up in the uptrend. It does need to be stated that during the past 5 years, the stock has gotten above 84.92 on 5 different occasions and at no time have the bulls been able to get above the all-time high at 87.40. With the news now out and the indexes likely to get into a corrective phase, the probabilities favor the same scenario occurring. On those previous 5 occasions, the minimum drop was back down to the 70.14 level, meaning that if the bulls are unable to make a new all-time high, and especially if a red weekly close occurs next Friday, that would be the downside objective at this time. TOL made a new 4-week intraweek low this past week but did close on Friday in the upper half of the week's trading range, suggesting further upside above last week's high at 81.00 will be seen this week. Nonetheless, it has now been 4 weeks since the much better than expected earnings report came out that caused the stock to make a new spike-up all-time high, suggesting that time is running out on the bulls on making further upside gains. By the same token, the stock has not yet shown the needed/required successful retest of the all-time intraweek high at 83.72 and if the stock goes above last week's high and then fails, the necessary action for a top having been formed will be completed. The stock did generate a sell signal this past week on the daily chart, meaning the bulls have run out of ammunition to keep this "runaway freight train" going further. A daily close below 76.41 would push the stock to drop down to the previous all-time daily and weekly closing high at 74.61. A daily close above 80.64 could give the bulls back some of the edge they lost this week. VET announced better than expected earnings this past week and as such, broke the daily close resistance at 13.92 and both the weekly close resistance levels at 13.47 and at 14.13 (closed at 14.30). The stock closed near the high of the week and further upside above last week's high at 14.67 is expected to be seen this week. There is minor intraweek resistance at 15.72 but the upside objective of this rally is likely to be the 17.87/17.96 level, which is the level where the breakdown occurred and the subsequent retest of that level. By the same token, such a rally could take as much as 6 months to be accomplished. The 13.47 level, on a weekly closing basis, is now pivotal support. For this coming week and on a daily closing basis, it is likely that the stock will reach the 200-day MA, currently at 14.98 and then fall back to the 13.65/13.93 level thereafter over the next 2-3 weeks. VWDRY generated a new 3-week low and closed near the low of the week, suggesting further downside below last week's low at 8.61 will be seen this week. Nonetheless and using the weekly closing chart, the stock only closed $.11 cents lower than last week and no support levels were broken. With the stock reporting earnings on August 16th, it is unlikely that either side will attempt to do anything until that report is out. There is pivotal intraweek support at 8.48, which was an 8-month low and therefore if that low is not broken and a green weekly close occurs next Friday, the chart will be set up for the earnings report to generate further downside or a recovery rally. For this week, the bears have the edge but if they are not able to do something of consequence at the beginning of the week, a rally will likely occur toward the end of the week. The 200-day MA is currently at 9.09 and it is pivotal resistance. ZLAB bulls failed to generate follow through to the upside (as was expected) and a such, the bears got the edge and made a new 3-week low. The stock did close on the low of the week and further downside below last week's low at 27.12 is expected to be seen this week. The company does report earnings after the close on Monday and that will be a catalyst, especially at these prices. Pivotal support is at 24.98 and pivotal resistance is at 32.60. It is highly likely that one or the other will be broken on Tuesday. On a positive note, it is not the earnings that are important but the guidance for the future that is the key and recently the news on the company has all been positive. As such, I would venture to "guess" that the earnings report will a positive catalyst for the stock.
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1) ZLAB - Averaged long at 71.955 (6 mentions). No stop loss at present. Stock closed on Friday at 27.24. 2) ENG - Averaged long at 2.876 (6 mentions). No stop loss at present. Stock closed on Friday at .34. 3) VWDRY - Averaged long at 9.565 (2 mentions). Stop loss at 8.67. Stock closed on Friday at 8.70. 4) 5) ANTI - Liquidated at 37.46. Purchased at 36.29. Profit on the trade of $118 per 100 shares.
6) VET - Averaged long at 14.956 (3 mentions). No stop loss at present. Stock closed on Friday at 14.30.
7) CAT - Shorted at 262.17. No stop loss at present. Stock closed at 276.44 on Friday.
8) TCEHY - Purchased at 43.23. No stop loss at present. Stock closed on Friday at 43.50.
9) AMZN - Averaged short at 133.325 (2 mentions). No stop loss at present. Stock closed on Friday at 139.57.
10) TOL - Averaged short at 73.43 (2 mentions. No stop loss at present. Stock closed on Friday at 79.39.
11) TNC - Shorted at 81.20. No stop loss at present. Stock closed on Friday at 83.71.
12) PAAS - Purchased at 14.30. Stop loss now at 14.57. Stock closed on Friday at 15.45.
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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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