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Issue #817 
June 18, 2023 , | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| News all out. Signs of a top having been found are starting to be seen.
DOW Friday closing price - 34299
The indexes continued to climb as the NASDAQ has now gone up 7 out of the last 9 months and has recouped 76% of the loss incurred since the all-time high was made in November 2021 (18 months). Nonetheless and from a fundamental basis, the economy has not fundamentally recouped the same amount, given that GDP and job growth are still 50% below what they were when the all-time highs were made. As such, it can be thought that the indexes are now overdone to the upside.
From a chart perspective, the indexes have now arrived at the next area of established resistance levels, with the DOW getting up to 34588 and established resistance found at 34712, the SPX getting up to 4448 and established resistance found between 4502 and 4541 and the NASDAQ getting up to 15284 and established resistance found between 15265 and 15696. These resistance levels go all the way back to July 2021 and have proven to be highly effective on a repeating manner, suggesting that in order for them to get broken, the fundamental picture needs to get better. With no catalytic reports due out for another month and the reports that did come out the past 2 weeks already factored in and being generally lesser that the what was seen when these resistance levels were built, does suggest that further upside (from these levels) is going to be very difficult to accomplish for the bulls.
One additional potentially negative factor that is presently being seen is that the risk/reward ratio is now heavily in favor of the bears. The reason for this is that this recent uptrend, especially in the SPX and the NASDAQ has been straight up for the past 4 months and as such, no support levels of established value have been built. For example, in the SPX there is no established support below until the 3808 level is reached, and in the NASDAQ there is no established support level below until the 11695 level is reached. This means that the risk/reward ratios in favor of the bulls are negative and as much as -10-1. This does suggest that without additional positive fundamental help, the bulls are much more likely to take profits than do any additional buying.
The indexes all closed near the highs of the week, suggesting further upside above last week's highs (DOW at 34588, SPX at 4448 and NASDAQ at 15264 are expected to be seen this week. Nonetheless and as explained on the message board on Friday, there are exceptions-to-the-rule where the probabilities favor going above (or below) the previous week's high (or low) depending on where the close out on Friday. Over the past 3 years, there have been 4 exceptions to the rule (2 to the upside and 2 to the downside) where there was no follow through seen the week after. On 3 (of the 4) occasions, the failure to follow through resulted in several weeks going in the opposite direction, meaning that a correction-to-the-trend occurred, meaning it was a sign that the index were ready to generate a correction. As such, if the indexes fail to follow through to the upside this week, the traders will likely see that as a sign that a correction has started.
On an intraweek basis, the support levels to watch which would likely confirm that a correction has started are as follows: In the DOW a drop below 33783 would be such a sign. In the SPX that level is at 4337 and in the NASDAQ that level is at 14784.
Having said that, the probabilities still do favor the indexes going above last week's highs and if the DOW gets above 35712 and if the NASDAQ gets above 15696, the chart evaluation will change. The SPX does not have such a level until the intraweek resistance at 4637 is reached.
The indexes did generate a negative reversal day on Friday, suggesting further red will be seen on Monday. There are no economic reports of consequence scheduled for this week, meaning that the bulls will need to do something to the upside next week without any fundamental help. If they are unable to generate any rally by Wednesday, expectations will strongly increase that a correction has started.
OIL generated a positive reversal week, having made a new 6-week intraweek low but then closed on the high of the week, suggesting further upside above last week's high at 71.89 will be seen this week. OPEC announced additional production cuts, meaning that they are strongly attempting to support Oil at these prices or higher. With nothing of fundamental consequence happening elsewhere, it does suggest that for the time being they will be successful. There is short-term pivotal resistance at 74.43, which if broken would confirm that last week's intraweek low is the needed and required retest of the April low at 63.64, which in turn will give the bulls some ammunition for further upside. The chart is presently suggestive that Oil will rally up to the $81 level over the next few weeks and that the $70 level will now be support.
DOLLAR did go down this week and seemingly the recovery rally has ended. Nonetheless and like with everything else, the Dollar is likely to be in a trading range for the next few weeks. Any weekly close above 105.21 would be a breakout of note and any weekly close below 101.21, would be a breakdown of note. The Dollar closed at 102.24 on Friday.
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Stock Analysis/Evaluation
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CHART Outlooks
Even though no tangible and much less confirmed signals have yet been given that the top to the rally has occurred, there was enough chart action last week, especially on Friday, to believe that this market may now be heading down without any further upside, or at best minimal upside. As such, shorting the market at this time seems the best choice.
By the same token, it is unlikely that this market will be in a clear downtrend, meaning that it is a short-term trading market and not a sell-and-hold market. In addition and since no clear signal has yet been given, the probability ratings on any trade are going to be lower than normal, especially if shorts are placed this week. Last but not least, the shorts that I will be mentioning today will not have prime desired entry points, meaning that in some cases, a bit of "chasing" will be occurring. On the other side of the coin, the mentions given are all in stocks that are heavily traded and have enough movement over short periods of time, to give enough profits that make it worthwhile.
SALES
AMZN - Friday Closing Price - 125.49
AMZN is a mention that I have given for the past 2 weeks but has not gotten up to the desired entry point and therefore the short has not been instituted. As such, the mention given this week will be at a lower desired entry point and the stop loss will not be as dependable as it would have been if the stock had moved higher.
AMZN made a new rally high this week at 128.41 on Tuesday (desired entry point was 128.88 or above) but then failed to follow through on Wednesday, Thursday, or Friday. The high was tested successfully on Thursday and the stock generated a red close on Friday and near the low of the week, meaning that the probabilities now favor a high being made and therefore the stop loss will now be placed at 128.51. It will be a mental stop loss but if broken and the stock does not immediately (within a day) go back down, consideration to covering the short can be made.
As far as support is concerned, the downside objective for AMZN is quite clear as the stock started this recent rally from 101.15. Prior to that and all the way back to June of last year, the stock showed 4 intraweek lows at 102.41, at 101,26, at 101.43, and at 102.52 before a rally back up to 128.99 occurred. Simply stated, support is found around $101/$102 and resistance between $129 and $132. For a chart trader, and not even considering the possibility of a recession, trading this range is the thing to do.
Sales of AMZN above 126.00 and using a stop loss at 128.51 and having a 101.00 objective, offers at 10-1 risk/reward ratio. My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
TNC Friday Closing Price - 81.14
TNC is another mention that was given last week that did reach the desired entry point but also hit the stop loss point, meaning that if the trade had been done, a loss would have occurred. Nonetheless, this was one of the stocks where I mentioned that there were 2 possible scenarios to consider and if the first scenario did not work out, the second scenario should be considered. As such, this is the second scenario being given today. The first was not done.
TNC did make a new rally high this week and did close in the upper half of the week's trading range, suggesting further upside above last week's high at 82.07 will be seen this week. One of the reasons for the strength that has been seen is that the stock shows a breakaway/runaway gap formation that has fueled further upside. Nonetheless, the formation did reach the chart objective of 81.99 this past week, meaning that the formation has now lost any further value. The stock is reaching an area between 81.84 and 83.16 where decent intraweek and weekly close resistance is found. Resistance that should hold up if the market is to correct.
I did state last week and if stopped out on the first mention that TNC would likely get up to the 83.12 level but given what happened to index market this past week, getting up to 83.12 is not as likely as it might have been. As such, a lower entry point is to be considered. The objective will remain the same (70.40) but the risk/reward ratio is slightly lower.
Sales of TNC at 81.84 (or hopefully higher) and using a stop loss at 85.43 and having a downside objective of 70.40, will offer a 3.2-1 risk/reward ratio.
ORCL Friday Closing Price - 125.46
Shorting ORCL is a "gamble" as no chart signs have yet been given that any kind of a top has been found. Nonetheless and in reading some information about the rally seen, it seems likely that the stock is overdone to the upside. The rally has been all about the recent better than expected earning on June 12th and the recent furor over the AI (Artificial Intelligence) industry that has caused all stocks in the industry to rally strongly. Nonetheless, the present price is not fully supported by the fundamentals and more importantly, the company director (Jeffrey Berg) sold 4,866 shares on Thursday at 125.31, suggesting that even he (the director of the company) thinks the stock will not go higher. On the other side of the coin, many rating companies have changed their positions on the stock (from sell to neutral or from neutral to buy) and some have even given projections of the stock rallying up to $150.
ORCL did make a new all-time high 2 weeks ago (above 106.34) and that was strongly added to this past week with further upside up to 127.54. The stock has more than doubled in price over the past 9 months as it was trading at 60.81 in October of last year. The stock has seen 4 months in a row of green and 8 of the last months green as well, and the last 7 weeks on the weekly chart have all been green as well. On Friday though, no follow through to the upside was seen as the stock had an inside day but a red close and on the low of the day, suggesting that the first course of action for the week (on Monday) will be to the downside. It should be mentioned that the same kind of chart action has been seen in the index market, regarding the amount of green months, meaning that if the index market has started a correction, the stock should do the same.
The stock did gap up immediately after the earnings report, from 110.25 to 114.34. That gap is highly likely to be tested at some point. The previous all-time weekly closing high is at 102.63, meaning that if the market is in a corrective phase, that will be the target of the mention.
Make no bones about it, this trade is a "gamble". Nonetheless, the risk/reward ratio is very good and there are several reasons (mentioned above) that would show that this is a gamble with a fair degree of chance of success.
Sales of ORCL around Friday's close and using a mental stop loss at 127.64 and having a 102.63 objective, will offer a 12-1 risk/reward ratio. My rating on the trade is 2.5 (on a scale of 1-5 with 5 being the highest). As far as the stop loss is concerned, if triggered, I would not allow the stock to get up to the $130 demilitarized zone (above 129.70), meaning that the risk/reward ratio under that scenario would go down to 6-1 (still a good risk/reward ratio).
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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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ATNI generated an uneventful inside week but did close near the high of the week, suggesting further upside above last week's high at 40.23 will be seen this week. Nonetheless, the fact that it was an inside week (instead of going higher as was anticipated) does make the previous high weekly close at 41.03 into a "new" resistance level. In addition and given that the index market is not likely to go higher (or if it does it would be limited), does suggest the stock may get into a trading range between $41 and $37 for the next few weeks. Such a scenario means that taking profits on any rally close to $41 should be considered as there are other stocks that offer bigger trading ranges (in a sideways market) where higher profits could be made. CAT continued its upward climb, with yet another green week with a wide trading range. In fact, the stock has now appreciated 18.1% in value in just 3 weeks. Once again, the stock closed 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. Nonetheless, the stock got to within 1.9% of an important and pivotal resistance levels at 255.70, which if broken would suggest the all-time high at 266.04 would not only be tested but likely broken. As such and if the fundamentals do not support such a scenario, the 255.70 should not only "not" be reached but not even neared. Like with the index market, it is certainly possible that this week will be one of those rare occasions where follow through to the previous week's action will not be seen. The stock did generate a negative reversal "day" on Friday and the first course of action for the week is likely to be to the downside below Friday's low at 244.97. The stock is showing a breakaway/runaway gap formation on the daily chart, with the runaway gap being at 238.89. If that gap is closed, it will be a sign that the top of the rally has been found and that a correction to this straight up move is to occur. On an intraweek basis, there is no support until 233.02 is reached. Stronger intraweek support is found at 225.56 and then there is nothing until the 200-day MA is reached, which is currently at 221.29. That line would be a natural objective if a correction to the market has started. If the stock does go above last week's high this week, some probably indicative resistance is found at 252.14. A break of that resistance would suggest the bulls maintain full control. As such, a stop loss at 252.34 can be considered. ENG did break the "old" double bottom support between .49 and.51 that does show that the bulls are not yet ready to buy the stock and that the fundamental are still favoring the bears. Nonetheless, the "recent" weekly close support at .40 was not broken, meaning that this could still be a building of support scenario before the bulls step in. If the stock generates a green weekly close next Friday, especially if above the .51 level, it will bring in new chart buying. By the same token and given that the stock closed on the low of the week and further downside below last week's low at .423 is expected to be seen, it also means that this week is pivotal for the stock on all charts. There is quite a bit of support on the daily closing chart around the .398 level. If that level is broken, the gains seen recently will be erased and the stock will once again be on the defensive. Some minor but perhaps indicative intraweek resistance is found at .46. If broken, it might give enough of an edge to the bulls to rally the stock thereafter. LXRX bulls were unable to generate any follow through to the upside (as was expected to happen) and instead, the stock made a new 6 week low. The stock closed on the low of the week and further downside below last week's low at 2.40 is expected to be seen. On a possible positive note, the 200-day MA is currently at 2.39 and that line should hold up unless the fundamental picture has turned negative (no news on that front), suggesting that the probabilities do favor the stock recovering from this low, starting on Monday. On a possible negative note, there in intraweek support at 2.33, which if broken would likely generate some automatic selling by computers and algorithms. As such, Monday is an important day. Intraweek resistance is found at 2.92 and pivotal at 3.12. PLNHF, once again (for the past 4 weeks) did absolutely nothing, having generated a $.04 cent trading range and closing at the same price as the previous week and within $.02 cents of the high and low weekly closes seen the past 4 weeks. It is evident the traders are waiting for some catalyst to generate movement from here. The bulls need a daily close above .60 to generate new buying interest. Psychological support is found at the $.50 cent demilitarized zone. TCEHY generated a new 6-week intraweek and weekly closing high and closed near the high of the week, suggesting further upside above last week's high at 46.46 will be seen this week. The stock did generate a new buy signal on the weekly chart, having closed above the most recent high weekly close at 44.36 and also generated a failure signal against the bears, having closed above the most recent and indicative low weekly close at 42.55. The stock has open air up to 47.37 and even then, that is a minor intraweek resistance. A bit stronger resistance is found at 48.67. As far as support, the 42.05 level (on an intraweek basis) should not be broken unless this rally is fake. It does need to be mentioned that the stock has now fully built an inverted head & shoulder formation on all charts (daily, weekly and monthly), with the neckline being at 52.88. A break of that level would offer an objective of 67.01. With the Chinese market rallying and likely to outperform the U.S. market for the next few months, this is a viable scenario. TOL has almost doubled in value over the past 9 months, having started the rally from a low of 39.53 (seen in October of last year) and now having made a new all-time intraweek high at 75.97. The rally has been straight up (using the monthly chart), with each month being green and each month's low being higher than the previous month. Having said that though, the stock generated a negative reversal week last week, having made the new all-time intraweek high this week (above the previous one at 75.61) but then closing red and in the lower half of the week's trading range, suggesting further downside below last week's low at 71.60 will be seen this week. More importantly, the bulls were unable to make a new all-time high on the weekly closing chart, having closed at 74.29 the previous week and the all-time high weekly close being at 74.61. This means that a successful retest or even a double top has been built on the weekly closing chart. The stock did generate a new all-time high on the daily closing chart, having closed at 75.08 (with the same 74.61 previous all-time high) but then generating a failure signal on Wednesday that was confirmed on Thursday and Friday. It also needs to be mentioned that the stock did get up to the objective ($76) given by several rating companies, meaning that fundamentally, it seems the stock has reached a major top. Chart-wise, the bulls are facing a very risky situation as there is no support built on the monthly chart until 52.02 is reached. On the daily closing chart, there is no support built until the 67.15 is reached, meaning that purchasing the stock here offers a very negative risk/reward ratio. As such, the probabilities favor the bulls taking profits unless the entire market can go higher. VET went below last week's low (by $.03 cents) but then turned around and though it closed slightly in the red, it closed near the high of the week, suggesting further upside above last week's high at 12.63 will be seen this week. If that occurs, it can be said that the required/needed retest of the recent low at 10.75 has occurred. If that does happen and the bulls are able to get above 12.96, a bottom to this move down will have been found. With both Oil and Natural Gas seemingly having found their bottoms and likely to move up over the next few weeks, it is likely the stock will do the same. Any confirmed weekly close below the 200-week MA, currently at 12.06, would negate the potential recovery. VWDRY generated a negative week, given that it made a new 6-week low and closed below the 200-week MA, currently at 9.50 (closed at 9.37). On a positive note, the stock did close near the high of the week, suggesting further upside above last week's high at 9.48 will be seen this week. If that does occur, last week's low at 9.10 will become the needed/required retest of the 6-month low at 8.77, which was made in April. This stock has been clearly trading sideways since December between 8.80 and 10.50. Any break of either of these two levels would be indicative. At this time though, probabilities do favor continuing in that trading range for the next few weeks. ZLAB generated a positive reversal week, having made a new 29-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 28.89 will be seen this week. Having said that though, the bulls were unable to accomplish anything of consequence (in spite of Chinese market moving higher), given that a weekly close above 30.78 is what is the least needed to suggest that this correction is over. Nonetheless, the fundamental picture has not changed (no new news) and it is possible that this recent breakdown was more chart-oriented than fundamental and if that is the case, the stock should begin to rally from here. This, almost identical situation happened in March 2022 and within 4 weeks the stock had moved from 25.74 to 50.05. The low last week was 27.08, meaning that if it is mimicking that rally, it could go even slightly higher this time. Using the daily closing chart, a close above 29.49 would give the bulls a slight edge. A close below last week's low daily close at 27.68 would give the bears further control.
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1) ZLAB - Averaged long at 71.955 (6 mentions). No stop loss at present. Stock closed on Friday at 29.08. 2) ENG - Averaged long at 2.876 (6 mentions). No stop loss at present. Stock closed on Friday at .44. 3) VWDRY - Averaged long at 9.565 (2 mentions). Stop loss at 8.67. Stock closed on Friday at 9.37. 4) 5) ANTI - Purchased at 36.29. Stop loss at 38.99 (mental). Stock closed on Friday at 39.60.
6) VET - Averaged long at 14.956 (3 mentions). No stop loss at present. Stock closed on Friday at 12.39.
7) CAT - Shorted at 247.21 and at 250.32. Averaged short at 248.765 (2 mentions). Stop loss st 255.50. Stock closed on Friday at 245.27. shares.
8) TCEHY - Purchased at 43.23. No stop loss at present. Stock closed on Friday at 45.81.
9) AMZN - Shorted at 126.55. Covered shorts at 126.90. Loss on the trade of $35 per 100 shares.
11) TOL - Averaged short at 73.43 (2 mentions. Stop loss at 75.71. Stock closed on Friday at 73.49.
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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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