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Issue #105 
January 11, 2008 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| New Year's Rally Fizzled, Indexes Under Some Pressure!
DOW Friday close at 8599
The DOW failed to follow through on last week's reversal and left itself awaiting further fundamental developments in order to decide what to do next. The index is/was expected to rally going into the inauguration on the 20th of the month but a negative job numbers report, awful retail sales warnings, and new pressure on the financial complex, caused the index to stall its upward momentum. The end result was an index that fell back to end the week without breaking support but on a negative note. Such action seems to be stating that something positive needs to happen this coming week or the index will continue to deteriorate slowly.
The inauguration of the new president has been, and will continue to be, a positive which will likely offer support for the next few weeks. The big question, though, is just how much support and for how long it lasts before the negative news that continues to come out begins to weigh heavily on the market once more. At this time, that is a question that is almost impossible to answer.
On a weekly closing basis, support is strong at 8516 and major at 8046. On a daily closing basis, there is now decent support at 8565/8585 and strong at 8416. Below that there is once again strong support at 8176 and major at 7552. On a weekly closing basis, there is now strong resistance at last week's close at 9035 and major at 9325 from the highest weekly close in the last 14 weeks as well as from the 20-week MA. On a daily closing basis, there is decent resistance at 8924/8934 and strong at 9035.
It is important to note that a New Year's rally was expected to happen during the first week of the year. Nonetheless, the DOW now finds itself almost 200 points lower than the close on the 31st of December. As such, disappointment is likely to be a significant part of the mood this coming week.
The DOW now finds itself needing further positive news to rally and with the announcement made this past week of the incentive package that Obama is considering, most of the positive news is already "in the market". It is unlikely that the index will take a strong fall this week as the market will be giving Obama the benefit of the doubt, for at least the first few weeks or couple of months of his administration. Nonetheless, without further positive news, it is unlikely the index will be able to generate any strong rallies at this time either.
In addition, the breakout last week should have generated further upside of some consequence. Instead, the index failed to follow through and that fact alone should continue to put pressure on the index. Nonetheless, for all the reasons mentioned above, this coming week favors a lot of backing and filling but all within a narrow trading range, likely to be between 8372 and 8834.
NASDAQ Friday Close at 1572
The NASDAQ is yet another index that broke out last week and failed to generate the kind of follow through to the upside that was expected. With no evident resistance of consequence above, the reversal back down and close below the breakout level at 1600 must be considered disappointing and a strong negative. The week's action likely puts the index back into a sideways mode where no short-term direction can be ascertained with any degree of certainty.
There is one positive, though, and that was the fact the index on Friday was able to hold itself just above the 20 and 50-day MA's, at 1570 and 1554 respectively. If the index is able to stay above those levels this coming week, it is possible that the recent high at 1666 will be tested. Nonetheless, under a sideways scenario, those MA's are often broken on both sides and any break of those levels on Monday will confirm that the index is trading sideways.
On a weekly closing basis, support is strong at 1552, decent at 1530 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 now strong at last week's close at 16.30. Above that level, support is non-existent until 1711/1721 is reached. On a daily closing basis, resistance will now be strong at 1652 and decent between 1590 and 1597. Above that level there is nothing until 1770/1780 is reached.
The NASDAQ inability to get back above the 1600 level on Friday, as well as the fact the index closed on its lows, seems to suggest further downside will be seen on Monday. An intra-day break below 1552 this week should bring in additional selling and cause the index to correct back down to around the 1506/1510 level. Nonetheless, should the index be able to hold itself above 1552, the likelihood of a rally back up to at least the 1600 level is strong.
Like with the other indexes, the traders must feel strong disappointment that the index was unable to rally this past week in spite of the fact that on a chart basis, there was no resistance of consequence for another 100 points above the week's high. As such, the action seen on Monday and Tuesday will likely be indicative of how the index will behave the rest of the week. With the inauguration just 7 trading days away, the likelihood of an uneventful week is strong.
Possible trading range for the week is 1504 to 1598.
S&Poors 500 Friday close at 890
The SPX was unable to get above the very important daily and weekly closing high of 936/940 seen back in 2002. In addition, the index closed below the important psychological as well as chart-based support level at 900. Such action is indicative of an index that has not shown any kind of ability to generate meaningful strength to the upside.
In addition, this is the only index that has not yet shown even the most minimal correction to the downside and with the weak showing it had this past week, it is now likely the index will be breaking the previous week's low for the first time in 7 weeks.
On a weekly closing basis, support is strong at 872/876 and major at 800. On a daily closing basis, support is now decent and copious at 863/869 and strong at 848/852. There will also be minor support at 816 and major down at 752. On a weekly closing basis, resistance is very strong between 932 and 940 from two weekly closing highs in 2002, as well as a recent weekly closing high at 940 and the most recent weekly closing high at 932. Above that level, resistance will also be strong at 968 from the most recent high weekly close. On a daily closing basis, resistance is now decent at 909/913 and strong at 934.
It now seems evident the SPX is in a very narrow trading range between 840 and 940. The chart seems to be calling for a drop down to 840 to 852 sometime in the near future, if not this coming week. Such a drop would fulfill the chart pattern including a re-test of the lows. Also keep in mind that for a period of 3 straight weeks, starting December 15th, the index generated 3 intra-week lows at 957. Such a formation is not likely to hold up and its highly possible that with further downside expected to be seen this week, that the index will be heading down to break that triple bottom area.
The index is in dire need of a corrective phase and a successful re-test of the lows, before any further upside can be considered. With the failure this past week to rally above the 940 level, it is likely that corrective phase may be starting this week. The SPX has been the key index to watch on the charts for the past 2 years and I don't see any reason at this time for that to have changed. It therefore makes a lot of sense to watch this index for clues as to what to expect in the indexes in the coming weeks.
With the close on Friday near the lows of the week, it is likely that a lower low than last week (888) will be seen. Drops down to the next support level between 863 and 868 will likely be seen this week. Further drops down to the 840/848 level are not necessarily expected this coming week but remain a probability for the near future. Possible trading range for the week is 863 to 918.
The marketplace is confused at this time and unlikely to generate any meaningful move in any direction this coming week. The upside momentum was truncated this past week with the negative fundamentals that came out, but the downside is also likely limited for the short-term because of the inauguration of the new President in 9 days and the hope for change that brings. It is therefore likely that the indexes will be simply trading this coming week within a narrow trading range, with a slight negative bias.
If there are any surprises, though, they will likely come to the downside as the disappointment over the failure of the market to rally off of the January 2nd rally as well as the break of previous support seen this past Friday, have tilted the charts toward further downside.
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Stock Analysis/Evaluation
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CHART Outlooks
Even though the market is confused, individual stocks continue to trade based on their own chart patterns. Mentions this week are in stocks that have clearly defined chart patterns that offer good risk/reward ratios.
AKS (Friday close at 11.07)
AKS is a steel company that over the past 3 months has built a strong rounded bottom formation from which a strong rally could occur. This past week the stock broke out from a resistance level of consequence down at 11.64 (11.08 on a daily closing basis) and gave the first buy signal since March. The stock has done sufficient re-testing of the lows to satisfy the chart purists and on an fundamental basis, is in an industry that is likely to start getting some support due to Obama taking office.
The closing price seen on Friday will be considered a successful re-test of support if the stock is able to close higher on Monday as well as next Friday. The risk/reward ratio is attractive and the probability rating is good.
On a weekly closing basis, support is strong at 11.03, strong again at 8.80 and major at 6.21. On a daily closing basis, support is very strong between 10.90 and 11.08, decent at 9.33/9.42 from a couple of previous low daily closes at that price as well as from the 50-day MA, and very strong again at 8.60. On a weekly closing basis, resistance is decent at 13.92 from the most recent high weekly close, and strong again at 15.42 from several previous weekly high closes of consequences in 2006. On a daily closing basis, resistance is decent at 13.00 (most recent daily high close), minor at 13.94, and strong up at 15.10.
AKS has built a strong rounded bottom formation that suggests that higher prices are coming over the next few weeks. The stock saw a sharp decline on Friday and closed near the lows of the day. Such a drop in price seems to be simply a re-test of the breakout level as well as the last correction prior to a concerted effort to test the resistance levels above.
Intra-day follow through to the downside is expected on Monday but should be used to get attractive low-risk prices, for a long position. Support, on daily and weekly closing prices, is strong at Friday's close at 11.08. Nonetheless, intra-day drops as low as 9.40 could be seen. Chart shows a highly probability rally up to 14.75, a strong probability of a rally up to 15.75, and a good probability of a rally up to 16.50. Possibilities of higher prices above that level do exist.
Purchases of AKS between 9.39 and 10.06 and placing a stop loss at 9.29 and having an objective of 15.75, offer a risk/reward ratio of over 6-1. The stock may need to be chased, as drops down to $10 and below are possible but not necessarily likely.
My rating on the trade is a 4 (on a scale of 1-5 with the strongest probability rating being 5).
TNE (Friday close at 12.67)
TNE is a South American telecommunications company that has held its price well during the last few weeks. In looking at the weekly chart, the stock did break out of a well-established trading range between 11.60 and 15.90 from Apr07 to Sep08, but with the drop in the world's stock markets has returned to its previous trading range. At this time, there seems to be no reason to think the stock will be breaking out or breaking down from those well-establish trading levels from the past.
During the worst of the collapse in the markets, TNE did drop down to the $10 level where that low was seen on 3 occasions over a period of 7 weeks. Nonetheless, just recently the stock generated a rally back up to the top of the trading range with a move up to 15.97 and now is in the process of coming back down to test the bottom of that trading range.
On a weekly closing basis, support is very strong at 11.91 and major at 10.46. On a daily closing basis, support is "major" between 11.65 and 12.30, with a median at 12.03. On a weekly closing basis, resistance is decent at 14.53 and very strong at 15.48. On a daily closing basis, resistance is decent at 14.68 and very strong at 15.96.
It is very evident the stock is in a very well-establish trading range between a low of 11.60 and a high of 15.97. The likelihood of the stock continuing to trade in that range is high. Nonetheless, this is a stock that was trading as high as 26.85 just 6 months ago. With the fact that it is a growing international company in an industry (telecommunications) that has limited risk, the possibilities of the stock breaking out to the upside outweigh the probabilities of the stock breaking down. TNE also offers an opportunity with very limited risk and highly probable profits.
The stock closed near its lows on Friday and broke below an intra-day support at 12.50. With the likelihood that the market will be under some pressure at the beginning of this week, it is likely that TNE could be dropping down to or below the 12.00 level this week. Such a drop should be bought.
Purchases of TNE between 11.65 and 12.04 and placing a stop loss at 11.45 and having an objective of 15.75, offers a risk/reward ratio of almost 7-1.
My rating on the trade is a 4.5 (on a scale of 1-5 with the strongest probability rating being 5).
STP (Friday close at 12.71)
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. Two weeks ago, 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 minor at 17.50 and then nothing until the 20-week MA at 21.43. Nonetheless, it is probable that the $20 level will act as strong psychological resistance. On a daily closing basis, resistance is decent at the most recent daily high close at 13.55, minor at 14.60 and then nothing until strong 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 11.95 and 12.02, and then strong again between10.10 and 10.32. On an intra-day basis, support is now strong at 11.50 (two previous intra-day lows of consequence as well as the 50-day MA.
STP successfully tested this past week, the 11.50 intra-day support, as well as the breakout above the 50-day MA with a drop down to 11.51. The stock rallied strong above that level but was unable to get above last week's high at 14.18 and closed out the week on a slight weak note. It is likely there will be some follow through to the downside on Monday giving the bulls one more opportunity to purchase the stock. The benefit to last week's trading is that the stop loss can now be raised to where the risk/reward ratio is even better than it was on last week's mention.
Purchases of STP between 12.00 and 12.40 and placing a stop loss at 11.35 and having an objective of 21.43 offers a risk/reward ratio of 9-1.
My rating on the trade is a 3.5 (on a scale of 1-5 with the strongest probability rating being 5).
PKX (Friday close at 72.77)
PKX is a stock just last Tuesday broke above the 100-day MA and looked like it was heading higher, just to give a failure-to-follow-through signal on Friday by gapping below the 100-day MA and closing below it. In addition, the stock also broke above the top of a flag formation last week but failed to close above the top of the flag giving a second failure-to-follow-through signal and stronger indications the stock wants to head lower.
It is also important to note that PKX does show a weekly gap between 61.0 and 63.02 that should now, after the failures this past week, become a magnet for the bears. In addition, the chart guidelines on this kind of a scenario are very clear and therefore the trade offers a very good risk/reward ratio with clearly defined parameters.
On a weekly closing basis, resistance is now very strong at 78.84, from the most recent high weekly close. Such a close was also a breakout above the 20-week MA that also shows now as a failure-to-follow-through. On a daily closing basis, resistance is now very strong up at 79.01 (most recent daily high close) and again at 81.29 (highest daily close in the last 3 months). There is now also decent resistance at 77.38. On a weekly closing basis, there is minor support at 67.19 from a previous high close of some consequence. Strong support is found at 53.31 and major support at 42.89. On a daily closing basis, decent support is found at 70.49, then nothing until the 50-day MA and two previous minor high daily closes at 65.90. Support will also be found at the gap area at 63.02. Below that there is no support whatsoever until intra-day supports are found down at the 55.00 level.
PKX seems to have hit a level of major resistance when it got into the low 81's. The action seen on Friday, with the gap down below the 50-day MA and a close below a minor but clearly evident weekly close support at 73.25, suggests that the stock is heading lower to at least test the 50-day MA at 65.90. If that intra-day support level breaks, a re-test of the gap down at 63.02 is likely. Closure of the gap will put the stock on the defensive and drops down to the $55 would then be probable.
It is likely, though, that the gap left on Friday between 76.75 and 74.60, as well as the break of the 100-day MA up at 76.04 will be tested before the stock continues downward. There is strong intra-day resistance up at 77.38 that should now be strong. Rallies up to near that level should be used to institute a short position with a clearly defined risk/reward ratio.
Sales of PKX between 76.04 and 76.75 and placing a stop loss at 79.22 and having an objective of 55.00 will offer a risk/reward ratio of at least 7-1.
My rating on the trade is a 3 (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 confirmed a successful re-test of the 20-week MA at 11.02 with a lower close this past Friday. In addition, the stock also successfully re-tested the 100-day MA at 11.27 with a close at that price and a drop thereafter. The stock closed on Friday at the $10 level, which is now support as well as an important pivot point. The stock is now waiting to see what the indexes will do before deciding in which short-term direction to go. Drops back down to the 7.50 level are possible, as a re-test of the lows on the weekly chart, if the indexes head lower. By the same token if the indexes generate a new rally from here, it is likely the stock will break above the 20-week and 100-day MA's and head up to the next resistance level up at 12.27. For this week, though, it is likely that the stock will trade in a narrow range between 9.15 and 10.37, with the $10 level continuing to be its main pivot point. AA was not able to generate follow through from its breakout last week above the previous weekly close resistance at 11.80 and fell back to close out the week at an important daily close support at 10.80. In the process, the stock left an open gap between 11.92 and 11.55 that will work as a magnet this week. The support down at the important psychological level of $10 continues to look strong. It is possible, based on its own chart, that the stock could outperform the indexes this week. The 10.80 level, on a daily closing basis, will be an important pivot point and if the stock is able to close above that level on Monday, chances are good that further upside will be seen during the week. On an intra-day basis, there is good support at 10.52. Holding that support level will be important for the week. A break of 10.52 will bring the $10 level into play and make that into an important pivot point thereafter. Monday will likely tell the story for the week. WFC achieved its daily chart downside objective of $25 this past week. The close on Friday, though, was below a previous weekly close of consequence at 25.48 and leaves the stock with the possibility of trading lower, as low as 24.38, this coming week. There is good support on the daily chart down at 24.67 that will be an important pivot point for the stock if seen. The stock is in a very evident sideways trading range with the low of that range being in this general area. Unless the indexes break down strongly or new negative news comes out regarding the financial industry, the likelihood of the stock holding up in this area is high. VLO was able to close on Friday, though just barely, above the 20-week MA. A higher close next Friday will confirm a breakout and generate further upside. On the daily chart, the stock did close repeatedly above the 100-day MA this past week and that line was successfully tested when the stock closed at 23.68 on Wednesday. This is not a stock that necessarily follows the indexes and therefore needs to be evaluated on its own. A close above 24.95 will likely generate further upside of consequence, while a close below 23.68 will likely generate a drop back down to at least the 22.72 level which was the previous high daily close. The chart favors further upside at this time. Stops at 23.14 should be used on long positions. HANS continued to confirm its breakout above the 50 and 200 week MA's at 30.95, with yet another close above that level. On the daily chart, though, the stock has now shown 4 straight down days from its high made on Monday at 35.40 and no sign as of yet that this recent short-term downtrend is over. Support is decent at 30.85 and if the stock is to head higher for the short-term, that support level should hold up. If it doesn't, intra-day drops as low as 29.00 (50-day MA) could occur. The weekly chart, though, shows that the 30.95 level should hold up well and if it does, rallies up to the 100-week MA at 37.50 should occur. Possible trading range this coming week is 30.77 to 34.05. Mental stops should be at 30.75. RMBS suffered a strong set back on Friday when it was announced that the lawsuit against Micron was likely to be unenforceable. The stock took a strong tumble when it dropped from a high of 18.65 to a low of 10.24 on the news. Nonetheless, there is strong support at the 10.25 level and the stock was able to generate a bounce of at least $1.75 before settling down at the closing price of 11.24. The stock broke through the 200, 100, and 50-day MA's in one fell swoop and much will depend on Monday on the details of the judge's decision and how the traders analyze it. From a chart point of view, the 50-day MA currently at 11.46, and the 100-day MA currently at 12.32, should act as resistance levels on a daily closing basis, with the 100-day being the most important. The 10.26 level, on an intra-day and weekly closing basis, is a very strong support level. As such, if the stock is able to hold itself above that level this coming week, rallies of some consequence will occur. Nonetheless, with the sharp one-day drop, it is now highly unlikely, even if the judge's ruling is not as negative as first stated, that the stock will be able to generate any new rallies above the 16.30 level. It is important to note, that at this time the stock is trading off of fundamentals and not charts, and therefore much of what I say here, has to be taken with a grain of salt.
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1) VLO - Purchased at 24.92. Covered at 23.92. Loss on the trade of $110 per 100 shares plus commissions.
2) SNDA - Covered short at 30.90. Shorted at 32.90. Profit on the trade of $200 per 100 shares minus commissions.
3) LEN - Covered short at 10.65. Shorted at 10.00. Loss on the trade of $65 per 100 shares plus commissions.
4) TRA - Purchased at 18.00. Covered at 17.70. Loss on the trade of $30 per 100 shares plus commissions.
5) WFC - Purchased at 25.49. No stop loss at present. Stock closed on Friday at 25.14.
6) AA - Purchased at 10.86. Now averaged long at 16.15 (3 mentions). No stop loss at present. Stock closed on Friday 10.81.
7) JNPR - Covered short at 18.50. Shorted at 17.54. Loss on the trade of $96 per 100 shares plus commissions.
8) AMZN - Covered short at 54.10. Averaged short at 53.45. Loss on the trade of $136 per 100 shares (2 mentions) plus commissions.
9) WFC - Covered short at 25.22. Shorted at 31.26. Profit on the trade of $604 per 100 shares minus commissions.
10) VLO - Purchased at 23.60. Stop loss at 22.95. Stock closed on Friday at 24.00.
11) HANS - Purchased at 31.84. Stop loss at 30.75. Stock closed on Friday at 32.01.
12) RMBS - Purchased at 11.60 and again at 10.34. Averaged long at 10.97 (2 mentions). Stop loss is at 10.14. Stock closed on Friday at 11.25.
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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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