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Issue #101 
December 07, 2008 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Stock Indexes Rally Amid Negative News!
DOW Friday close at 8635
The DOW, amid a barrage of negative news during the week as well as sell off on Monday of over 650 points, was able to stop the bleeding and finished the week with a strong rally. It seems evident that the bears have lost their ability to generate further downside and strong short-covering and bargain hunting occurred because of it. With the exception of Monday and Thursday, the index was able to shrug off the negative news and generate a late rally at the end of each day. It is evident that that most of the negative outlook for the market has already been factored into the price and that at this time further downside will be difficult for the bears to accomplish.
On Friday, the index had a classic reversal day with higher highs, lower lows, and a close above the previous days high. Such a reversal, coming on the heels of a major negative unemployment report, should generate some follow through to the upside this coming week.
Nonetheless, the DOW did close lower than the previous weeks close at 8829. It is important to note that during the last recession back in 2001-2003, the DOW traded, on a weekly closing basis, for a period of 9 months in a range between 8896 and 7528 (7197 and 9077 intra-week). During that period of time the downtrend was still in evidence as a new weekly closing low at 7528 was made just 8 weeks after the 8019 weekly closing low was generated and 5 weeks after the index closed at a high of 8873. Over that 9-month period of time there were two peaks and two valleys with 7528, and 7740 making the weekly closing lows of the valleys and 8873 and 8896 of the peaks.
On a weekly closing basis, there is some minor support at 8379 and strong support at 8049. Below that level there is no weekly closing support until 7528 is reached. Below that level you have to go back to 1997 and a weekly closing low at 7442 that was considered important at the time. On a daily closing basis, there is now very strong support at 8149/8176 and minor supports at 8283, 8376, and 8451. Major support is down at 7552. On a weekly closing basis, resistance is strong at 8852 (recent weekly high close) and up to 8896 (double top on the weekly closing chart from 2002) On a daily closing basis, resistance is strong up at 8852 from two previous closes at that price. Above that level the 9000 level will be strong psychological resistance as well as from the 50-day MA that is currently at that price. Minor daily close resistance would then be found at 9265 and then again at 9388. Major resistance would be at 9625.
With the strong weekly closes from 2002/2003 between 8873 and 8896 as well as the previous week's close at 8852, it is evident that the closes this coming week, both weekly and daily, could be strongly indicative of what the index will do for the next few weeks. Based on the reversal type day the DOW had on Friday, it is probable there will be follow through to the upside on Monday and Tuesday. Rallies up to the 50-day MA as well as psychological resistance up at 9000 are certainly possible and maybe even probable. How high the daily closes go, and how the index closes out the week, will likely determine how the traders will trade the index for the next month or two.
It is highly probable that all of this will be determined this coming week. The probabilities favor a sideways trading range for the rest of the month between 8000 and 9000. The fundamental news continues to be very bearish but it is evident the bears have lost their ability at this time to generate new lows. This is unlikely to change until the new President takes office. Nonetheless, due to the negative fundamentals, the bulls are also likely to have trouble getting new buyers at the upper levels of the trading range. Therefore, generating a strong rally above 9000 will also be difficult. With the holiday season quickly approaching, it is likely that the volume will continue to diminish and participation in the market will ebb.
The action seen on Monday and Tuesday is likely to paint the picture clearly. If the bulls are unable to establish a "beachhead" above 9000, they too, will likely stop trying aggressively during the holiday season and the market will get into a trading range for the next 6 weeks.
Possible trading range for the coming week will be 9037 to 8376.
NASDAQ Friday Close at 1509
The NASDAQ continues to show the weakest chart picture of all the indexes as it has yet to give any definitive chart indication that a bottom has been found. Nonetheless, the index has been able to stay away from the lows made 2 weeks ago and like the other indexes, did have a classic reversal day on Friday as well. The NASDAQ also closed above an important pivot point level at 1500 that could generate more upside than the other indexes, if follow through on Monday is seen.
The NASDAQ is an index that has been picked on by the bears, as the companies comprising this index have been among the least likely to survive the fundamental picture presently facing the economy. By the same token, if there is a strong short-covering rally in the indexes, it is likely that the NASDAQ will be leading the way.
On a weekly closing basis, support is now strong at 1384. On a daily closing basis, some decent support will be found between 1398 and minor at 1446. Major support is down at 1316. On an intra-day basis, strong support is found at 1398 and major at 1295. On a weekly closing basis, resistance is decent at the previous low weekly close at 1552. Nonetheless, last week's close at 1536 will now be a strong resistance level as well. Above that there is no weekly close resistance until 1721 is reached. On a daily closing basis, the 1536 level is decent resistance as that is the most recent daily high close. Above that, there is minor resistance at 1597 and then nothing until the 50-day MA currently at 1650. On an intra-day basis, there is decent resistance at 1536, minor at 1597 and again at 1617, and then nothing until strong resistance at 1786.
The NASDAQ left an open gap two weeks ago between 1387 and 1398. The index tried repeatedly this past week to close the gap but was unable to do so. It is likely that at some point that gap will be closed, but after several repeated failed attempts, it is now likely the index will be trying the upside before re-attempting to close the gap. With the reversal day on Friday as well as the close above the 50-day MA and the 1500 pivot point level, it seems probable that the index will be going higher this week. On a daily closing basis, there is decent resistance at 1536 but if broken, a rally up to the 50-day MA currently at 1650 is likely to be seen.
In addition, the index shows a possible flag formation with the flagpole being from 1295 to 1536, the flag the trading range between 1536 down to 1398. A break above the top of the flag at 1536 would offer an objective of 1641.
The 1536 level, on both a daily and weekly closing basis, is very important to the NASDAQ as it represents the previous weekly close that was seen as a successful re-test of the 1552 level that caused the breakdown of the index. A close above 1536 (and more so above 1552, on a weekly closing basis, would give a signal that the index has found a bottom. With both the DOW and the SPX already having given such a signal, it seems probable the NASDAQ will do the same. If that signal is given, it is likely that the index will outperform the other indexes this coming week.
S&Poors 500 Friday close at 876
The SPX had an inside week with lower highs and higher lows than last week. Nonetheless, the index was able to successfully re-test the double bottom on the weekly chart at 800 with a drop to 816. The fact the index had an inside week is actually a positive because it means a likely follow through to the action seen the previous week when the index rallied from major lows and closed on the highs of the week.
The close on Friday at 876 was also a strong positive as that is the same low weekly close the stock had on the way down, from which a rally up to the 1000 level was then seen. Such a close, if a higher close is generated this coming week, will be seen as a successful re-test of that important support.
The SPX, like the other indexes, also had a classic reversal day on Friday and after having tested successfully the intra-day support at 816/818 on several occasions this past week, seems poised to generate positive follow through to the upside.
On a weekly closing basis, support is now very strong at 800 and minor at 876. On a daily closing basis, support is strong at 816, again at 848/852, and major at 752. On an intra-day basis, support is now very strong at 816 and decent at 839-845.. On a weekly closing basis, resistance is very strong between 930 and 940 from two weekly closing highs in 2002 at 928/930 as well as a recent weekly closing high at 940. Above that level, resistance will also be strong at 968 from the most recent high weekly close. On a daily closing basis, resistance is strong at 896, and then decent at the 50-day MA and previous daily close at 930. Resistance is major at 998-1003.
With the repeated failed attempts this past week to break below the 816 level and test the 800 level, followed by a reversal day and close at an important weekly support level on Friday, it seems likely that follow through to the upside will be seen this coming week. The 930-940 level is certainly the main objective as it is a strong resistance level on the weekly closing charts as well as where the 50-day MA is currently located. Nonetheless, if the SPX is successful in closing higher than that level this week, rallies up to the 1000 level would be probable.
Nonetheless, in studying several of the charts of major financials companies that comprise the index, I found these stocks to have positive chart patterns for some additional upside. Nonetheless, these stocks all had major resistance levels close by that would be reached with only a small rally. This likely means the index will rally up to the 930 level, but is unlikely to rally more than that.
Probable trading range for the week is 865-930.
After a week where the bears got all the fundamental help they could have asked for, but failed to generate new lows, it is likely that the bulls will be trying to see how far they can push on the upside before reaching a brick wall. It is not likely they will get far as the fundamentals, as well as low volume and participation, are not likely going to help them achieve much higher valuations at this time. As the Xmas holiday approaches, interest in trading the market will wane. In addition, it is unlikely that new positions of consequence will be instituted until the new president takes over on January 20th.
Nonetheless, this week is still likely to have strong participation and it seems it will be the bulls' turn to see what they can do. Monday and Tuesday are likely to be indicative and therefore great attention should be placed on what the indexes do.
The most probable scenario is an early week rally up to the strong resistance, followed by some disappointment and fall back the latter part of the week.
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Stock Analysis/Evaluation
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CHART Outlooks
I expect the indexes to show strength the first part of the week and then settle down and correct back down. As such, mentions this week will be split into a couple of stocks with strong resistance levels above and clear downside objectives that should be reached, as well as a couple of stocks that are likely to move to the upside on their own chart patterns, disregarding any connection with the indexes.
SGR (Friday close at 16.27)
SGR is a stock that seems to be in a bottoming-out process but the recent lows at 11.47 have not yet had a good re-test. In addition, the stock has left an open gap between 14.16 and 14.30 that will become a magnet for the traders should the upside rally falter. Should the rally in the indexes continue in the first part of the week, it is likely that SGR will rally as well, but the stock will be reaching levels of strong resistance where the selling pressure will increase.
SGR does not have strong fundamentals at this time as it is a construction company in the real estate market. For this reason alone, the stock will likely experience selling on all rallies until such a time that a very strong support level is built and/or the fundamentals change. Neither of these have happened yet.
On a weekly closing basis, resistance is very strong between 18.09 and 18.40 from two previous weekly high closes of consequence. On a daily closing basis, there is minor resistance at 17.07 and strong at 18.40 from a high daily close of consequence as well as from the 50-day MA. Major resistance, on a daily closing basis, will be found up at 20.35/20.61 from a double top. On a weekly closing basis, support is decent at 14.07 and very strong at 13.71. On a daily closing basis, support is decent at 15.70/15.78 and again at 15.15. Strong support will be found at 13.24 and major at 12.06. On an intra-day basis, decent support is found at 14.54/14.65 and strong at 12.43/12.56.
If the indexes rally the first part of the week, it is likely at SGR will rally as well, up to the resistance level on the intra-day chart between 17.59.17.65. Nonetheless, the resistance starting at that level and up to 18.40 is very strong and without the indexes breaking out aggressively, it seems highly unlikely the stock will be able to get above that strong resistance.
In addition, the lows seen two weeks ago have not yet been tested and with the open gap below, the probabilities of the stock going down from the resistance levels is high.
Sales of SGR between at 17.59 or higher and using a stop loss at 18.50 and an objective of 12.43/12.92 will offer a risk/reward ratio of 5-1.
My rating on the trade is a 4 (on a scale of 1-5 with the strongest probability rating being 5).
JNPR (Friday close at 17.38)
JNPR is yet another stock that made new 2-year lows two weeks ago but reached a level of previous weekly and psychological support, on a weekly closing basis, when it dropped down to the $15 level (13.29 intra-day). During the recent rally in the indexes, the stock has been able to generate a rally back up above the previous weekly closing low at 16.50 that was broken two weeks ago, thus signaling that its probable the bottom has been found. Nonetheless, it is reaching levels of resistance that are likely to stop further rallies. In addition, this is also a stock that has not yet re-tested the new 2-year's lows and should the indexes find resistance above, the stock is likely to correct back down to test the lows.
JNPR had an inside week, after the previous week's rally, and that likely means some follow through to the upside this week above the weeks high of 16.99. Nonetheless, there is strong resistance in the stock starting at 17.58 and on up to the $18 level that is not likely to get broken at this time. In addition, the stock has left an open gap below between 14.92 and 15.03 that will be a magnet on any weakness.
On a weekly closing basis, resistance is now decent at 17.38 and then strong again between 17.99 and 18.20. Above that level resistance is very strong up at 18.74. On a daily closing basis, resistance is strong at 17.55, from a previous high daily close of consequence as well as from the 50-day MA currently around the same price. On an intra-day and intra-week basis, resistance is very strong at 17.58. On a weekly closing basis, support is strong at 14.91 and major at 12.20. On a daily closing basis, support is minor at 15.58 and decent at 15.15/15.26. Strong support is found at 13.84. On an intra-day basis, support is strong at 15.15 and then minor at 14.20.
Based on the strength of the indexes on Friday, as well as the close near the highs on the stock, it is likely that some follow through will be seen this week. Probable upside objectives include testing intra-day resistances on the 10-minute between 16.78 and 16.93 as well as testing the 50-day MA on the daily chart currently at 17.38.
It does seem unlikely that the stock will be able to get above these resistance levels at this time unless the indexes are stronger than anticipated. The gap area will be a definite draw for the traders if the stock is unable to break above the 17.58 level.
Sales of JNPR between 16.90 and 17.38 and placing a stop loss at 17.68 and having an objective of 14.20 will offer a risk/reward ratio of about 4-1.
My rating on the trade is a 3 (on a scale of 1-5 with the strongest probability rating being 5).
RMBS (Friday close at 11,71)
RMBS got some good fundamental news a week ago when it was determined by the courts that they do have a patent infringement case against a competitor. Since that news came out the stock has rallied from a low of 4.95 to Friday's high at 11.75.
The stock has built a flag formation in the process that if broken (a break above 11.75) gives an objective of 17.31. With the probabilities of some continued strength in the indexes, it is possible the stock could break out on Monday and stage a strong rally up to that level as there is very little resistance on the way up.
On a weekly closing basis, there is resistance at 12.95 from a previous weekly low close of consequence, as well as from the 20-week MA at the same price. Above that level, there is no resistance until the next round of previous weekly low closes are reached up at 15.50-15.81, as well as from the 50-week MA is reached currently located at 16.50. On a daily closing basis, only the 100-day MA currently at 12.45 is found. Above that level, there is nothing until the 15.00 level is reached where there is a slew of previous daily low closes. Above that the 200-day MA at 1647, as well as a couple of daily high closes between 15.95 and up to 16.78 are seen. On a weekly closing basis, support is very strong down at 10.26. On a daily closing basis, support is decent at 10.61. On an intra-day basis, decent support is found at 10.36.
Trading RMBS at this time requires thinking on your feet unless you want to trade the stock on a mid-term basis (not short-term). A breakout above 11.75 (top of the flag) could generate an immediate rally (within a week at most) all the way up to the $15-$16 level. Nonetheless, the 20-week and 100-day MA's, both around 12.45, could stop the rally and generate a failure-to-follow through signal and cause a short-term drop back down to the 10.26/10.36 level where the support is strong.
Keep in mind that a breakout above the top of the flag does have clearly defined parameters, starting with the fact that the breakout area then becomes support and not even on an intra-day basis, starting the following day after the breakout, should the stock trade below that price. That means that buying a breakout offers the trader a very small risk factor, though the probability rating is reduced at the same time.
If you want to trade this stock on a mid-term basis, it is likely that RMBS will be trading between $10 and $16 over the next few weeks and/or months. Buying the stock near the lows and selling it near the highs could generate several successful trades during this period of time.
Purchases of RMBS on dips down to 11.00 and placing a stop loss at 10.16 and having an objective of 16.20 will offer a risk/reward ratio of 6-1. Nonetheless, you can also purchase the breakout at 11.85 on a stop and use a sensitive stop at 11.38 thereafter.
My rating on the trade is a 3 (on a scale of 1-5 with the strongest probability rating being 5).
ELON (Friday close at 5.63)
ELON is an company that produces a product and service that will be in demand in the future as it is an energy and money saving device. This is a company that fits in nicely with that President-elect Obama is trying to accomplish.
Nonetheless, the stock did make a new 10-year low during this collapse in the market but reached what must be considered a major psychological support level when it dropped down to $5. The stock has been in the process of building a bottom formation over the past couple of weeks, after the stock broke below the previous and important support level at $7. During these past 4 weeks, ELON has already successfully tested, on both the daily closing chart and weekly intra-day chart, the previous low at 4.92. The stock chart now looks poised to generate a re-test of the major support at $7 that it broke down from 4 weeks ago.
ELON is also a stock that has often gone in contrast with the stock indexes and therefore is likely going to be moving on its own fundamentals and chart patterns at this time.
On a weekly closing basis, support is very strong at 5.40. On a daily closing basis, support is very strong at 5.05 and again at 5.38. On an intra-day basis, support is strong at 4.94 and again at 5.20. On a weekly closing basis, resistance is decent at 6.39 and then a bit stronger at the previous weekly low closes between 7.05 and 7.34. Above those "low" weekly closes, there is no resistance of consequence until the mid 8's are reached. On a daily closing basis, there is minor resistance at 6.18 and a bit stronger at 6.48/6.58. Above that level there is no resistance until 7.18 is reached. That level is from a previous low daily close as well as from the 50-day MA.
ELON seems to have found a strong bottom at $5. That level has been successfully re-tested on the daily closing chart as well as on the intra-week weekly chart. It seems likely that the stock will now be moving up to test the resistance levels above and try to break them. It is important to note that the resistance levels above are from previous daily and weekly low closes and therefore not of major strength. The chart is offering clearly defined trading levels that offer good risk/reward ratios. In addition, the potential for further upside is good as well.
Purchases of ELON between 5.52 and 5.58 and placing a stop loss at 5.14 and having an objective of 7.18, offers a risk/reward ratio of 4-1. Potential for rallies up to the mid 8's is strong and would increase the risk/reward ratio to over 7-1.
My rating on the trade is a 4 (on a scale of 1-5 with the strongest probability rating being 5).
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Updates
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| Updates on Held Stocks
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Open Positions and stop loss changes
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| NUAN had an inside week this past week but was able to maintain most of the gain achieved the previous week. That is a strong positive on the chart. It seems likely that with the strength the indexes showed on Friday, that some follow through to the upside should be expected this week. It is likely that rallies up the resistance level up between 10.00 and 10.37 will be seen. Nonetheless, if the stock is able to get above 10.37, there is absolutely no resistance until the 200-week MA is reached up at 11.80. The chart does support that strong further upside could be seen. Support is now strong at 8.28. The 50-day MA is currently at 9.50. AA broke below the daily closing support at 9.04 this past week and dropped down to the 7.45 level in an attempt to re-test the previous low at 6.80. On Friday the stock did close near the highs of the day and if the stock is able to close in the green and get above Friday's high of 8.26 and not go below Friday's low at 7.45, it will make Friday's action into a "successful" re-test of the lows. Under that scenario, purchases of the stock should be considered. Resistance will be decent at 9.04 and again at 9.76. IGT was able to generate a small breakout daily close on Friday when it closed above the previous daily high close at 10.71. The stock does show some minor resistance at 11.48 (11.12 on a daily closing basis) but it is likely that with this positive close the stock could run up to the 50-day MA up at 12.30. Support is now considered very strong between 9.65 and 9.79. On the 10-minute chart, any print above 11.00 will likely generate a strong up day. TRA closed higher on Friday, making Thursday's close at 12.39 into a successful re-test of the low daily close at 11.25. The stock does show strong resistance at 14.80, on a daily closing basis, but a close above that level would be a buy signal as it would not only be a break of important resistance but also of the 20-day MA. In looking at the 10-minute chart, any print above 13.30 should stimulate the stock to run up to the 14.00 level where a gap up to 14.38 exists. Closure of the gap will likely stimulate the stock up to 14.80. A close above that level would give an objective of a rally up to the 50-day MA at 18.90. The stock seems to have built a bottom on the daily chart and now needs to do the same on the weekly chart. A weekly close above 14.71 will accomplish that. A daily close below 12.39 would now be a negative. HANS closed lower this week than last week, making last week's close at 29.75 into a successful re-test of the psychological resistance at $30 as well as of the 200-week MA. Nonetheless, the close was only by a few points and with Friday's aggressive and strong rally, the stock seems to be poised to go higher this week, at least on an intra-week basis. In looking at the weekly chart, it seems probable that a rally up to the 32.00 level will be seen this coming week. In addition, a break above the 30.00 level will also be a break above the 200-day MA and that could generate strong follow through. Support is now major at 26.67. I do plan to take profits on the trade if the 32.00 level is seen, nonetheless, if the stock is able to get above 32.99 it could run up to the $38 level. If the stock is successful in getting above the 30.00 level, on a daily closing basis, the probable trading range for the stock over the next few weeks would be $32-$28. RIO seems to have successfully tested the low daily close at 8.80 with Thursday's close at 9.65 followed by a green close on Friday. In addition, on an intra-day basis, the stock will have a double bottom at 8.80 if it is able to get above Friday's high of 9.90 and not go below Friday's low at 8.81. In addition, the stock continued to maintain itself, on the weekly closing chart, near or at the major support level, both psychological and chart oriented, at $10. It seems likely that the stock has seen its lows and that a bottom is now set. Nonetheless, that won't be confirmed until this next week's action is over.
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1) NUAN - Averaged long at 8.185 (2 mentions). No stop loss at present. Stock closed on Friday at 9.02.
2) IGT - Purchased at 10.46. Stop loss at 9.55. Stock closed on Friday at 10.86.
3) TRA - Purchased at 12.02. Stop loss at 11.15. Stock closed on Friday at 13.09.
4) HANS - Purchased at 27.32, at 27.02, and at 26.80. Averaged long at 27.04 (3 mentions). Stop loss at 25.80. Stock closed on Friday at 29.56.
5) RIMM - Purchased at 41.57. Liquidated at 43.79. Profit on the trade of $222 per 100 shares minus commissions.
6) ABB - Purchased at 11.67. Liquidated at 11.41. Loss on the trade of $26 per 100 shares plus commissions.
7) AA - Averaged long at 18.805 (2 mentions). No stop loss at present. Stock closed on Friday 8.15.
8) SYT - Liquidated at 32.40. Averaged short at 35.79. Profit on the trade of $678 per 100 shares (2 mentions) minus commissions.
9) RMBS - Liquidated at 10.55. Averaged short at 10.14. Loss on the trade of $82 per 100 shares (2 mentions) plus commissions.
10) DIA - Purchased at 84.99. Liquidated at 84.72. Loss on the trade of $27 per 100 shares plus commissions.
11) AA - Purchased at 8.81. Liquidated at 8.30. Loss on the trade of $51 per 100 shares plus commissions.
12) RIMM - Purchased at 41.57. Stop loss at 40.16. Stock closed on Friday at 42.47.
13) RIO - Purchased at 9.00. Stop loss at 8.70. Stock closed on Friday at 9.82.
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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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