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Issue #802 
February 26, 2023 , 2022 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bears get the edge. Inflation not slowing down as fast as expected!
DOW Friday closing price - 32816
After 3 weeks of sideways trading, the bears were finally able to generate movement to the downside. The inflation figures that came out this week showed that inflation is not coming down as was believed earlier and that gave the bears some new ammunition. Nonetheless, the gains made by the bears was limited, given that the only thing that was accomplished was a drop down to the 200-day MA, which under normal trading conditions is something common and expected and without meaning a trend change. By the same token, the new 4-8 week intraweek lows that were made last week, did confirm that the momentum to the upside has ended and that the traders will now fully depend on the economic reports due out over the next 2 weeks for direction.
The SPX and the NASDAQ did get down to their respective 200-day MA's (SPX at 3940 - got down to 3943 and NAZ at 11904 - got down to 11900) but the DOW did not, given that the line is presently at 32346 and the low last week was 32643. By the same token, the DOW did make a new 8-week intraweek low and the other indexes only made a new 4-week intraweek low, meaning that the dichotomy that had been favoring the DOW is no longer in place. This move down is being experienced across the board.
The indexes did rally on Friday to close out the day in the upper half or near the highs of the day trading range, suggesting the first course of business for the week (on Monday) will likely be to the upside and above Friday's highs. If that occurs, it will mean that the MA's have been tested successfully and that will give the bulls a chance to generate additional buying interest, if and when there the news does not get worse. By the same token, the fundamental picture is now slightly favoring the bears. Last week, Morgan Stanley stated that the indexes could see further downside with the possibility of seeing as much as a 26% additional drop. As such, the fundamental picture remains clouded and with no tangible answers until March's economic reports start to come out. On Wednesday, the ISM index report is released. It is expected to come out at 48% (last month's was 47.4%). A number above 50% would give ammunition to the bulls and a number below 47% would do the opposite. On Friday March 10th, the Jobs report comes out and on Tuesday March 14th, the CPI report comes out.
It is unlikely at this time (until these reports come out) that the bears will have much success. As such, the question will be "how much can the bulls accomplish this week?". The answer to that question is in the charts and using Thursday's highs. In the DOW, Thursday's high was 33272, in the SPX it was 4028 and in the NASDAQ it was 12227. A break of those levels will offer the bulls further upside up to 33437 and perhaps even up to the 34000 in the DOW, up to 4100 in the SPX, and up to 32568 in the NAZ. With no news until Wednesday, the bulls are likely to have the edge on Monday and Tuesday. If they don't and last week's lows are broken at the beginning of the week, selling is likely to increase exponentially.
It does need to be kept in mind that all of the indexes closed near the lows of the week on the weekly chart and as such, the probabilities do favor further downside below those lows being seen this week. As such, the bears do have an overall edge at this time, meaning that the burden of proof lies in the shoulders of the bears. Evidently, the ISM index report on Wednesday could be somewhat catalytic.
To finish it all off, Tuesday is the end of the month and as such, the monthly charts are in play. The SPX and the NASDAQ are having a negative reversal month, given that they made a new 5-month intra-month high and are presently trading red. The NASDAQ closed last month at 12101 and that is only 132 points above Friday's high, meaning that the traders will be looking at that level on Tuesday to see if the negative reversal month gets instituted or not. All indexes though, are going to close either in the lower half of the month's trading range or near the lows, suggesting that if the economic reports are not substantially better than expected (unlikely), further downside below this month's lows will be seen in March. Simply stated, the onus is squarely on the shoulders of the bulls.
If and when the bulls cannot pull off a miracle over the next 12 trading days, the downside outlook based on the monthly charts is somewhat bleak. There is no downside intra-month support on the monthly chart in the DOW until 29653 is reached. In the SPX, the intra-month support level is at 3636 and in the NASDAQ it is at 11093. Such drops would mean an additional 8-10% correction would occur from Friday's closes. Keeping in mind that it is usually normal for some type of down move of consequence to be seen in the first 6 months of the year, this move down would not be a surprise on a seasonal basis. With the fundamentals being on the negative side this year, it is possible that a big down move is "in the winds". It is likely that the reports over the next 2.5 weeks will be the deciding factor.
OIL bulls were unable to break the pattern of sideways trading that is now in its 12th week. The sideways trading pattern, based on weekly closes, has been between $71 and $81 since the last week of November and at this time, it looks like it will continue for another few weeks. Oil did generate a negative reversal week, having gone above the previous week's high and then closing red and near the low of the week, suggesting further downside below last week's low at 75.06 will be seen this week. There is intraweek support at 72.64 that should hold up unless the momentum and recent bearish news is strong enough to break it. If that support level holds up, a rally back up to the $79-$80 level will likely be seen. If that support does not hold up, then a visit to the $70 level will likely be seen. At this time and because there are very few possible catalysts scheduled to be released over the next 2 weeks, the probabilities do not favor any big moves being made in either direction. Nonetheless, if by any chance Oil gets below 70.00 or above 81.50, a $4-$5 move would likely be seen in whatever direction is broken.
DOLLAR continued its recovery, having made a new 5-week high, closing green, and in the upper half of the week's trading range, suggesting further upside above last week's high at 104.67 will be seen this week. Nonetheless, there is established intraweek resistance at 105.00, meaning that the bulls will be running into a resistance level where selling interest will be found. With no economic reports of consequence due out for another 2 weeks and most everything trading sideways, the probabilities do favor this resistance holding up. This is especially true given that the Dollar made a new 9-month intraweek low a few weeks ago and there have been no positively catalytic changes of fundamentals coming out, meaning that a retest of that level is a high probability, before any further concerted buying interest is seen. On a daily closing basis, pivotal resistance is found at 105.04 and pivotal support is found at 101.22. On a short-term basis, there is support at 103.22, which if broken would mean that the retest of the recent lows has begun. It is likely that for this week, the Dollar will trade between 105.00 and 103.49, with the former being seen early in the week and the latter late in the week.
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Stock Analysis/Evaluation
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CHART Outlooks
I do believe that purchases in the Chinese market stocks is what will be available this week or next. The HSI index closed at the 20,000 level and though there is some support there, the stronger support is between 19175 and 19316, which mean an additional 3-4% drop. In looking at the two stocks that were previously purchased (BABA and LI), both charts seem to suggest further downside with the former suggesting a drop of about 9% will occur and the latter a 5% drop will occur. As such, those are the two mentions I am giving this week. Both of the mentions though, do require that they reach the desired entry points below in order to be done.
I also believe that Gold will be finding a bottom to this correction this week and as such, Gold stocks are an attractive purchase for a trading range scenario).
PURCHASES
BABA Friday Closing Price - 89.00
BABA (same industry as in Google) has proven to be a volatile stock. Over the past 19 weeks, the stock has moved up from a low of 58.01 to a high of 121.30 (more than doubled in price) and is now back down to 89.00. Last week, the stock had a trading range of $12 (from high to low).
BABA has built a strong support base that spans the intraweek area between 73.29 and 81.07 but on a daily closing basis, the area of support is between 76.79 and 81.07 and on a weekly closing basis, it is between 85.65 and 76.71. Simply stated, there will be chart buying interest seen beginning with a $3-4 move below Friday's closing price. The chart suggests the stock will be in a trading range between $80 and $120 for the next 3 months but there are 4 analysts that are presently following the stock that state that the stock is in an uptrend and their stated upside objectives are between $130 and $160.
BABA does have quite a bit of established resistance between $122 and $125 but it can be said that there is a triple high in that area and that does suggest that at some point in the not too distant future, that area will be broken.
As far as support and given that the stock is volatile, the preferred entry point into the trade will be around the $81 level but if the stock shows a fair amount of buying interest around the $85-$86 level, it might be necessary to move up the desired entry point. This also depends on the HSI index and where the stock is, as to when the Chinese market reaches the 19300 level.
At this time, purchases of BABA around the 81.00 level and using a stop loss at 76.65 and having a $120 objective, offers a 9-1 risk/reward ratio. My rating on the trade is a 3.5-1 (on a scale of 1-5 with 5 being the highest.
LI Friday Closing Price - 23.23
LI is in the electric car industry (like Tesla) and it has also run the gamut of price over the past year, having shown a high of 41.49 and a low of 12.52. It does need to be mentioned that an article came out this week that Tesla has been slipping within its own industry due to Elon Musk not dedicating himself on the company as much as he dedicates to Twitter. This means that other companies in the industry are seeing more opportunities to expand than normal.
LI recently got up to an established but somewhat minor area of weekly close resistance between $25 and $26 that did stop the run up from 12.52 (got up intraweek to 27.48) but has now backed off to last week's low at 23.06. The stock closed on the low of the week and further downside below that level is expected to be seen this week.
As far as intraweek support is concerned, LI shows important and pivotal support at 17.90, which should not be broken unless some new and negative news comes out (unlikely). There is presently established intraweek support at 22.16 and lesser but also established at 20.50 and at 17.83. The daily chart suggests that a drop down to the 21.52 level will be seen and the weekly chart suggests that a drop down to the 20.50 level will occur.
To the upside, LI does now have intraweek resistance at 27.48 but above that, there is open air up to the 31.95 level and given that the stock is in a midterm uptrend, I would say that level will be the objective.
Purchases of LI between 20.50 and 21.52 and using a stop loss at 17.68 and having an objective of 31.95 offers a risk/reward ratio of anywhere from 2.5-1 to as much as 4.7-1 (depending on the entry point achieved. My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
NEM Friday Closing Price - 43.54
NEM recently rallied from a low of 37.45 to a high of 60.08, though in reality, both of those levels were 1-week spikes. The reality is that the stock has established weekly close support at 40.74 and established weekly close resistance at 54.35 and the chart strongly suggests that the stock will continue to trade in that trading range for the next couple of months, with a bigger chance of breaking out than breaking down due to the inflation issue.
NEM is now showing 6 weeks in a row of red weekly closes but is reaching a level of support where a bounce is expected to occur. It also needs to be mentioned that the recent low at 37.45 has never shown a successful retest of it, meaning that this move down is likely to be that required/needed retest.
The intraweek chart shows two areas of support, with the first one being at 42.88 (minor) and the other being around the 40.00 area (decent to strong). The stock did close on Friday near the low of the week, suggesting further downside below last week's low at 43.19 will be seen this week. As such, the probabilities are high that 42.88 will be reached this week. With Gold being within $20 of its support level, how low NEM gets down to (between 40.00 and 42.88) will likely decide the entry point into the trade.
With Gold highly likely to be in a trading range between $1800 and $1875, it is likely that NEM will also be in a trading range as well. As such, the recent 54.35 weekly closing high is not likely to get broken, though it could be reached given that the intraweek high was at 60.08. The stop loss on this trade will be at 39.65.
Purchases of NEM between 40.30 and 42.88 and using a stop loss at 39.65 and having a 54.35 upside objective, offers a risk/reward ratio of anywhere from 3.5-1 to a high of 21-1 (depending on the entry point). My rating on this trade is a 3.75 (on a scale of 1-5 with 5 being the highest).
I do want to say that these 3 mentions are not likely to be affected all that much if the index market heads lower, meaning that even if the outlook for the market is bearish, these purchases have a decent degree of probability of being successful.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
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CAT generated a positive reversal week, having made a new 6-week intraweek low but then closing green and in the upper half of the week's trading range, suggesting further upside above last week's high at 250.86 will be seen this week. The stock has been resilient since the beginning of the year but there is one good chart reason for that resilience and that is the fact that on the weekly chart, no retest of the all-time high at 266.04 has yet occurred. A successful retest of the high has occurred on the daily chart but on a weekly basis, each week has shown a lower high than the previous week, meaning no retest has occurred. A rally this week above last week's high would be considered a successful retest if the following week, the recent 7% down move from the high resumes. On the daily chart, there is short-term pivotal resistance at 252.14. If that level is broken, there is open air above to the gap area at 257.39. To the downside, the recent intraweek low at 241.65 is support, which if broken would further weaken the chart. Nonetheless, what the bears need/require to generate new sell interest, is a daily close below 232.52. Such a close would be a clear sign that the bulls have lost the edge. DOW generated a second red weekly close and closed near the low of the week, suggesting further downside below last week's low at 57.74 will be seen this week. The stock did generate a sell signal as well as a failure signal on the daily closing chart that does give the bears a short-term edge for a drop down to at least the $56 level. Nonetheless, the bulls still remain with the edge on the weekly and longer term chart as no negative signals have been given there as yet. As stated several times over the past few weeks, consideration can be given to covering the shorts as the stock nears the $56 level, given that at this time and present fundamental conditions, it will be difficult for the bears to get more downside than that. Then again, if the indexes begin to break down, that could easily change. ENG continued to show weakness, having generated another red weekly close (3rd in a row) and once again closing in the lower half of the week's trading range, suggesting further downside below last week's low at .74 is likely to be seen this week. Intraweek support is found at .71 but on a weekly closing basis, the .74 level is pivotal support. On a potential positive note for the bulls, the red weekly close was only by $.014 cents below the previous week's close and that suggests that the bears are running out of ammunition. There has been no new news coming out and this recent (last 3 weeks) 23% drop down in price has been basically technical in nature due to the stock getting up close to the 200-day MA, currently at 1.11, 3 weeks ago and not being able to punch through. The company reports earnings in 3 weeks and I do believe the stock will start to recover this week and move back to the .93 level during this period of time. The earnings report is likely to be catalytic. PLNHF continued higher as the stock generated another green weekly close (the 3rd in a row). The bulls were able to get up to the short-term pivotal resistance level at 1.00 but were not able to punch-through. Nonetheless, the stock did close near the high of the week (closed at .98) and further upside above last week's high at 1.02 is expected to be seen this week. Short-term pivotal intraweek resistance is found at 1.05. A break of that level would offer a short-term objective of 1.40. Nonetheless, there is further weekly close resistance from a previous low weekly close at 1.11, which also needs to be broken for the 1.40 level to become truly viable. Short-term pivotal intraweek support is now found at .85. The stock has now built a decent bottom support formation that favors a breakout, especially given that the fundamental picture of this company continues to be strongly supportive. SHOP generated a negative reversal week, having gone above the previous week's high and then closing red and below the previous week's low. The stock closed near the low of the week and further downside below last week's low at 42.72 is expected to be seen this week. The company reported lower than expected earnings and proceeded to drop down 20% in price. A gap down did occur on the daily chart that should be followed by another gap in the immediate future, if and when the earnings report is a sign of further downside occurring. As it is now and using both the daily and weekly closing chart, Friday's close at 43.61 is still above the previous weekly close breakout at 43.06 and above the previous daily close breakout at 43.40, meaning that the report may not be so negative as to immediately generate further downside of consequence. There is a gap below at 40.48 that should be closed on an intraweek basis, but if the bears are unable to generate a confirmed daily close below 43.40 this week, consideration should be given to taking profits. If a failure signal is given, the downside objective would then be the 200-day MA, currently at 36.13. With the entire market in a confused state and the bears unable to generate a failure signal against the bulls, if the stock does get down to the gap below this week, serious consideration should be to taking profits on the trade. TXT received good news this week, in the form of a contract signing with the U.S. Navy for one of their products. Off of the news, the stock was able to generate a green weekly close and near the high of the week, suggesting further upside above last week's high at 75.22 will be seen this week. There is pivotal intraweek resistance at 76.11, which if broken, would suggest further upside is to come. A stop loss at 76.35 should be in place this week. On the opposite side of the coin, if the bulls are unable to break above 76.11 and then head below this coming week's low the following week, a required/needed successful retest of the recent high will have occurred, and that would bring in new selling interest. As such, the next two weeks are chart pivotal for the stock. There is presently pivotal intraweek support at 73.04, which if broken, would likely offer a downside objective of $68. With the news being in the picture this week, it is difficult to evaluate what will happen. VET continued lower and made a new 58-week low and closed on the low of the week, suggesting further downside below last week's low at 13.30 will be seen this week. During its entire trading life (118 months), the stock has traded above the $13 level for a total of 96 months. I mention the $13 level because the stock never traded below that level until February of 2020, which is when the Covid-19 pandemic began to occur. The stock had dropped down to 13.01 on October 2019 and stayed above that level until February. During that time, a rally back up to the 16.83 level did occur. There has been no new news on the company since January when RBC announced that they had cut their price objective from $32 to $29, suggesting that this move down is more technical than fundamental in nature. As such, the probabilities do favor this area holding up and a rally back up to the $17 level occurring over the same period of time (3 months). Chart suggests that more than $17 could be seen as the resistance of note found at this time is up at $20. One additional support item is that the 200-week MA is currently at 12.75, and that line should not be broken without some tangible new negative occurring. As such, this stock is a buy this week around the 13.00 level and using a mental stop loss at 12.65. With a $17.00 objective (minimum), the risk per share is around $.35 cents for a profit potential of $4. That is about an 11-1 risk/reward ratio. VNET took a big fall this past week, having dropped from a high of 6.46 to 4.07 (37% drop) on this week alone. I have not found any piece of news as to why it happened but common sense would point to some problems popping up in the proposed merger at $8. The stock did get down to the pivotal intraweek support at 4.07 and bounced up from there to close on Friday at 4.53. The stock did close in the lower half of the week's trading range, which would normally suggest further downside below 4.07 will be seen but given the lack of news and the fall not being chart-oriented, it is possible that an inside week occur. This fall does erase/negate all the gains made for the past 17 weeks and does suggest that the reasons for holding on to the stock have mostly gone away. If the 4.07 level does not break, the chart does suggest that a rally back up to the 200-day MA, currently at 5.47, will likely occur. I am averaged long at 5.32 and if that happens, I will likely get out and scratch out the trade with a little gain or very little loss. X generated a reversal week, having gone above the previous week's high but then closing near the low of the week. The stock still generated a green weekly close but then only barely (28.02 vs previous week's close at 27.95) The stock did close near the lows of the week, suggesting further downside below last week's low at 27.51 will be seen this week. Short-term pivotal intraweek support is found at 27.14, which if broken would open the door for a drop down to the $25 area. In looking at the daily closing chart, a confirmed daily close below 27.20 would suggest that the 200-day MA, currently at 23.41, would be the target. Short-term pivotal resistance is now found at 30.42. ZLAB generated a negative reversal week, having gone above the previous week's high and then below the previous week's low. The stock closed near the low of the week, suggesting further downside below last week's low at 36.43 will be seen this week. Nonetheless and with all those negatives mentioned above, the stock closed only $.38 cents below a short-term pivotal resistance level at 37.76 (previous high weekly close that when broken took the stock up to $53). Given that the fundamental picture is still positive for the company, it is possible (perhaps even likely) that the stock will turn around this week and close green next Friday. As it is, the stock made the low of the week on Wednesday and the bears were unable to make any new lows thereafter. It should also be mentioned that the 200-day MA, is currently at 36.61 and that line did not get broken on a daily closing basis at any time this week. The stock did have a low daily close for the week at 37.12 and if the bulls are able to generate a daily close above 40.39 on any day this week, that will mean the MA will have been successfully tested. The magnet to the downside that has been giving the bears ammunition is the open gap down at 33.94. If that gap does not get closed and a new buy signal is given (close above 40.39), it will be a "strongly bullish" event 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 37.38. 2) X - Shorted at 28.87. Stop loss now at 31.44. Stock closed on Friday at 28.02. 3) ENG - Averaged long at 3.378 (5 mentions). No stop loss at present. Stock closed on Friday at .779. 4) VNET - Averaged long at 5.32 (2 mentions). No stop loss at present. Stock closed on Friday at 4.53. 5) SHOP Shorted at 49.72. Stop loss now at 51.82. Stock closed on Friday at 48.30. 6) CAT - Averaged short at 211.9675 (4 mentions). No stop loss at present. Stock closed on Friday at 247.67. 7) LI - Liquidated at 27.03. Loss on the trade of $1960 per 100 shares (4 mentions). 8) DOW - Averaged short at 51.36. No stop loss at present. Stock closed on Friday at 59.82. 9) VET - Purchased at 20.38. No Stop loss at present. Stock closed on Friday at 14.78 10) TXT - Averaged short at 70.77 (2 mentons). Stop loss now at 75.35. Stock closed on Friday at 73.78. 11) PLNHF - Purchased at .90. Averaged long at 1.91 (2 mentions). Stock closed on Friday at .91.
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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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