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Issue #857 
April 14, 2024 , | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Once again, the bulls tried to rally the indexes but failed. More ammunition for the bears.
DOW Friday Closing Price - 37983 The indexes continued the corrective phase, having generated another red weekly close across the board. The DOW and the RUT took the most damage, having both dropped around 3% in value, whereas the SPX dropped 1.5% in value and the NASDAQ only dropped .4% in value. The dichotomy does reflect that some bullish feelings still remain. This was further supported by the fact that neither the SPX nor the NASDAQ generated a sell signal on the weekly chart, but the DOW and the RUT did. The indexes closed on the lows of the week and further downside below last week's lows (DOW at 37787, SPX at 5107, NAZ at 17932 and RUT at 1994) will be seen this week. It is interesting to note that the SPX did trade on Friday for 90 minutes below the pivotal weekly close support level at 5117, before rallying in the last 20 minutes of the day to close above it. The close was only by 6 points, meaning that the bulls need to generate a green weekly close on Friday, to prevent a sell signal from being given. It is also interesting to note that there were 3 financial stocks (C, JPM and WFC) that reported earnings on Friday and they were all better than expected (with the note that JPM did give a negative outlook for next quarter) but they all closed red. The index still has 3 more financial companies (BAC, GS, and MS) reporting this week on Monday and Tuesday, which should be pivotal for the index this week. There are two other reports this week that could be somewhat catalytic (with somewhat being the key word), with Retail Sales on Monday and the earnings report from NLFX on Thursday evening. Nonetheless, the reality is that none of the reports this week is likely to be catalytically defining. This likely means that it is about perception and that perception being shown in the charts. As such, these are the chart level in play this week. In the DOW and on a daily closing basis, to the upside a close above 38596 would take some of the selling pressure off. To the downside, a daily close below 37717 would generate more selling and a close below 37266 would be a short-term back breaker that would suggest a drop down to the 200-day MA, currently at 36124 would be seen. In the SPX and to the upside, a close above 5175 would take some of the sell pressure off. To the downside, a daily close below 5117 would generate more selling with a target of 5029. In the NASDAQ and to the upside and on a daily closing basis, a close above 18169 would take some of the selling pressure off. To the downside, 17808-17878 level is strongly short-term pivotal. In the RUT, the levels to watch at 2053 and 1994. It is clearly evident that the SPX and NASDAQ are the pivotal indexes to watch this week, with the NAZ being the most indicative given the close by levels of support and resistance at 17808 and 18169. With the index closing on Friday at 18003, both levels are easily reachable this week. Having said all of the above, the correction seen in these two indexes so far is less than 2.5% and that is not what is considered a normal correction (usually it is 5-6% at least). This does suggest that it is the bulls that need some positive news to turn this recent selling around, and with interest rates being the key issue right now (and the Fed not likely to lower them anytime soon), it is likely this correction will continue. In looking at the monthly charts and still thinking about a longer term bull market, the downside objectives for the next 1-3 months are: In the DOW down to 36338, in the SPX down to 4766, in the NASDAQ down to 16320, and in the RUT it is unclear but a drop down to at least 1931 (but easily could be lower).
OIL generated a red weekly close, making the previous week's close at 86.91 into a successful retest of the weekly close resistance at 88.08. Oil closed near the low of the week, suggesting further downside below last week's low at 84.56 will be seen this week. The action this past week was disappointing to the bulls, given that the previous week Oil had closed on the high of the week and further upside above 88.63 was expected to be seen last week (especially since there was no intraweek resistance until 90.69) and yet the high of the week was 88.63. A daily close below 85.02 would suggest that the 83.47 level will be seen. A daily close above 86.21 would give the short-term edge back to the bulls. The downside move on Friday from the highs of the day in almost all commodities, as well as the news about the recent inflation numbers not giving ammunition for the Fed to lower interest rates, does suggest that at the very least, the commodity market will trade sideways to down for the next few weeks. "Breaking News": On Sunday, Iran attacked Israel with over 300 drone and missile attacks and that could negate the chart outlook.
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Stock Analysis/Evaluation
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CHART Outlooks
Any way you look at it, this was in the "end", a week where the bears gained some ammunition for a possible top to the uptrend having been found (not just a top to the rally but a possible a top to the uptrend that started in 2022). The fundamental picture did change this week, given that inflation came in higher than anticipated and it is likely that the Fed will not be lowering interest rates on the expected dates and much less lowering interest rates as much as had been anticipated. This does support no further upside occurring this year. Then again, it is not yet totally clear if that will happen to all of the market or just to a large part of the market, given that AI is an industry that has caught the attention of all and further upside in that industry is expected to be seen. This suggests that for the first time ever, we could actually have a truly dichotomous market.
Having said that, sales is still the way to go but choosing stocks that will not have any tie-ins to that industry is required. Two of the three mentioned stocks last week were shorted but one of them (AMZN) did express interest in getting to AI. The stock that did not get up to the desired entry point (CPRT) will need to be chased. No purchases are being considered at this time until things get clearer.
SALES
CPRT Friday Closing Price - 55.38
CPRT is a stock that has been on a tear since September 2022, having increased over 200% in value from 26.60 to 57.92 (based on monthly closes) over the past 19 months. During this period of time, the stock has made 3 new all-time high monthly closes and based on last month's close, the stock rallied 14.9% above the previous high monthly close. This month, the stock is having a negative reversal month, having gone above the previous month's high at 58.15 (this months high so far has been 58.58) and now trading red.
CPRT generated a new 4-week low and closed on the low of the week, suggesting further downside below last week's low at 55.05 will be seen this week. It also generated a new sell signal, having closed below the most recent low daily close at 55.74 (closed at 55.38). There is one minor daily close support left at 54.53 and then it is open air down to 51.20.
To the upside and on an intraweek basis, there is no established resistance until the 56.96 level is reached. As such, that will be the new desired entry point. Above that level, there is intraweek resistance at 57.86. If that level is broken, the all-time high at 58.59 would like be tested or even broken. If a correction is occurring with CPRT, the potential downside objective is likely to be the original all-time high made in November 2021 at 38.91. Nonetheless, reaching that objective would probably take a year or more to achieve. On a shorter-term basis, a drop down to the previous all-time high weekly close at 51.20 (50.22 on a monthly closing basis) is likely to occur.
Sales of CPRT around the 56.96 level and using a stop loss at 57.96 and having a downside objective of 51.20, will offer a 5.7-1 risk/reward ratio. If that level is not reached, consideration can be given to shorting the stock around 56.42. If that is the case, the risk/reward ratio would shrink to 3.3-1. My rating on the trade is a 3.25 (on a scale of 1-5 with 5 being the highest).
AGCO Friday Closing Price - 120.01
AGCO is a manufacturer of agricultural equipment that for the past 3 years has been in a clearly defined trading range between $100 and $140, with one breakout to the upside in 2021 where it got up to $150 and one breakdown in 2022 where it got down to $83. Nonetheless, over the past 2 years, a brick wall of resistance has been built at the $140 level and decent support has been built at $110 and again at $100.
AGCO generated a negative reversal week last week, having made a new 9-week high at 125.76 and then closing red and on the low of the week, suggesting further downside below last week's low at 119.97 will be seen this week. The negative reversal was a surprise as JPMorgan announced on Friday that there were raising their target price from $145 to $150.
It should be noted that AGCO has shown minor to decent intraweek resistance between $125 and $126 on 5 different occasions over the past 3 years, all of which resulted in drops down to (and below) the $110 level. In addition, the stock made a new 18-month low 8 weeks ago when it dropped below the $110 level and got down to the 200-week MA, currently at 110.49 (but then at 107.84) with a drop down to 105.70 (and a weekly close at 108.23), which was then followed by 7 green weekly closes and 9 higher highs than the week before. That low has not yet seen a retest of it, meaning the stock has rallied 16% in value without any retest of that breakdown.
If in effect the index market is heading lower, AGCO is likely to retest that low with a drop back down to the 200-week MA. The only problem with this short trade is that this is not a stock to chase down, meaning it has to rally to reach the desired entry point at $123 or higher. Such a rally may not happen given that the stock closed below the 200-day MA, currently at 120.42 and that break would need to be negated for the desired entry point to be reached. Nonetheless, if that happens, there is quite a lot of intraweek resistance between $123 and $124 that is unlikely to be broken without some fundamental positive news.
Sales of AGCO above $123 and using a stop loss at 125.86 and having a downside objective of at least the $110 level will offer a 4.5-1 risk/reward ratio. My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
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Updates
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Closed Trades, Open Positions and Stop Loss Changes |
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AMZN made a new all-time intraweek and weekly closing high this week but then closed very slightly in the lower half of the week's trading range, suggesting a slightly higher probability of going below last week's low at 182.67 than above last week's high at 189.77. On a weekly closing basis, the new all-time high was only by $.18 cents, meaning it was not convincingly indicative and could end up being a double top, if the stock generates a red weekly close on Friday. In looking at the daily closing chart, the stock did generate a convincing new all-time high at 189.05 (on Thursday) but then negated the break on Friday (having closed at 186.13 and the previous all-time high daily close being at 186.67. As such, Monday's close will be important. Any two daily closes this week above 186.67 would suggest the stock will continue higher. Any daily close below 178.68 would give the bears the edge back. The rally in the stock this week was generated when the CEO of the company expressed interest in getting involved with AI (while also announcing further employment cuts). This could change things as AI is a product that is strongly supported, meaning that keeping a close eye on the stock this week is a must. BABA generated a negative reversal week, having made a new 4-week intraweek high and then going below the previous week's low and closing below it. The stock closed on the low of the week and further downside below last week's low at 71.29 is expected to be seen this week. The weakness in the stock is attributed to the negative reaction to the increase of sanctions by the U.S. in the semi-conductor industry that made XI announce that he wanted Chinese companies to get rid of (not use) U.S. made semi-conductors by 2027. Having said that, Citigroup maintained is upside objective of $124 on the company. Nonetheless and in looking at the chart, a break of the intraweek support at 70.08/70.58 (70.78 on a daily closing basis) would further weaken the chart and suggest that the positions be liquidated as a drop down to 68.05 would likely occur. This does mean that the stock needs to generate a green close on Monday (or at least not below 70.78) for the bulls to still have a chance to rally the stock. A daily close above 72.00 would be of help to the bulls. DD generated a 2nd red weekly close and closed on the low of the week, suggesting further downside below last week's low at 73.34 will be seen this week. On an intraweek basis, there is support at 72.36, which if broken would offer open air down to 70.46. The 200-day MA is currently at 72.89, which will offer support on a daily closing basis. The stock did fall 3.7% in value last week and did generate a sell signal on the daily closing chart, when it broke the daily close support at 75.53. That level will now be resistance. There is daily close support at 72.78 that looms pivotal. A drop down to that level is highly probable but what happens thereafter, will be indictive. ENG generated a new 4-week intraweek high and a new 5-week weekly closing high. Nonetheless, the stock closed in the exact middle of the week's trading range, suggesting equal chances of going below last week's low at 1.72 as going above last week's high at 1.95. There was no news to cause this move up so it seems to be chart related and suggesting that since the bears were not able to generate more downside, the traders will see if they can generate some upside. The 200-day MA is currently at 2.17 and that is now likely to be the short-term objective. On an intraweek basis, there is absolutely no resistance above until 2.30 is reached. On a daily closing basis, there is resistance at 2.00/2.02. Short-term pivotal daily close support is now found at 1.69. GCI generated a new 9-week intraweek high but then closed in the lower half of the week's trading range, suggesting further downside below last week's low at 2.31 will be seen this week. Nonetheless, the stock was expected to go lower last week but didn't and the close was green (even though by a minimum of $.02 cents), suggesting that it was a relatively uneventful week but very slightly in favor of the bulls. On an intraweek basis, the 2.63 and 1.95 (2.60 and 2.00 on a daily closing basis) area are pivotal. With the stock closing at 2.36, neither the bulls nor the bears have a clear edge. For the short term and on a daily closing basis, the 2.21 and 2.49 are the levels to watch. JD generated another red close and closed on the low of the week, suggesting further downside below last week's low at 25.38 will be seen this week. Another sell signal was given on the daily closing chart, having closed below the previous low daily close at 25.94. Nonetheless, no indicative daily or weekly close was broken, meaning that it was not a meaningful week overall. There is further daily close support at 25.05 and indicative daily "and" weekly close support at 24.38, which the charts suggest will not be broken. At this time, a daily close above 26.67 would be short-term positive and a close above 28.89 would be strongly bullish. LXRX generated a new 10-week intraweek, daily and weekly closing low and closed on the low of the week, suggesting further downside below last week's low at 1.93 will be seen this week. The stock has been in a clear short-term downtrend for the past 4-weeks and is targeting the 200-day MA, currently at 1.72 as the short-term objective. Nonetheless, there is important and indicative weekly close support at 1.91 that needs to hold up so that the bulls can still see some upside on a short-to-midterm basis. If that level is broken, there is open air below to 1.50. To the upside and on an intraweek basis, the 2.17 level is indicative (2.09 on a daily closing basis). At this moment, the chart does suggest that the 1.91 level (on a weekly closing basis) will hold up. SNDL generated an inside week but did close red and on the low of the week, suggesting further downside below last week's low at 1.96 will be seen this week. The stock did generate a failure signal against the bulls, having closed above the 14-month high weekly close the previous week but then closing below that level (at 2.15) on Friday (closed at 2.00). There is short-term pivotal daily close support at 1.97, which if broken would offer a drop down to 1.75 (both on the daily and weekly closing charts). On a daily closing basis, a close above 2.19 would give the bulls back control. VWDRY generated a new 19-week intraweek and weekly closing low, suggesting further downside below last week's low at 8.41 will be seen this week. The pivotal daily and weekly close support level at 8.53/8.51 were broken (stock closed at 8.41) and that is a tangible negative that needs to be reversed this week, if the bulls expect anything positive to happen in the short-to near term. Having said that, there is no support below until the 8.10 level is reached and at this time, that is a clear objective. To finish it off, the stock closed below the 200-day MA, currently at 8.54, and that is a line that has held for the past 4+ months. Simply stated, this was a "bucket of ice water week" on the bulls. There was no negative fundamental news to support the break, meaning it could be reversed this week. Nonetheless, such a reversal needs to occur starting on Monday or the bears will gain more strength. Pivotal intraweek level of resistance is at 9.19. ZLAB generated a new all-time intraweek and weekly closing low on Friday, having gone below the previous all-time intraweek low at 14.29 (got down not 14.23). The stock closed on the low of the week and further downside below that level is expected to be seen. There was no new negative news to support the break. In fact, there was some positive news, given that the principals of the company stated that no further selling of shares by them would be seen from here on out. This should support the stock at these levels but it does mean that there was some (so far hidden) reason why the stock has been on such a consistent downtrend for the past 4 months. The all-time low monthly close is at 16.36 and with this piece of news, it does suggest that the stock will rally over the next 2+ weeks, to close at that level at the end of the month. Having said that, this is a negative situation that requires some positive fundamental news to turn around. Chart-wise, there are no reasons for any kind of a rally other than perhaps a short-covering rally. The last known sale of the stock by one of the principals was at 17.87 and it is difficult to see that level being broken without some positive news.
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1) ZLAB - Averaged long at 65.50 (7 mentions). No stop loss at present. Stock closed on Friday at 14.31. 2) ENG - Averaged long at 18.30. No stop loss at present. Stock closed on Friday at 1.83. 3) VWDRY - Purchased at 8.74. Averaged long at 8.68 (4 mentions). No stop loss at present. Stock closed on Friday at 8.41. 4) LXRX - Averaged long at 1.495 (2 mentions). No stop loss at present. Stock closed on Friday at 1.97. 5) GCI - Purchased at 2.35. Averaged long at 2.14 (2 mentions). Stop loss at 1.85. Stock closed on Friday at 2.38. 6) BABA - Purchased at 72.54. Stop loss at 69.65. Stock closed on Friday at 71.29. 8) SNDL - Averaged long at 9.05 (2 mentions). No stop loss at present. Stock closed on Friday at 2.00. 9) JD - Purchased at 21.33. Stop loss is at 23.55. Stock closed on Friday at 25.39. 10) AMZN - Shorted at 187.10. No stop loss at present. Stock closed on Friday at 186.13. 11) SIMO - Liquidated at 83.44. Averaged long at 63.45. Profit on the trade of $3998 per 100 shares (2 mentions). 12) DD - Shorted at 76.80. Stop loss at 78.35. Stock closed on Friday at 73.80.
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The opinions and commentaries by Mr. De Vito are not a recommendation to buy or sell, but rather
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