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Issue #863 
May 26, 2024 , | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Dichotomy takes over with Tech leading the way and everything else idling or heading down.
DOW Friday Closing Price - 39063 This past week was a truly dichotomic week with the DOW falling 2.6%, the SPX unchanged, the NASDAQ moving up 1.3% and the RUT falling 1.2%. This means that the DOW gave a failure signal, the SPX and the NASDAQ confirming the new all-time highs made the previous week and the RUT generating a successful retest of the 28-month high weekly close 10-weeks ago. This is a situation that shows that the Tech Industry is "running the show" and that the market overall is weaker than has been shown recently. This dichotomy came about with all the big Tech companies reporting better than expected earnings but the Fed suggesting that inflation remains an issue that is not likely to allow rate cuts as expected (beginning in July). With rate cuts being the main driving force of the overall market and this being an election year where rate cuts anytime near the election would be seen as a political move, the expectations have now shifted to the first-rate cut coming in December. Nonetheless and with AI being a big new driving force for the future, the Tech companies are expected to outperform the market. This outlook is expected to continue for the next 2 months (until the July Fed rate decision), meaning that all indexes (with the exception of the NASDAQ are likely to remain under selling pressure the dichotomy is expected to continue. Having said the above, it is not expected that all that much weakness will be seen as the Tech industry will have a preventing-of-that-scenario power. As far as specifics of the charts, here is what is likely to happen. The DOW is likely to get down to at least the 38500 level and perhaps as low as 38000. To the upside, the 39800 level is not likely to be broken anytime soon. The SPX is not likely to show much weakness or much strength and is likely to trade between 5250 and 5400 with a chance of dropping all the way down to the 5050 level if a failure signal is given (a weekly close below 5254). The NASDAQ is likely to continue to show strength, though at some point during the next 2-6 weeks, a retest of the weekly close breakout at 18339 is likely to be seen. The upside could be anything as there is no resistance above. The 19000 level is likely to be a given but further upside above that level would not be a surprise. The RUT is likely to trade mostly sideways with 1953 as a likely downside target and 2073 as the upside resistance. Nonetheless, this index has a chance to go higher if the traders decide to get involved with the still undervalued small cap stocks. There are 3 economic reports this week that could make a "slight" difference. The Consumer Confidence report on Tuesday, the 2nd estimate on GDP on Thursday, and probably the most important of the three, on Friday when the PCE inflation report, which is the inflation report the Fed follows closely. The dichotomy with the DOW is expected to continue on Monday with this index heading lower and the other three heading higher. There really is nothing likely to happen this week that will change the outlook. The DOW is likely to get down to somewhere between 38457 and 38616 and bounce off of that area. The SPX is likely to have an uneventful week and trade between 5325 and 5254. The NASDAQ is likely to trade between 18600 and 19000, and the RUT is likely to trade between 2010 and 2090.
GOLD generated a negative reversal week of consequence (due to the same reasons as the DOW had for its fall) and closed on the low of the week, suggesting further downside below last week's low $2326 will be seen this week. The fall from the high at $2454 was big ($128) and that suggests that a top to this rally has been found. There is intraweek support at $2285, which if broken would confirm that scenario. If not broken, it would suggest Gold will trade between $2293 and $2436 for the next few weeks, until new fundamental news comes out as far as where inflation is and what the Fed is likely to do about it. OIL generated a new 12-week low and closed in the lower half of the week's trading range, suggesting further downside below last week's low at 76.16 will be seen this week. A new sell signal was given on both the daily and weekly closing charts, suggesting the bears have a short-term edge, if not full short-term control. Having said that, important short-term support is found at 76.47 that was not broken, meaning that further downside of consequence "may" not be seen "this" week. Nonetheless, the sell signals given do suggest that a drop down to the 72.90-73.20 level (based on the daily and weekly closing charts) is on the horizon. A daily close above 78.02 would begin to negate that picture and a close above 79.26 would give some new ammunition to the bulls and suggest that the low for this correction has been found.
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Stock Analysis/Evaluation
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CHART Outlooks
With the dichotomy that took over this week, the picture has become cloudy again. Nonetheless, shorting is not yet an option. The 2 Tech mentions from last week are still viable and likely to be reached this week. I have no other new mentions.
INTC Friday Closing Price - 30.72
INTC has fallen 42% in value over the past 5 months (from 50.76 to 29.85). The fall is attributed to some bad management decisions, declining interest in Mac computers and failure to meet Wall Street expectations. Having said that, the company is getting involved in AI and is trying to find ways to continue to be competitive. It is not likely that the company can be compared to other companies (such as NVDA) but the stock is at such a low price that "chart-wise", a bit of a recovery is likely to occur.
INTC reached a level of established support 2 weeks ago, between 29.00 and 30.63 (based on weekly closes) and from which a bounce occurred this past week. The stock closed at 29.85 2 weeks ago, then at 31.83 the previous week and Friday it closed at 30.73. The area of established support goes all the way back to 2014 (and visited on many occasions) and there is only a 5-month period of time (between August 2022 and January 2023) where it traded below that level. The stock closed near the low of the week, suggesting further downside below last week's low at 29.87 will be seen this week. The intraweek downside objective "could be" as much as 28.57.
The analysts following INTC do have the average upside objective being the $38 area. The chart supports a rally to that area as being also likely to happen. There is quite a bit of established intraweek resistance between 37.11 and 37.19 and pivotal at 40.07, and the area includes the 200-day MA, currently at 39.64.
INTC reported earnings almost 5 weeks ago and the report caused the stock to gap down from 34.50 to 32.22. This was the 3rd gap down over the past few months and as such, likely to get closed. Nonetheless, the bulls did get into the gap this past week but because of the selling seen in the indexes, it was not closed and selling interest came in. Closure of the gap then offers open air above to 37.11, meaning that the gap is the only resistance the bulls need to break.
INTC gapped up a week ago Thursday and given there was no news to support the gap, the gap down at 31.40 was closed this past week, meaning that there is no magnet to the downside left. The recent intraweek low is 29.73 and it is possible that it will not be broken, given that the stock closed near the high of the day on Friday and the first course of action for the week is likely to be to the upside. As such, the desired entry point into the trade will be at Friday's close (or lower) and using a stop loss at 28.47. With an upside objective of as much as 39.64, it offers a risk/reward ratio of 4-1. My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest).
SNOW Friday Closing Price - 156.16
SNOW is a cloud-based data platform that is using AI to increase its efficiency. With AI being a "hot" industry for the future and this company being oversold and likely undervalued, it is one to purchase now. The stock is presently oversold and according to several sources, strongly undervalued. This stock fell in value 40% between February and April (from $237 to $144) but has now started to recover. On Thursday, one of the rating companies (BNP) raised its price target to $200.
SNOW made an all-time high in November 2021 at $405 and then proceeded to fall precipitously to $110 over the following 8 months. Since then, that low has now been tested successfully on 4 occasions with drops down to 119.27. to 128.56, to 138.40 and to 145.55 just 5 weeks ago. This action has been successful in building a very solid bottom that is a base for a strong breakout to occur sometime over the next 3-6 months. Having said that, this mention today is not about a breakout occurring at this time but about a rally to test one of the highs made over the past two years, which are either at 193.94 or at 205.66. I would expect a 5th retest of the lows to occur thereafter, followed by a breakout above the 2-year high at 237.72 and a rally up to at least the $330 level. This kind of chart action over the past 2 years, followed by being in a very "hot" industry for the future, as well as this being a strong company in that industry, suggests this is a stock to be traded consistently over the next year or two. NVDA reported earnings this past week and they were better than expected and the stock made a new all-time high. This is an industry that is likely to outperform the overall market over the next year.
SNOW made a new 23-week low 7 weeks ago and that low does require a retest of it. The stock reported earnings this past Wednesday and they were worse than expected and the stock sold off 6.6% from the high of the week (at 164.84) and closed in the lower half of the week's trading range, suggesting further downside below last week's low at 154.11 will be seen this week.
The desired entry point into SNOW will be somewhere between 150.62 and 153.00 and it is expected that the stock will reach the desired entry point this week. The stop loss point will be at 146.65 and the objective will be 193.94, meaning a risk of no more than $635 for a profit potential of at least $4394 (per 100 shares). It is a 6-1 risk/reward ratio. My rating on the trade is 3.75 (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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BABA generated an inside week but did close red and near the low of the week, suggesting further downside below last week's low at 79.73 will be seen this week. The reason for the weakness was the weakness seen in the Chinese index, causing all Chinese stocks to fall this past week. Nonetheless, the Chinese index is nearing an area of support that is unlikely to break, meaning that a lower low than last week is not likely to last. Just 5 weeks ago, the stock generated a breakout from an 8-month high and such a breakout (above 77.51 on a weekly closing basis) requires a retest of it. The stock has not yet generated that retest as it has had higher lows every week the past 4 weeks. Going below last week's low would put the stock is a scenario where such a retest could occur. The is intraweek support at 79.02 and at 77.77 and either (or both) could be seen this week, and from which a continuation of the recent uptrend could occur. On a daily closing basis, the previous breakout high is at 78.23 and that should hold up. The 200-day MA is currently at 78.96 and the probabilities favor that line holding up. Intraweek resistance is now found at 74.60, which if broken would suggest no further downside will be seen. GCI generated an uneventful inside week but did close on the high of the week, suggesting further upside above last week's high at 3.75 will be seen this week. Nonetheless, there was one positive to mention and that was that the low of the week at 3.38 was likely to end up being the retest of the 200-week MA, currently at 3.34. Such a retest (if confirmed) would mean the bulls have no further need of retesting the breakout. The stock did generate a failure signal on the daily closing chart on Tuesday, having closed below the daily close breakout level at 3.52. Nonetheless, the signal was negated on Friday with the close at 3.71 and if the stock generates a green close on Monday above 3.72 (high daily close for the past 11 months), the immediate target will be the next daily closing high at 3.98 (very minor daily close resistance. Any daily close now below 3.40 would be a short-term negative to the bulls. JD generated a red week after announcing interim quarter results and the offering of a $2 billion senior convertible for share buybacks. The stock closed on the low of the week and further downside below last week's low at 30.17 is expected to be seen this week. The news itself is not negative as the company is planning to buy many of its shares back. As it is, the stock needed a retest of the breakout after having seen 5 weeks in a row of upside action. In addition, the breakout above the 200-day MA, currently at 27.79, needed to have a retest of it, as well as of the daily close breakout above at 28.51. A drop down to that level is likely to be seen this week. It is also important to note that the monthly close is on Friday and on that chart, the pivotal resistance level is at 28.89, which was also last month's close. As such, the bulls need to make sure to close above that level next Friday. The fundamental picture on the company itself (not considering the Chinese index) is quite positive, meaning that it is "likely" the stock will close above that level next Friday. Any daily close this week above 32.19 would likely insure that would happen. LXRX generated a 2nd red weekly close, as well as a close on the low of the week, suggesting further downside below last week's low at 1.59 will be seen this week. The recent intraweek low is at 1.48 and if that holds up and the stock generates a positive reversal week, the required/needed retest of the recent low would be accomplished (if and when the stock goes above this coming week's high the following week. That scenario is the most probable but if the 1.48 level (1.53 on the weekly closing chart) breaks, the recent bullish action of the chart will be negated. As such, this is an important week for the stock. The 200-day MA is currently at 1.66 and if the bulls can get above that line on a confirmed basis, new buying will come in. On that chart, the pivotal daily close support is at 1.54. With the stock closing on Friday at 1.62, the bulls need to do something starting on Monday or Tuesday. A daily close above 1.77 would begin to give the bulls some new buying interest. PRAA had a very negative week, having made a new 5+-month intraweek and daily closing low (below 21.79 and below 22.17 respectively). The stock closed near the low of the week and further downside below last week's low at 21.52 is expected to be seen this week. Having said that, the stock made the low for the week on Thursday and should have seen a ton of new selling on Friday but it did not happen, and on Friday, the stock did not go below Thursdays low and generated a green day and a close near the high of the day, suggesting further upside above Friday's high at 21.93 is expected to be seen on Tuesday. The 200-day MA is currently at 21.76 and with the stock closing at 21.74 on Friday, a green close on Monday will negate the break. It is clearly evident that the MA line is very important now as the break of intraweek and daily and weekly close support should have brought in a lot of new selling. As such, the MA line and the 22.17 level (on a daily closing basis) are pivotal this week. The stock did hit the stop loss given and as such, will need to be liquidated if the above does not happen. SNDL generated a red week and a close near the low of the week, suggesting further downside below last week's low at 2.16 will be seen this week. Nonetheless, this move down was not unexpected as the stock broke out the previous week above a pivotal weekly close resistance at 2.20 and a retest of that breakout level was required. The stock closed on Friday at 2.22 and if a green weekly close occurs this Friday, that retest will be successful and it will bring in additional new buying interest. On the daily closing chart, the breakout level is 2.19 and on Thursday the stock closed at 2.18 and on Friday at 2.22, meaning that if the stock closes green on Monday, a successful retest of that level will have occurred. Intraweek support is at 2.15, which if broken would suggest a drop below 2.00 will be seen. The 200-day MA is currently at 1.85. VWDRY generated a red week and a close near the low of the week, suggesting further downside below last week's low at 9.07 will be seen this week. There is a fair amount of intraweek support between 8.77 and 8.86 (8.79-8.89 on daily closing basis) that should not get broken. If it does not get broken, the bulls will maintain their short-term control and likely stimulate enough buying interest to test the 200-week MA, currently at 10.09, within the next 3-6 weeks. If that support is broken though, the 8.50 would likely be visited. Either way, the chart maintains a positive outlook. ZLAB generated a negative week and a close in the lower half of the week's trading range, suggesting further downside below last week's low at 17.41 will be seen this week. Nonetheless, the stock closed slightly above an important daily close support level at 17.73 (closed on Friday at 17.92), which means that if a green close occurs on Tuesday, that pivotal support level will have been tested successfully. The runaway gap is down at 17.06 and closing of the gap would be a strong negative, given that the gap was created by a better-than-expected earnings report and "should" stay unclosed. There has been no reason for this recent drop other than to build a support base from which a recovery rally of consequence can occur. In fact, the company received additional good news this past week, in the way of another of their medicines has started to be officially used in the hospitals. Evidently, this is a very important week for the stock as closure of the gap would erase the recent rally. The stock is now showing a breakaway/runaway gap to the downside as well, with the runaway gap being between 18.58 and 18.50 and the breakaway gap being between 19.85 and 19.48. Closure of the runaway gap would make the breakaway gap a magnet. This gap down formation is not supported by news (the gaps to the upside are). As such, rally up to 18.58 would erase the recent weakness.
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1) ZLAB - Averaged long at 65.50 (7 mentions). No stop loss at present. Stock closed on Friday at 17.93. 2) ENG - Averaged long at 18.30. No stop loss at present. Stock closed on Friday at 1.69. 3) VWDRY - Averaged long at 8.68 (4 mentions). No stop loss at present. Stock closed on Friday at 9.16. 4) LXRX - P:urchased at 1.67. Averaged long at 1.553 (3 mentions). No stop loss at present. Stock closed on Friday at 1.63. 5) GCI - Averaged long at 2.14 (2 mentions). Stop loss at 1.85. Stock closed on Friday at 3.72. 6) BABA - Averaged long at 75.37 (2 mentions). Stop loss at 77.62. Stock closed on Friday at 81.26. 8) SNDL - Averaged long at 9.05 (2 mentions). No stop loss at present. Stock closed on Friday at 2.22. 9) JD - Purchased at 21.33. Stop loss is at 23.55. Stock closed on Friday at 30.27. 10) PRAA - Purchased at 24.25 and at 22.20. Averaged long at 23.225 (2 mentions). No stop loss at present. Stock closed on Friday at 21.74.
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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.
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information enclosed above, regarding his background, length of trading, and experience, is correct
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