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Issue #206 
December 26, 2010 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Indexes Inching Upward, Upside Objectives in View!
DOW Friday closing price - 11573
The DOW extended its gains once again this past week making yet another 27-month weekly closing high. The index continued to move higher as there was no previous resistance in evidence where the bears could come in and sell with some degree of confidence. Nonetheless, the index did close on Friday very close to a level that was decent weekly close resistance back in May 2006 at 11578, and with the overbought condition that exists as well as the lack of participation (volume) seen, there is a good possibility that the index will close lower next Friday.
The DOW is now within 180 points of a major resistance level at 11750 seen the first week of January 2000 and that lasted 6 years before it was broken. It is unlikely that without "further" evidence that the economy is continuing to grow at a better pace than is presently been seen, that the resistance level at 11750 can be broken or taken out.
On a weekly closing basis, resistance is decent at 11578 and strong at 11723/11734. On a daily closing basis, resistance minor at 11603, minor to decent at 11640, and decent to strong between 10715 and 10734. On a weekly closing basis, support is very minor at 11221, decent between 11098 and 11101, and decent at the 200-week MA, currently at 10930. On a daily closing basis, support is minor between 11362 and 11372, minor at 11114, and minor again at 11036. Below that, decent to strong resistance is found between 10979 and 11008.
The DOW did close near the highs of the week and further upside is expected to be seen at the beginning of the week. In 2006 when the index generated a weekly close at 11578, the index did move up to an intra-week high of 11670 the following week and generated a high daily close of 11643, before giving it all back on Friday to close below the previous week's close. Such a scenario is highly likely to be seen this coming week as well.
It is also evident that the traders are not going to do anything aggressive, on either side, until the new quarter earnings and economic reports come out. Nonetheless, the possibilities are high that the traders will take profits at the end of this coming week not only because it is the end of the year but also because the market opens on Monday, January 3rd, with the always important ISM index report that comes out at 10:00am, and with an overbought condition and near a major resistance level, the risk is far greater to the downside than to the upside. As such, the traders will likely want to be on the sidelines for the report that kicks off the New Year.
Support in the DOW will be found at the 50 60-minute MA, currently at 11500. It should be kept in mind that last week's low was 11443 and if broken, it would be a sign that the index has topped out. This is especially true if the index first makes higher highs than last week, as it would make a break of last week's low into a reversal signal.
NASDAQ Friday closing price - 2666
The NASDAQ got one step closer to the 3-year highs from December 2007 found between 2698 and 2735 with a rally this past week to 2675. The index closed near the highs of the week suggesting that further upside, and a rally up to the 2700 level, might be seen this coming week.
The NASDAQ continues to outperform the other indexes and because it is the only index that shows resistance levels of consequence that are recent (not old, like the ones in the DOW from the year 2000), it likely to be the index that will be the most indicative for the next few weeks.
On a weekly closing basis, resistance is decent to strong between 2692 and 2706. Above that level, major resistance is found at 2810. On a daily closing basis, decent to strong resistance is found between 2719 and 2724. Above that level, there is no resistance whatsoever until the 2800 level is reached. On a weekly closing basis, support is minor at 2518. Below that, there is minor support at 2445, very minor at 2373, and decent to strong between 2212 and 2239. On a daily closing basis, support is now minor at 2617, minor to decent at 2495 and decent to strong between 2460 and 2468. Below that, there is minor support at 2437 and then decent at 2400.
The NASDAQ has no resistance whatsoever until 2696 is reached and therefore an additional 30+ points to the upside should be seen this coming week. That should not be difficult to obtain as the index did rally 24 points above the previous week's high this past week, as well as close 23 points higher. By the same token, the 2700/2735 level should be extremely difficult to break without some major fundamental help that is not likely to be available, if at all, until January.
The NASDAQ is very overbought and shows no support of consequence nearby and therefore any sign of weakness will probably generate a fair amount of selling over a short period of time. Last week's low at 2635 needs to be considered important support if only because any break of a previous weekly low would likely signal that a top has been found. If that happens, drops as low as 2500 could be seen without too much trouble.
Nonetheless, like the DOW, the probabilities favor strength at the beginning of the week with an attempt to reach the 2700 level. By the same token, profit taking could ensue at the end of the week and if the 2635 level is broken, the probabilities of a top having been found will be high. The index likely needs to see an intra-week print at 2700 to fulfill the chart, but a close at those levels could end up being more positive than desired. As such, it is possible that last week's close at 2666 could be "it" to the upside, at least on a weekly closing basis.
Probabilities favor further upside this week and based on the range of 40 points seen last week, a trading range between 2660 and 2700 could be seen this week. Nonetheless, the 50 60-minute MA is currently at 2650 and there is also a minor low at 2649 that gives that area a bit more supportive strength. As such, a break below 2650 could signal that the index is heading lower. If that is followed up with a break below 2635, the probabilities that a top has been found will increase strongly.
SPX Friday closing price - 1256
The SPX was able to get above the 1250 level that had dogged the index for a week and generate a stronger rally than the rest of the indexes, having gone up over 1% in value this past week, contrary to the other indexes having lesser rallies. Nonetheless, the index is reaching a minor level of resistance from Sep08 at 1165 that based on the low ability seen recently to generate any kind of meaningful rally, might prevent the index from going higher.
The SPX does not show any strong resistance until the 1300 level is reached and if able to get above 1265 it is possible that the index will generate a strong rally. Nonetheless, the 1265 high from September did show a 1255 weekly closing high and with the index closing at 1257 on Thursday, if a red close is seen this coming Thursday, it will be seen as a successful test of that level.
On a weekly closing basis, resistance is minor at 1265 and then decent to strong between 1292 and 1298. On a daily closing basis, resistance is minor at 1268. Above that level, resistance is decent to perhaps strong up between 1300 and 1305. On a weekly closing basis, support is minor at the 200-week MA, currently at 1190. Below that level there is no support until the 50-week MA is reached, currently at 1121. On a daily closing basis, support is minor at 1235, very minor at 1223 and decent to perhaps strong between 1178 and 1184. Below that, there is no support until minor support is reached at 1137 and again at 1125.
It is likely that the SPX will continue higher this week with 1265/1268 as a viable objective. Nonetheless, like with all indexes, the probabilities are good that selling will be seen as Thursday and the end of the year approaches. Probabilities seem to favor the index closing lower next week. A break below last week's low at 1242 would be a negative that would likely thrust the index back down to at least the 1200 level.
The indexes are facing a week in which the volume and participation will be extremely low. The momentum continues to be to the upside and the probabilities favor higher numbers at the beginning of the week. Nonetheless, the probabilities are also high that the traders will take profits by the end of the week and get on the sidelines awaiting the economic and earnings reports that start the first week of January.
All the indexes are reaching levels of strong resistance that will require strongly positive fundamental news to break through. In addition, the indexes have moved up straight up without any kind of correction for the past 4 weeks and show no support levels of consequence nearby that can be depended upon and from which the bulls could buy aggressively from. As such, even under the most positive news, the probabilities of a correction downward at the beginning of the year are high.
It should be mentioned that from 1999 through 2004, the indexes did show a major high being made the first couple of weeks in January and a drop down through at least March. The probabilities favor that same scenario occurring this coming year.
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Stock Analysis/Evaluation
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CHART Outlooks
All mentions this week will be shorts. The shorts are mostly the same ones mentioned last week as the desired entry points in 3 of the stocks were not reached. There is one exception replacing the JNPR short which was put on last week already. Once again, since a rally in the indexes is expected at the beginning of the week, the entry points will again be "above" Thursday's closing prices.
SALES
UTX - Friday closing price - 78.80
UTX is a stock in the DOW that has been mimicking the index for the past few weeks and likely will continue to do so this coming week. The stock has generated a rally over the past 4 months of close to 40% and over the past 3 weeks of close to 20% but is now getting close to the all-time high made in Oct07 at 82.50 where some strong selling is likely to be found.
UTX has outperformed the DOW since July of last year rallying over 60% in value while the index during the same period of time has only rallied 42%. This is considered a rare occurrence as the previous 5 years before 2009 the index and the stock tended to move 100% in tandem, and now the stock seems to have outpaced the index to the highest level ever. Reaching such a major resistance level and knowing the past history of the UTX/DOW comparisons, it can be surmised than any weakness at this time would likely affect the stock much more than the index, perhaps to the point of getting back to the old par value between the two.
On a weekly closing basis, resistance is major at 80.48. Above that level there is no resistance. On a daily closing basis, resistance is decent at 78.87, minor at 81.20, and major at 82.07. On a weekly closing basis, support is minor at 74.88, minor again at the 50-week MA, currently at 71.10, and decent between 66.57 and 67.48. Below that level, strong support is found at 64.29. On a daily closing basis, support is minor at 77.63, decent at 74.80, and decent to strong at 73.64. Below that level, there is no support of consequence until 69.46 is reached.
UTX broke above the top of a small flag formation on Thursday, making a new 38-month intra-week and weekly closing high, and the probabilities seem to favor a rally above $80 with a good possibility of reaching intra-day or intra-week the 82.50 level. Nonetheless, with the indexes would likely be hitting their upside objectives at the same time and the probabilities of a strong correction occurring thereafter, in both the stock and the indexes, would be high. With UTX having outpaced the DOW for the last year and a half, should such a drop occur, the probabilities also favor the stock breaking down even more than the index.
To the downside, UTX will show quite a bit of support around the previous weekly closing high at 76.47. In addition, the stock gapped up right after the last earnings report from 75.69 and 76.54 and that means the 76.54 area will also be considered support. Should the gap be closed, a drop down to somewhere between $74 and $75 would then likely occur. Nonetheless, should that area get broken, drops down to $70 would then be likely. It should also be mentioned that if the stock does begin to show weakness and the bullish gap gets closed, the longer term objective would then likely become the 200-week MA, currently at 65.30.
Sales of UTX between 80.40 and 82.50 and using a stop loss at 83.00 and having an objective of 65.30 would offer a 6-1 risk/reward ratio.
My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the strongest).
BA Friday closing price - 65.03
BA has not performed well since the earnings report was released in early November and once again this past week the stock showed weakness at the beginning of the week in spite of the strength in the indexes. Nonetheless, with the continued strength in the indexes throughout the week, the stock was able to rally sufficiently from the lows of the week to close 3 points above the previous week's close, suggesting that if the indexes rally again this week as expected, that the stock could be "dragged up" to re-test the recent high at 67.39, as well as the 200-day and 200-week MA, both currently at 67.10.
BA continues to have a bearish looking weekly chart that suggests that drops back down to the $60 level are highly likely to be seen at some point in the near future. It is also very possible that the resistance level that was in existence from November 2008 to December 2009 at $55, and from which a breakout occurred, could also be tested if the $60 level of support does not hold up.
On a weekly closing basis, minor resistance is found at 66.54 and minor to decent resistance is found at 68.70/68.77. Above that level, strong resistance is found up at 71.27. On a daily closing basis, resistance is minor at 65.41, decent at 66.54, and strong between 71.27 and 71.66. On a weekly closing basis, support is minor at 64.16 and decent between 62.95 and 63.09. Below that level, there is minor to decent support at 61.15 and the nothing of consequence until 55.80. On a daily closing basis, support is very minor at 64.24, minor to decent at 63.79 and then decent at 62.50. Strong support is found at 60.13.
BA did test the 61.84 low made the second week of November with a drop this past week to 62.82. The stock was then able to generate a rally, with the help of the indexes, and erase all the early week weakness, suggesting that if the indexes rally this coming week, as expected, that the stock will move up as well with the 66.80 to 67.10 area as the objective. Such a rally should be seen as a good opportunity to short the stock.
Sales of BA between 66.80 and 67.39 and using a stop loss at 67.79 and having an objective of at least 60.00, will offer a 7-1 risk/reward ratio.
My rating on the trade is a 4 (on a scale of 1-5 with 5 being the strongest). This rating was raised from 3.75 (last week's mention) because of the action seen this past week.
MMM Friday closing price - 86.47
MMM since 2004 has found strong resistance between $88 and $90, having generated a total of 6 major monthly highs during this period of time. Nonetheless, there have been 2 exceptions to this with the stock having rallied to $97 back in Oct07 and just recently in October of this year when the stock got up to 91.49. This last time, though, the stock disappointed having broken above the $90 level at a time the indexes were showing strength and in spite of the continued strength in the indexes, the stock was unable to go higher to test the previous high at $97, and gave a failure to follow through signal falling back below the $88 level to $83.
MMM has consistently shown drops of at least $17 after having reached the $90 and with the probability that the indexes are reaching their extended highs, as well as the recent failure to follow through being seen in the stock, the probabilities have increased that the stock is ready to head lower.
On a weekly closing basis, resistance is minor at 86.94, decent at 88.67 and strong at 90.44. On a daily closing basis, resistance is minor at 87.34, decent at 88.03 and strong at 90.90. On a weekly closing basis, support is decent between 84.22 and 84.42, decent again at 80.66, and strong at 76.10. On a daily closing basis, support is decent to strong between 83.59 and 84.11 and then nothing until decent to strong support is found again at 78.55. Strong support is found at 74.74.
MMM had a worse than expected earnings report back on October 27th that caused the stock to gap down from 88.56 to 88.00, which in turn was the reason the failure to follow through signal was given after the stock had rallied up to 91.49. The stock has traded sideways since that report between a low of 83.00 and a high of 87.87. Nonetheless, the stock now shows 2 successful retests of the gap area with a rally in November 4th to 87.87 and the most recent rally on December 20th to 87.82. It is very evident that the bulls have been unable to generate enough buying to close the gap, in spite of the continued strength in the indexes. If the indexes do find a top to this rally this coming week, MMM could be one of the stocks leading the way down.
MMM has been successful over the past 2 months in holding itself above the 200-day MA, currently at 84.00. Additional support is found at the November 29th low of 83.00. Nonetheless, should those levels get broken, there is no support of consequence until the 79.20 to 80.00 level is reached. In addition, the stock shows an open gap between 81.89 and 82.02 that will also act as a magnet if the stock fails to close the gap above. On the weekly chart, though, a break below 83.00 suggests a retest of the 200-week MA, currently at 75.50 would be the likely objective.
MMM did make a new 6-week high this past week with the rally up to 87.82 and with the expected rally in the indexes this coming week, the probabilities favor the stock rallying at least back up to the 87.00 level and probably up to 87.42. Nonetheless, there is also a possibility that having made a new 6-week high that the bulls will attempt one more time to close the gap up at 87.56 by taking the stock above the 87.87/87.82 highs seen recently. By the same token, the weekly chart does show a previous high of some consequence at 88.38, and though the possibilities do exist the stock will get that high, it would still leave the gap open, keeping the chart formation bearish.
Sales of MMM between 87.00 and 87.42, using a stop loss at 88.56, and having an objective of 75.50, will offer an 7-1 risk/reward ratio.
My rating on the trade is a 4 (on a scale of 1-5 with 5 being the strongest).
HD Friday closing price - 35.10
HD has been in a downtrend since the year 2000 when the stock got up to a high of $70. During these 10 years, every major rally high has fallen short of the previous high and until that changes, the trend continues to be down. The stock is presently getting near the last major high at 37.03 and with the indexes likely to see a major high themselves this coming week, the probabilities of the stock failing once again are high.
HD has been on a mid-term uptrend since Oct08 when the stock made a new 11-years low with a drop down to 17.05. Since then, the stock has been rallying but in April of this year, the stock reached a high with a rally up to 37.03 and a subsequent drop down to 26.62. The 37.03 level has to be considered a pinnacle high in the long-term downtrend and not likely to be broken unless the long-term trend is over.
On a weekly closing basis, resistance is minor at 35.20 and strong at 36.39. On a daily closing basis, resistance is minor at 35.59, decent at 35.89 and strong at 36.39. On a weekly closing basis, support is minor at 33.43 and then nothing until decent resistance is found at 31.01. Below that level, support psychological at $30, decent at the 200-week MA, currently at 29.00, and decent again at 27.72. On a daily closing basis, there is minor support at 33.43, again at 32.89 and then nothing until decent support is found between 30.21 and 30.41.
HD has moved "straight-up" for the past 4 weeks from a low of 29.98 to Friday's high at 35.49. Nonetheless, this past week the rally started to "run out of gas" as the rate of ascension strongly diminished, suggesting the stock may be finding strong selling as it tries to approach the upside resistance between 35.89 and 36.39. Nonetheless, the stock should continue upward this week if the indexes rally as expected. Having gotten up to 35.49 this past week, it would not be surprising to see the stock climb up to the resistance level mentioned above.
If the long-term downtrend is still in existence, drops down to the $20 could be seen over the next 3-9 months. Nonetheless, for the short-term a drop back down to the $30 is what is likely to be seen if the stock fails here.
Sales of HD between 35.69 and 36.00 and using a stop loss at 37.13 and having an objective of 30.00, will offer a 5-1 risk/reward ratio.
My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the strongest.
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Updates
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| Updates on Held Stocks |
Closed Trades, Open Positions and Stop Loss Changes |
| DCTH had lower highs and lower lows that the previous week making the 11.60 high seen 2 weeks ago into a decent resistance level. Nonetheless, the stock also got down to the decent support at 9.60 on Friday, after seeing a very negative reversal day on Thursday, and was able to hold that level and generate a close above the $10 level, suggesting that the week's highs and lows may hold up for a couple of weeks before being broken. The stock did close on Friday in the upper half of the day's trading range suggesting that follow through to the upside will be seen on Monday. Upside resistance will now be decent at 10.95. It is unlikely that resistance level will be broken without fundamental help. Probabilities do favor a 9.70 to 10.95 trading range for this coming week. GE continued its upward movement making mew 7-month highs. The stock does not show any resistance of consequence until 18.94 is reached and if the indexes do rally as expected, that level could be reached. By the same token, if the indexes sell off before the end of the week, the stock will likely do the same, and a red close next week below Thursday's close at 18.04, would be seen as a negative. Closest support is down at 17.37 (17.49 on a daily closing basis). If broken, rally could be deemed over. FCEL reached its main short-term objective this past week when the stock got up to the 2.20 level where the island gap formation is found. Closure of the island formation would likely generate further upside to the 2.72 level. On the other hand, a break below Thursday's low at 2.02 would give added strength to the island gap resistance and likely take the stock down to the 1.66 level where strong support is found. The 2.00 level should be considered an important pivot point this week and if the stock is able to stay north of 2.00, it is likely to reach 2.72. SVNT generated a green close on Friday which made the previous week's close at 11.83 into a successful retest of the 11.73 low seen the first week of November. The probabilities now favor the stock moving back up near the $13 level with an objective of 12.69/12.82. The stock continues to wait on news of further funding for their product. For the time being it is likely the stock will continue to trade sideways between 11.70 and 13.00. TRW was unable to generate any follow through to the upside after the 2 new all-time highs seen in the past 2 weeks. The stock closed in the red and a drop down to the $50 level could be seen this coming week. A daily close above 53.43 would likely extend the rally, while a close below 52.31 likely thrust the stock down to 50.00. Based on the lack of follow through in the stock, versus the continued strength in the indexes, the probabilities now slightly favor the downside. CAT continued its strong upward climb making new weekly closing highs. The stock has given no indication that a temporary top is near and with the $100 psychological resistance being a magnet, rallies up to that level continue to be possible and maybe even probable. The stock, though, is likely to be sensitive to what the indexes do and if the indexes do top out this week and sell off toward the end of the week, it is likely the stock will follow the same path. LVS generated a green weekly close on Thursday making the previous weeks close at 45.35 into a successful retest of the 200-week MA. Nonetheless, the stock did close near the lows of the week and the probabilities favor weakness at the beginning of the week with a possible intra-week downside objective of 44.10. Though the action this past week had to be considered disappointing, as the stock did not get up to its upside target of $50, if the 44.10 level of support holds up, a rally back up to 47.00 could be seen. JNPR extended its recent rally generating another green weekly close, but the stock fell short by 11 points of closing above the highest weekly close in 9 years at 37.12 when it closed on Thursday at 37.01. It should be mentioned though, that the stock now shows a double top on the daily closing chart, having closed on Wednesday at 37.61 and the 2007 daily close being at 37.63. In addition, the 2007 intra-week high was 37.99 and this past week's high was 37.95. The action this past week sets this coming week as being very important as a red close next Thursday will also generate a double top on the weekly closing chart. Any daily close above 37.63 would now be considered a positive as it would be a new 9-year daily closing high. The stock did close near the lows of the week and any drop below last week's low at 36.50 would give fuel to the bear side that a top to this rally has been found.
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1) GE - Shorted at 16.65. Averaged short at 16.48 (2 mentions). No stop loss at present. Stock closed on Friday at 18.04.
2) DCTH - Purchased at 9.64. Averaged long at 7.66 (2 mentions). No stop loss at present. Stock closed on Friday at 10.09.
3) FCEL - Purchased at 1.23. No stop loss at present. Stock closed on Friday at 2.09.
4) JNPR - Shorted at 37.30. Stop loss at 38.15. Stock closed on Friday at 37.01.
5) SNDK - Liquidated at 51.03. Shorted at 50.75. Loss on the trade of $33 per 100 shares minus commissions.
6) LVS - Purchased at 43.37. Stop loss at 41.60. Stock closed on Friday at 45.81.
7) SVNT - Purchased at 11.55. Stop loss now at 11.06. Stock closed on Friday at 12.03.
8) TRW - Shorted at 50.18 and 52.07. Averaged short at 51.125 (2 mentions). No stop loss at present. Stock closed on Friday at 52.57.
9) CAT - Shorted at 84.39. No stop loss at present. Stock closed on Friday at 92.59.
10) DCTH - Liquidated at 10.80. Purchased at 9.71. Profit on the trade of $109 per 100 shares minus commissions.
11) DCTH - Liquidated at 11.12. Purchased at 8.29. Profit on the trade of $283 per 100 shares minus commissions.
12) FCEL - Liquidated at 2.02. Purchased at 1.39. Profit on the trade of $63 per 100 shares minus commissions.
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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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