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Issue #104 
January 04, 2008 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| A New Year's Rally is Probable!
DOW Friday close at 9034
The DOW staged an impressive first-day-of-the-year rally that generated a weekly closing price higher than the two previous important weekly closing highs during the last recession in 2002, at 8873 and 8896. Such an event could be a sign that the selling pressure has waned and that further upside, on a short-term basis, might be seen.
Much of the rally can be attributed to "hope" that the new administration, taking office on January 20th, can and will be making radical changes that will ultimately get the economy back on the right track. With the market generating rallies in the face of continued negative news, it seems likely that further upside could be seen until such a time that the new administration has actually instituted its game plan.
It is also important to note that the DOW had a classic reversal week with higher highs, lower lows, and a close above the previous week's high. In addition, the move down to 8364 seen this past week can be considered, "though minimally", a successful re-test of the previous lows. Such a two-punch combination, added to new 8-week closing highs as well as generating a higher weekly close than in 2002, seems to suggest that strong follow through will be seen this coming week.
On a weekly closing basis, support will now be very strong at 8516 and major at 8046. On a daily closing basis, there is now very strong support at 8565/8585 and again at 8650 where the 50-day MA is currently located. There will be minor support from previous daily closing highs between 8934 and 8944. On a weekly closing basis, there is no resistance until the most recent weekly closing high at 9325 is reached. Above that level there is nothing until the 20-week MA is reached up at 9580. On a daily closing basis, there is decent resistance at 9265 and a bit stronger at 9382. There is major resistance at 9625 from the highest daily close in the last 3 months as well as from the 100-day MA currently trading at 9675. On an intra-day basis, there is very minor resistance up at 9160 and then again at 9285. Above that, there is absolutely no resistance until 9654 is reached.
Though Friday's rally was significant, it came on a day where low volume and participation was in effect. As such, it is evident that Monday, with a likely full complement of traders, will be taking added meaning, as continued follow-through to Friday's rally is critical for the bulls.
If the index does generate follow through on Monday, the week could be a strong one with a possible intra-week high of 9585 and a weekly low of 8875. Such a rally would likely generate some panic short-covering as well. It is likely in the first couple of hours of trading on Monday, the traders will know what is likely to happen the rest of the week. A lower opening and a break below the 8875 level could be a sign the rally was a one-day affar. Nonetheless, the probabilties still lie on the side of bulls and a continued rally to the upside for the week.
NASDAQ Friday Close at 1632
The NASDAQ also had a classic reversal week with higher highs, lower lows, and a close above the previous week's high. In addition, the index had a very impressive breakout on Friday with a decisive gap above the 50-day MA as well as a break of the strong resistance at the 1600 level. It is also important to note that the gap on Friday might be a runaway gap as the first gap down at 1384/1397, possibly a breakaway gap, has not been filled. Such a combination of gaps will likely generate an immediate and strong follow through to the upside.
The charts on both the DOW and the SPX still need further upside on Monday to confirm the breakout, but the chart on the NASDAQ seems to suggest that that Friday's rally in the indexes was "for real". It is evident that the amount of downside needed in the NASDAQ on Monday to reverse the breakout is substantial and unlikely to happen. As such, based on the chart, the probabilities of the rally continuing this week are strong.
On a weekly closing basis, support is now strong between 1530 and 1552 and major at 1384. On a daily closing basis, support is now very strong between 1500 and 1510. Some decent support will be found between 1550 (50-day MA) and 1568/1572 (previous daily high closes). Major support is down at 1316. On a weekly closing basis, resistance is non-existent until 1711/1721 is reached. Above that level only the 20-week MA, currently at 1811, is seen as resistance. On a daily closing basis, there is some very minor resistance at 1647/1650 and then nothing until 1770/1780 is reached. Strong resistance will be found at 1844/1850 from the highest close in the last 3 months as well as from the 100-day MA.
The NASDAQ chart seems to suggest that a very strong and fast move up to the 1750 level will occur this coming week. A drop to 1550, now a strong support level, is possible but might not be seen until after the rally reaches its upward objectives.
Like with the DOW, the NASDAQ did generate a lower weekly low than the previous week this past week. Until this past week, the index has not seen a lower low than the previous week since the 1295 low was made 6 weeks ago. Such a small correction, though "minimal" in nature, can be considered as a successful re-test of the lows. As such, further upside is now not only possible but also probable.
Probable trading range for the NASDAQ this coming week is 1600 to 1750.
S&Poors 500 Friday close at 931
The SPX was the only index that was unable to generate a weekly close above the weekly closing highs of 940 and 936, seen back in the last recession in 2002. With the close on Friday at 931, the index was unable to give a breakout signal of any consequence and leaves the index as the main negative indicator this coming week as to the validity of the rally seen this past week. In addition, the SPX was not able to get below the previous week's low and is left as the only index still in need of at least a "minimal" re-test of the lows.
It is evident by the action in the index that the rally in the market did not include the financial sector and, as such, leaves a big question mark whether the rally can continue without the financial sector contributing to it. In addition, the inability of the index to generate any kind of a corrective re-test of the lows leaves the chart in need of such a correction. It is therefore likely that the SPX will be working as an anchor this coming week and until such a time that the index can generate a successful re-test of the lows.
On a weekly closing basis, support is now very strong at 872/876 and major at 800. On a daily closing basis, support is now strong at 863/869 and strong again at 848/852. There will also be decent support between 900 and 911 from several previous daily-closing highs at that price. In addition, the 20 and 50-day MA's are currently crossing right around 885 and will offer minor support. On a weekly closing basis, resistance is very strong between 936 and 940 from two weekly closing highs in 2002, 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. Above that, only the 20-week MA at 1014 is seen. On a daily closing basis, resistance is non-existent above 930 until the 1003/1006 levels are seen. The 100-day MA is presently up at 1027 and must also be considered a strong resistance.
The SPX will be closely watched by the traders as a green close on Monday will likely generate a rally up to the 1000 level during the week. Nonetheless, the traders will also be watching next Friday's close, as a red close below this past week's close would be a strong short-term negative sign. It is important to note, that intra-week moves do not mean anything to the weekly closing chart. As such, it is very possible the index will have a strong week but close out the week on a negative. This is also true with the DOW.
On the intra-day chart there is no resistance of consequence whatsoever until 1008 is reached. This means that if there is follow through on Monday it could result in a very strong up day or two. The 100-day MA is likely to act as strong resistance as well and currently that line is up at 1027. Based on the strong rally and close on Friday, the confirmation of a break of the 50-day MA with a second close above it, and the close above all the resistance built over the past 8 weeks, the probabilities are on the side of a continued up move for at least the first couple of days of the week. Nonetheless, any failure or strong selling pressure on Monday will also be indicative that perhaps the breakout in the indexes was a one-day phenomenon based on low volume and participation. That will be the question asked on Monday.
Possible trading range for this week is 918 to 1011.
The first day of the trading year brought strong and aggressive buying that generated a weekly closing breakout in 2 of the 3 indexes. The rally came on a day where low volume and participation was evident. Nonetheless, the price action was indicative and if confirmed with further gains on Monday will likely cause a rally of some consequence to occur this coming week. If that happens, it is likely that the market will maintain some, if not all, of its strength until Obama takes office on January 20th. In addition, it is likely the market will give Obama a period of at least 2 months to show some concrete results before beginning to judge his policies.
It is important to note, though, that the seeming successful re-test of the lows seen this past week in the DOW and the NASDAQ were "minimal" and not the kind needed to build a strong support base from which a concerted rally action can occur. Based on this fact alone, it is likely that some weakness of consequence will still be seen in the near future (2-3 months).
This coming week, and likely starting on Monday, the market will likely give a strong indication of what to expect for the next few weeks. A short-term rally of some consequence seems the most likely based on last week's action. If that does happen, it would not be totally surprising to see rallies over the next 2 months reach levels mentioned in past newsletters with the DOW reaching 10673, the NASDAQ reaching 2085, and the SPX up to 1177. Without a doubt, this coming week will be highly indicative of what to expect.
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Stock Analysis/Evaluation
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CHART Outlooks
Due to the breakout on Friday and likely New Year's rally, only buy positions will be mentioned this week. Unfortunately, in almost all cases these stocks will need to be chased in order to get involved. The mentions will have good risk/reward ratios but the probability factors in all cases will be lower than normal.
STP (Friday close at 12.90)
STP is a solar company in an industry that will likely be supported by the new administration. As such, these stocks should do better overall than others. In addition, the stock over the past 6 weeks seems to have built a strong base from which to generate a rally. On Friday STP was able to break and close above a previous resistance level of some consequence at 11.75/11.80. Such a break seems to suggest the stock is going higher at this time.
STP shows no resistance of consequence until the $20 level and therefore the risk/reward ratio at these prices is very good.
On a weekly closing basis, resistance is non-existent until 21.43. Nonetheless, it is probable that the $20 level will act as strong psychological resistance. On a daily closing basis, there is minor resistance at 14.60 (15.44 intra-day) and then nothing until decent resistance is found at 20.23. On a weekly closing basis, support is minor to decent at 10.29 and then major at 6.05. On a daily closing basis, support is very strong between 10.10 and 10.32, decent at 7.31, and major at 5.39. On an intra-day basis, support is decent at 11.41 (50-day MA) and strong at 10.02.
The breakout on Friday was impressive and should generate further upside at this time. With only minor resistance up at the 14.60-15.44 level and then nothing until the $20 level is reached, rallies could be strong. Drops back down to the breakout area at 11.50-12.00 might be seen but should be used as purchasing opportunities.
In addition, solar companies should enjoy the support of the new administration and should be among the first purchased if the stock market is rallying.
Purchases of STP between 11.50 and 12.04 and placing a stop loss at 9.60 and having an objective of 21.43 offers a risk/reward ratio of 4-1.
My rating on the trade is a 3 (on a scale of 1-5 with the strongest probability rating being 5).
AA (Friday close at 12.11)
AA is a stock that led the decline in the indexes on the way down and after building a very strong support base could be one of the leaders on the way up. The stock was successful in breaking above a very strong and pesky daily close resistance at 10.80 last Thursday, and on Friday the stock confirmed the breakout by closing above an equally strong resistance level on the weekly closing chart at 11.50/11.80.
Over the past 3 months AA has built a picture perfect rounded bottom that has been successfully tested on two occasions. Such a bottom is now a perfect base from which a sustained rally can occur, even if the indexes do not help. In addition, the stock is still showing an open gap up at 15.86 and 16.70 that will become a magnet now that the stock is on a rally.
On a weekly closing basis, support is minor at 11.25/11.80 from two previous high closes and one minor low close. Strong support is now found between 9.40 and 9.71, and major support is at 8.15/8.44. On a daily closing basis, support will be strong between 11.25 and 10.76, from two previous low daily closes as well as a strong daily high close. Support will be equally strong down between 10.17 and 10.26 from several daily low and high closes in that area. Additional support will be found at 9.23 and stronger at 8.06. Major support is found at 6.85. On a weekly closing basis, resistance is non-existent until the 20-week MA is reached up at 16.60. Above that, there is no resistance until previous low weekly closes between 18.69 and 19.13 are reached. On a daily closing basis, there is some decent resistance at 12.47 and again at 13.82 and then nothing until the 100-day MA at 17.30 is reached.
AA is a stock that is ready to generate a sustained rally to the upside as it has already built a strong chart foundation from which a rally can occur. In addition, the stock has a gap level that will be working as a magnet as long as the stock is staying above the breakout levels. As such, purchases of the stock have clearly defined objectives as well as risk/reward ratios.
Purchases of AA between 10.80 and 11.50 and having a stop loss at 10.60 and an objective of at least 15.86, offer a risk/reward ratio of at least 4-1.
My rating on the trade is a 3.5 (on a scale of 1-5 with the strongest probability rating being 5).
RIMM (Friday close at 41.92)
RIMM is a stock that fell from a high of $135.00, seen on August 11th to a low of 35.09 seen on December 3rd. The drop occurred over a 16-week period of time in which the stock was unable to hold any previous weekly low for more than one week. Nonetheless, over the past 4 weeks the stock has been unable to make new weekly lows and if the stock is able to generate a higher high this coming week than last week (a move above 42.11), it will show up as the first successful re-test of the lows. With the stock closing near the week's highs it is highly likely such an event will happen.
RIMM is still in an oversold condition and any concrete sign that the stock has found a bottom and a support base would likely cause a strong short-covering rally to occur.
On a weekly closing basis, support is strong at 40.00 and at 40.85 and major at 38.82. On a daily closing basis, support is decent at 40.00, strong at 38.77 and major at 36.86. On an intra-day basis, support is very strong at 38.50. On a weekly closing basis, there is minor resistance at 42.83, a bit stronger at 44.80 and strong up at 50.43. Above that there is no resistance until the 200-week MA is reached up at 57.07. On a daily closing basis, resistance is strong at 42.83 from a previous daily high close as well as from the 50-day MA. Minor resistance is then found at 45.26 and at 47.25 and then nothing until very strong resistance is found up at 55.56. The $50 level is expected to offer psychological resistances as well. On an intra-day basis, any break above 43.34 will likely generate a rally up to 48.83 where the resistance is minor but evident. Above that level there is no resistance on the chart until 57.88 is reached.
RIMM seems to have bottomed out and with the move back down to the 38.50 level this past week, the stock shows a picture perfect re-test of the lows that will become a successful re-test if the stock gets above 42.11 this coming week. In addition, a break above the most recent high at 43.34 would be a buy signal that would likely generate a strong short-covering rally with the $50 level a minimum objective.
It must be stated that the $50 level has to be considered a strong psychological resistance but in reality the chart shows that a rally up to the 200-week MA up at $57 is likely if the stock gets rolling to the upside. RIMM is a very popular stock with high volume trading. It is evident that during the free-fall the stock went through, the buyers stayed away. Nonetheless, I do believe this is a stock that if any kind of buy signal is given (a move above 43.34) would be aggressively bought not only for short-covering but for long-term investors.
Purchases of RIMM between 40.50 and 40.80 and placing a stop loss at 38.40 and having an objective of at least $50, will offer a risk/reward ratio of at least 4-1. Strong possibilities of a rally as high as $57 do exist. In that case the risk/reward ratio would increase to over 6-1.
My rating on the trade is a 3 (on a scale of 1-5 with the strongest probability rating being 5).
OSK (Friday close at 10.30)
OSK is a stock that gave a strong buy signal on Friday when it was able to close above a strong resistance on the daily closing chart as well as break above both the 100-day and 20-week MA's. In addition, the chart does show a clearly defined objective with a high probability of being reached as well as good potential for further upside of consequence.
OSK did have a strong day on Friday when it was announced that the Pentagon had awarded the company a $1.2 billion dollar contract to supply replacement parts for their vehicles. That news capped a week that saw a 40% increase in price.
On a weekly closing basis, Support is now strong at 7.94. Further support is found at 5.87 and major at 4.24. On a daily closing basis, support will now be strong at 9.09, very strong at 7.64, strong again at 5.80, and major at 3.92. On an intra-day basis, support will be strong at 9.05 and minor at the breakout price of 9.55. On a weekly closing basis, resistance is non-existent until 17.28 is reached. On a daily closing basis, though, resistance must be considered strong at the highest daily close in the last 4 months at 13.16. Above that level, there is no resistance until the $15 level is reached and that must be considered minor as it is from previous low daily closes. Resistance on the daily chart, above 13.16, is not seen until 15.81 is reached and that is considered minor. Strong resistance is found at 17.28 on the daily chart as well.
OSK left a small gap between 8.97 and 9.00 on Friday due to the Pentagon contract. A gap based on news of consequence has a high probability of being a breakaway gap. If so, such a gap is unlikely to be filled. Further upside should now be expected immediately.
In addition to the fundamentals news, OSK was able to break and close above the 100-day and 20-week MA's on Friday giving the stock further strength from which to generate a strong move up. Rallies up to the 13.16 are highly likely and further upside could easily be seen with this kind of news in a company still in a very oversold condition.
Purchases of OSK between 9.70 and 10.00 and using a stop loss at 8.95 and a minimal objective of 13.16 will offer a 4-1 risk/reward ratio. Rallies up to the $15 and perhaps even the $17 level are possible thus bettering the risk/reward ratio substantially.
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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| Monthly & Yearly Portfolio Results
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Open Positions and stop loss changes
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| Status of account for 2007: Profit of $9758 per 100 shares after losses and commissions were substacted.
Status of account for 2008, as of 11/30 Profit of $10440 using 100 shares per mention (after commissions & losses) Closed out profitable trades for December per 100 shares per mention (after commission)
DIA (long) $226 HANS (long) $735 IGT (long) $32 TRA (long) $298 RIMM (long) $207 RIO (long) $290 ELON (long) $121 WFC (long) $247 RMBS (long) $303 HANS (long) $185 SGR (short) $130 MT (short) $123 SGR (short) $221 NYX (short) $41 WFC (long) $200 AMZN (short) $104 NUAN (long) $77 AMZN (long) $217 Closed positions with increase in equity above the close the previous month.
NUAN (long) $105 Total Profit for December, per 100 shares and after commissions $4586 Closed out losing trades for December per 100 shares of each mention (including commission)
ABB (long) $40
AA (long) $98 AMZN (short) $39 JNPR (short) $74 ITG (short) $239 VLO (short) $317 SGR (short) $107 RMBS (short) $150 SNDA (short) $88 Closed positions with decrease in equity below last months close. RMBS (short) $69 Total Loss for December, per 100 shares, including commissions $1188 Open positions in profit per 100 shares per mention as of 12/31
JNPR (short) $3
AMZN (short) $434 WFC (short) $246 LEN (short) $133 SNDA (short) $64 Total $880
Long-term open positions. Decrease in equity from last month's close as of 11/30
Status of trades for month of December per 100 shares on each mention after losses and commission subtractions.
AA (long) $14 Total $14
Profit of $4264
Status of account/portfolio for 2008, as of 12/31Profit of $14704 using 100 shares traded per mention.
Ending Results for 2008
Yearly totals:
Total amount of trades for the year = 301
End result of all trades for the year = Profit of $14,704 per 100 shares of each mention
NUAN generated a break above a very strong resistance at 10.37 and is now expected to continue to rally up to the next strong resistance up at 12.05 (previous intra-day high of some consequence as well as the 200-day MA). It is possible, if the indexes do generate aggressive follow through, that a rally up to the 13.48 level will be seen over the next 4-8 weeks. Nonetheless, at this time further upside above that price is highly unlikely. The 100-day MA is currently up at 11.35 and could work as resistance this week. Drops back down to the $10 level are likely to be seen at some point. The chart still shows that a drop back down to 7.50 could occur at some time. Nonetheless, that does not seem probable for the short-term.
AA broke above a very strong weekly close resistance level between 11.50 and 11.80 on Friday and does not show any resistance of consequence until the 20-week MA is reached up at 16.40. There is some minor intra-day resistance at 12.57 and a bit more up at 15.00. Nonetheless, those resistances must be considered minor in comparison to the resistances it broke on Friday. On the daily closing chart, the stock still shows decent resistance at 12.47 and again at 13.52. Nonetheless, the confirmed break above the 50-day MA seems to suggest the stock will rally up to the gap area up at 15.86/16.70 sometime over the next few weeks. The 100-day MA is currently up at 17.30 and could become the main objective if the stock starts to run. It is also now evident that the $10 level will now act as major support and unlikely to get broken even if the indexes do have a major correction in the near future. Purchases of the stock should be considered on any weakness. AMZN was able to generate a weekly close above the 200-week MA at 53.70 and looks poised to go higher if the indexes continue to rally. Nonetheless, on a daily closing basis, the stock closed at the same level it did back on June 30th 2004 at 54.40 and that level is still considered a strong resistance on a daily closing basis. A close above that level will likely generate a rally up to the 57.20 level. On an intra-day basis, rallies up near the $60 level are now possible. On the other side of the coin, the stock has not yet shown any kind of a successful re-test of the lows and is unlikely rally above $60 without such a correction. Even a rally up to the $57-$60 is still in question as the stock was unable to accomplish any kind of a breakout on Friday above previous established intra-day highs. A stop loss at 54.95 should be in place. Monday's action will likely determine the direction during the next couple of weeks. A drop back down to the $43 level continues to be highly viable, though it may not happen for a month or two. JNPR did generate a mini breakout on the daily closing chart when it was able to close above the 17.80 level on Friday. Nonetheless, the stock still faces another strong resistance level up at 18.87 (on a daily closing basis) and at 18.74 (on a weekly closing basis). On the intra-day chart, though, "any" follow through to the upside next week will likely generate moves up to the 19.48-20.10 level where several previous highs of consequence are seen as well as where the 100-day and 20-week MA's are located. Liquidation of short positions should be generated with any move above 18.47. WFC traded between the 20 and 100 day MA's on Friday but did not give any kind of a signal whether the stock would continue to the upside or not this week. The weekly close at 30.00 was right at a strong psychological resistance level and therefore not a signal for either direction. Nonetheless, any move above Friday's high at 30.47 will likely generate a rally up to the 31.97-32.07 level. It is evident that Friday's trading range of 28.67-30.47 was a microcosm of the two levels from which a further rally or a drop would occur. The trading range of the stock between $32 and $25 continues to be true right now. Drops back down to the $25 are likely to be seen sometime in the near future. Whether it will happen over the next week or two will depend on what the stock does on Monday. LEN did not give any positive indications on Friday in spite of the rally in the indexes. The chart continues to look weak and drops down to the 5.86-6.52 continue to be viable. It is possible, though, that a short-term rally back up near the $10 level will occur if the indexes rally strongly. Nonetheless, the stock needs a weekly close above 9.99 to generate any positive action. On Friday, the stock was not even able to close above the 20-day MA at 9.15 it had broken below the previous week. Such a weak rally attempt suggests that further weakness in the stock will be seen. Any close below 8.36 will likely generate further downside in the stock. SNDA generated a weekly close above a strong resistance level at 33.30. Nonetheless, the close at 33.44 was not by a sufficient amount as to consider it a break of resistance. The stop loss at 33.75 continues to be a good stop and should be a hard stop (not mental) as any break above that intra-day high will likely generate a move up to at least 35.00 and possibly higher. The stock did have a classic reversal week with higher highs, lower lows, and a close above the previous week's high and that does increase the probabilities of further upside this coming week. Nonetheless, a failure to follow through at this stage of the game could be strongly negative for the stock. Like with the indexes and several other stocks, Monday will likely paint the picture.
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1) SNDA - Shorted at 30.41. Covered at 31.15. Loss on the trade of $74 per 100 shares plus commissions.
2) SNDA - Shorted at 32.90. Stop loss at 33.75. Stock closed on Friday at 33.44.
3) LEN - Shorted at 10.00. Stop loss is at 10.55. Stock closed on Friday at 9.18.
4) RMBS - Shorted at 16.12 and again at 16.30. Averaged short at 16.21. Covered short at 16.79. Loss on the trade of $116 per 100 shares (2 mentions) plus commissions.
5) SGR - Covered short at 21.79. Shorted at 20.86. Loss on the trade of $93 per 100 shares plus commissions.
6) AA - Averaged long at 18.805 (2 mentions). No stop loss at present. Stock closed on Friday 12.11.
7) JNPR - Shorted at 17.54. Stop loss changed to 18.50. Stock closed on Friday at 18.39.
8) AMZN - Shorted at 52.86 and again at 54.04. Averaged short at 53.45. Stop loss at 54.96. Stock closed on Friday at 54.36.
9) WFC - Shorted at 31.26. Stop lowered to 30.57. Stock closed on Friday at 30.00.
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Encyclopedia of Chart Patterns. A must have for chart aficionados! |
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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