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Issue #845 
January 21, 2024 , | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Bulls back in control....for now!
DOW Friday Closing Price - 37863 With the exception of the RUT, all indexes made new all-time highs this week. They did close on the highs of the week, suggesting further upside above last week's highs (DOW at 37933, SPX at 4844, and NAZ at 17337) will be seen this week. There was no news of consequence that came out this week to support this action. In fact, the news that has come out over the past 2 weeks has lowered the expectations of 6 Fed rate cuts this year, which should have actually caused some selling interest. Nonetheless, Friday was options expiration day for over 90% of all purchased options and as such, it is possible that the market was manipulated this past week because of it. Nonetheless, the new all-time highs made does mean that the computers and algorithms do not have any specific level where they can sell at, meaning that the bulls now have control of the index market until some new news comes out. As far as the RUT is concerned, the index did get down to the 200-week MA, currently at 1893, with an 1898 low. The index did generate a bounce and though it did generate a red weekly close, it was only by 6 points and the index did close on the high of the week, suggesting further upside above last week's high at 1944 will be seen this week. There is basically open air above to the 2000 level and the probabilities of it reaching that level this week or the next are very high. In fact, with the index underperforming the market the past few weeks, it would not be surprising for it to outperform the indexes at this time, given that the risk factor is low (compared to the other indexes). There is no economic news of possibly catalytic consequence scheduled for this week. On Friday though, the PCE price index number comes out and it is an inflation number that the Fed does use for its decisions. Nonetheless, it is doubtful that it will be a big surprise in either direction, meaning it is not likely to have an effect on the market. On the earnings front, this is a DOW week with mostly the stocks in that index reporting. NFLX does report Tuesday after the close but given that it is not a Tech stock, and the rise in the market the past week was driven mostly by Tech stocks, it probably won't affect the overall market all that much. This does suggest that the traders will wait for the following week when the two big economic reports for the month (ISM Index and Jobs) and the top 3 earnings reports (AAPL, AMZN, and GOOGL) come out. Those reports are likely to set the stage for what is likely to happen in February. On a seasonal basis, January was a toss up as to whether it would be an up or down month. We now know, it will be an up month. Nonetheless, February is normally a down month. In fact, over the past 10 years, it has been the 2nd worst month of the year (after September), suggesting that is likely to be the case this year as well. It cannot be said that this rally to "new all-time highs" is supported fundamentally, meaning that February has a high probability of being a down month. As such the probabilities favor follow through to the upside this coming week at the beginning of the week but some selling possibly starting to be seen near the end of the week. As far as what to look for to the downside this week, the SPX remains the key index. A daily close below 4783 would generate a failure signal against the bulls and a daily close below 4739 would generate a new sell signal. It is doubtful either will happen this week but those are the levels to watch. It is possible that at some point during the week that the 4783 level might be seen but not likely to close below that level this week. As such, the outlook for the beginning of the week is additional follow through to the upside. Any deviance from this chart picture would be indicative.
OIL generated an uneventful inside week though at one point on Friday, the bulls were in a position to make a statement, given that Oil traded as high as 74.63 and any weekly close above 73.67 would have generated a new buy signal. Nonetheless, the bulls failed to generate the mini breakout as Oil closed on Friday at 73.25. Having said that, Oil did close in the upper half of the week's trading range, suggesting a higher probability of going above last week's high at 74.63 than going below last week's low at 70.64. Pivotal intraweek resistance is found at 76.18 and pivotal support at 69.28. Those same levels but on a daily closing basis, are found at 75.57 and 70.38 It is unlikely that either will be broken this week as the traders are likely to wait for the following week and all the economic reports due to come out.
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Stock Analysis/Evaluation
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CHART Outlooks
MENTIONS
My outlook for February is for U.S. stocks to go down, as such I will be mostly be looking to short. Nonetheless, I do not believe this is the week to short anything, meaning I have no sell mentions this week. On the other side of the coin, I do believe that Chinese stocks will do the opposite and go up from here. The Chinese market has fallen to a level where there is decent and long time support found and that is the exact opposite to the U.S. market, February is usually a seasonal up month for Chinese stocks as it is the beginning of the Lunar year in China. As such, I have 2 buy mentiona this week and they are in that market.
PURCHASES
JD Friday Closing Price - 22.29
JD, like BABA is an online retailer and the stock made a new 5-year intraweek and weekly closing low on Friday. Nonetheless and in looking at the history of the stock since it started trading in 2014, it has strong monthly closing support between 19.67 and 21.88. The stock closed at 21.88 in December 2014, it closed at 19.97 on June 2016, and it closed at 19.67 on December 2018. On a weekly closing basis, those same lows were at 21.55, at 19.80 and at 18.03).
In these 9 years, the stock has fallen in February 5 times and rallied in February 4 times. Nonetheless the down February's were all when the stock was already at high prices and falling and the up February's were all in years when then stock was at low prices and beginning a rally.
JD has gapped down the past two weeks but there were no reports on the company itself that would support the gaps. The first gap was because some "suspicious practices" were found in the internal audit but no tangible negative details about that have come out since then, and the second gap was all about the Chinese market breaking down. Nonetheless, the Chinese market has reached an important and established support area and is likely to rally from here, meaning the second gap is likely to be closed and the first gap at 26.50 will then become a magnet for closure.
In looking at the chart and last week's action, I do believe JD will get down to at least the 21.55 level and even perhaps as low as 19.80, but because there is quite a bit of established support there, I do not believe the stock will head any lower.
If JD is to find a bottom to this move down, the most recent high weekly close at 28.89 is likely to get broken and a rally up to at least the $30 level will be seen (It is the area where the low weekly close that when broken caused the stock to fall to these levels). In addition, there is quite of bit of established weekly close resistance (spanning all 14 years) in that area. On an intraweek basis, the resistance is between 31.12 and 32.22
Purchases of JD below 21.60 and using a stop loss at 19.65 and having at 31.12 objective, offers a 4.8-1 risk/reward ratio. My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the highest).
SIMO Friday Closing Price - 64.39
SIMO is a Chinese company in the Tech chip industry and as such, has been outperforming all other Chinese stocks over the past 15 weeks. While the Chinese market has gone down 17.2%, the stock has rallied 24% and given that the chip industry is the "hot" industry right now, it is likely that it will not only continue higher but with the seasonal tendency of the Chinese market to rally in February, it could be a substantial rally.
SIMO broke above the 200-week MA, currently at 62.53, 3 weeks ago and has confirmed the breakout, having closed above the line the past 2 weeks. In addition, the stock now has a breakaway/runaway gap that is further supporting the upside. The runaway gap is at 60.78 and as such, should not be closed.
To the upside, SIMO chart shows intraweek resistance at 66.58, at 71.28 and at 74.10, with weekly close resistance of some consequence at 72.13. The 74.10 level is the objective of the mention.
SIMO did test the MA line last week with a low at 62.07 and then turned around to close green and on the high of the day, suggesting further upside above last week's high at 64.48. By the same token, that 62.07 level should not be seen again and much less broken, meaning that the stop loss will be at 61.97.
Purchases of SIMO between 63.71 and Friday's close at 64.39 and using at 61.97 stop loss and having a 74.10 objective, offers a 3.9-1 risk/reward ratio. My rating on the trade is 3.5 (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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ENG broke down this week, having dropped 30% in value from the high to the low of the week. Most of this happened on Friday when it became evident that the stock would close below the 200-week MA, currently at 1.55. The stock closed near the low of the week and further downside below last week's low at 1.30 is expected to be seen this week. There was no news to support the break, meaning it was likely to do with options expiration on Friday. The volume was low and that does not suggest that it was a true break. Having said that, there is no established support below until the .90 level is reached. On a potentially positive note, the stock is due to report earnings on February 12th and the current estimates for the stock are for it to move higher over the next 3 months. In fact, here is the estimate from Stock Invest.us which says the following: The stock is expected to rise 227% during the next 3 months with a 90% probability hold price between $4.48 and $9.81 at the end of this 3-month period (here is the link to this evaluation: https://stockinvest.us/stock/ENG). This is a stock that has shown much ability over the past 12 years to generate big spike up rallies. It has done it 6 times during that period of time. As such, consideration should be given to buying some shares this week or next. GCI generated a new 5-week low but did close slightly in the upper half of the week's trading range, suggesting a higher probability of going above last week's high at 2.34 , than going below last week's low at 2.19. For the past 4 weeks, the stock has generated a weekly close at 2.30, at 2.32. at 2.31 and on Friday at 2.27. The 2.27 level is the previous high weekly close from May that when broken to the upside, generated a rally to 3.60 and in October when broken, generated a drop down to 1.88. Simply stated, it is a pivotal level of weekly close support. This is a small cap stock and with the small cap index having reached support this past week and bouncing up and now having open air above for a good rally, I do expect this stock to generate an up week. Intraweek resistance is at 2.46 and if that is broken, there is nothing until 2.62. If that level is broken, the 200-week MA, currently at 3.23, will become a magnet. Any new low below last week's low at 2.19 would weaken the chart. INTC generated a positive reversal week, having gone below the previous week's low and then closing green and near the high of the week, suggesting further upside above last week's high at 48.76 will be seen this week. This is a Tech stock in the semiconductor industry (which is the industry that is leading the index rally) that has been recently given several rating companies upgrades with a $54 to $66 upside potential (Raymond James this past week upgraded INTC with a $54 objective). The stock 6-weeks ago broke above the 200-week MA, currently at 44.94, and that breakout has now been tested successfully twice with a low at 45.24 4 weeks ago and again last week with a low at 45.65. As such, the chart strongly suggests that the stock is ready to continue the uptrend with at least 52.51 level as the target. The recent high is 51.28 and that is presently resistance. Nonetheless, there was no previous established resistance at that level, meaning it should get broken. Above 52.51 there is open air on the chart up to the 56.24 level. Any break below the MA line would now be considered a big negative. LXRX made a new 4-week low but then rallied enough to close in the middle of the week's trading range, suggesting equal chances of going below last week's low at 1.24 as going above last week's high at 1.38. The weekly closing chart shows no support close by but the daily closing chart does show the 1.30 level (which is where it closed on Friday) as having some importance. There is a previous daily closing high at 1.30, which when broken to the upside, caused the stock to rally to 1.62 within 5 trading days. In addition, the 100-day MA is currently at 1.28. The most important thing to mention is that the small cap stock index (RUT) is expected to be going higher, offering support for the stock to move higher as well. There is daily close resistance of some consequence at 1.48, which if broken would be indicative that the rally is to continue. The most recent high daily close is at 1.60, which if broken will give a 1.90 objective. To the downside, any red daily below 1.27 would be a negative. Company reports earnings on February 7. PLNH generated a new 6-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 .75 will be seen this week. This is now the 3rd time that the stock has gotten up to the .92 level and failed to punch through. By the same token, there is now a triple top at that level and that increases the chances that it will ultimately get broken. Having said that, the weekly chart does show that the stock could generate another down draft to the .65 level before turning around once again and finally breaking that resistance area. The 200-day MA is currently at .69 and it is likely that line will once again be tested but not likely broken (on a daily closing basis). The stock did close near the high of the day on Friday and that suggests that the first course of business for the week on Monday will be to the upside and above Friday's high at .85. With the small cap index likely to go higher, it is possible that the stock may not go below last week's low and break the triple top this week. If that occurs, there is open air to 1.03. RBLX "bucked the trend" seen in the index market this past week, having generated a red weekly close and closing near the low of the week, suggesting further downside below last week's low at 37.76 is to be seen this week. The 200-day MA is currently at 37.10 and that level is a magnet, meaning that might be the reason that it underperformed the index market. The company reports earnings on February 7 and they are expected to be worse than last year and last year they were a minus -.48 cents. 67% of the companies in the industry the stock is in are outperforming it. This is likely the reason the stock moved lower this past week, in spite of the rally to new highs in the index market. The 200-day MA is currently at 36.99. Any daily close below 36.72 would generate further downside and perhaps of consequence. Any rally above 42.92 would negate this outlook. VWDRY gapped down this week though there was no news to support the gap. The likely reasons for this are 1) options expiration day on Friday and 2) the 200-week MA, currently at 9.86 was broken the previous Friday. Having said that, there is quite a bit of decent intraweek support between 8.77 and 8.86 that is highly unlikely to get broken. In addition, this stock generated a breakout 4 weeks ago that failed to be confirmed but with no negative news coming out and the small cap index likely to rally, the probabilities are high that a rally back up to around the 10.40 level will be seen before any new longer-term decisions are made. The company reports earnings on February 7. ZLAB made a new 14-month intraweek low but then rallied enough to close in the middle of the week's trading range, suggesting equal chances of going below last week's low at 22.13 or above last week's high at 24.84. There has been no new news on the company, meaning that this move-down was unexplainable fundamentally and chart-wise. Having said that, the multi-year weekly closing low is at 22.72 and the stock for most of the day on Friday traded below that level. Nonetheless, near the end of the day buying came in and the stock closed at 23.44, meaning that the established and pivotal weekly closing support was not broken. The stock rallied to close on the high of the day on Friday, suggesting the first course of action on Monday will be to the upside and above Friday's high at 23.52 will be seen. Any green daily close on Monday will mean the previous low daily close at 22.98 will have been tested successfully. Such action in conjunction with a rally above 24.84 will mean this move down is over. Any daily close above 25.30 would generate quite a bit of new buying interest. Any daily close below 22.98 would keep the bears in control. I believe the bulls will now come back in.
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1) ZLAB - Purchased at 26.80. Averaged long at 65.50 (7 mentions). No stop loss at present. Stock closed on Friday at 24.62. 2) ENG - Averaged long at 18.30. No stop loss at present. Stock closed on Friday at 1.67. 3) VWDRY - Averaged long at 8.67 (3 mentions). Stop loss now at 9.26. Stock closed on Friday at 9.75. 4) LXRX - Averaged long at 1.495 (2 mentions). No stop loss at present. Stock closed on Friday at 1.37. 5) GCI - Purchased at 1.93. Stop loss at 1.60. Stock closed on Friday at 2.32. 6) PLNH - Averaged long at 1.526 (3 mentions). No stop loss at present. Stock closed on Friday at .797. 8) SNDL - Averaged long at 9.05 (2 mentions). No stop loss at present. Stock closed on Friday at 1.48. 9) BORR - Covered shorts at 6.53. Shorted at 7.37. Profit on the trade of $84 per 100 shares. 10) CPRT - Liquidated at 47.74. Purchased at 48.68. Loss on the trade of $94 per 100 shares. 11) INTC - Averaged long at 38.78 (2 mentions). Stop loss now at 37.97. Stock closed on Friday at 47.12. 12) TOL - Shorted at 102.63 and at 104.08. Averaged short at 103.355 (2 mentions). Stop loss at 104.65. Stock closed on Friday at 101.32. 13) MMM - Shorted at 109.95. Stop loss at 113.24. Stock closed on Friday at 108.12. 14) RBLX _ Shorted at 41.56. Stop loss is at 43.07. Stock closed on Friday at 40.92.
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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
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information enclosed above, regarding his background, length of trading, and experience, is correct
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