Issue #129
June 28, 2009
 The Oasis

Newsletter


The newsletter with chart analysis for stocks and stock indexes

Stock Indexes Analysis/Evaluation 


End-of-the-Quarter Rally Expected!

DOW Friday close at 8438

The DOW, for the first time in 16 weeks, had two weeks in a row with lower closes than the previous week. As such, it seems evident that the recent momentum to the upside has stalled and that the index is now is a sideways trading range. The index started the week much like the previous week with strong selling coming in on Monday, and some follow through seen on Tuesday. By the end of the week, though, most of the early week losses were pared and the index closed out the week on a more positive note than the previous week.

With the end of the quarter coming in on Tuesday and window dressing by the hedge and mutual funds highly likely, it is unlikely the index will see the kind of selling it has seen the last 2 Mondays. As such, it is expected that more upside movement will be seen this coming week, at least for the first couple of days of the week.

On a weekly closing basis, decent resistance is now found at 8799. Above that level, resistance is strong at 9035 and even stronger up at 9325. On a daily closing basis, decent resistance will be found at 8472/8480 from the 200-day MA as well as from a minor daily close at 8472. Above that level, resistance is decent to strong at 8556 and very strong at 8799. On a weekly closing basis, support is minor between 8379 and 8451 and strong at 8269. On a daily closing basis, the support is very strong between 8269 and 8300. Below that level, strong support will be found between 7937 and 7957.

It is likely that the range for the month of June has been set with a high of 8878 and a low of 8259. The trading range was 619 points and slightly above the June average of 470 points. Nonetheless, the trading range did fit in within the parameters of an index that at this time has no specific direction as well as in a summer doldrums stage.

In looking at the monthly charts in those years where the DOW was not in a defined and "confirmed" bull or bear trend (2000, 2003, 2004, 2005, 2006, and 2009?), it traded in a sideways fashion and within the same basic parameters for July as for June. As such, it is likely that for the month of July, the index will somewhat mimic what happened in June. More of the same is likely to happen for the next 5 weeks.

Nonetheless, the new quarter will bring in new earnings reports and a clearer picture of the economy will begin to emerge. Though the probabilities still favor a sideways market, followed with a likely correction and down action in August and September, it is all likely to depend on the news that comes out during the next 5-8 weeks. It is evident right now, that the market has lost much of its momentum and direction to the upside. As such, a catalyst is likely needed to generate a move out of this present trading range.

For the time being, the DOW will likely see upward movement next week, due to the end of the quarter window dressing. The biggest hurdle the index needs to overcome to achieve higher prices is the 200-day MA currently at 8480. That line stopped the index on Friday and could do the same on Monday. Nonetheless, if that line is broken, on a daily closing basis, a move up over the next week or two to test the recent high at 8878 could be seen. By the same token, if the 200-day MA holds up, the move down to test the lows seen this week at 8286 will then likely occur first. Based on the action at the end of the week, this latter option is unlikely to occur. Either way, though, nothing of consequence is likely to happen until the earnings reports start coming out, and even then without major surprises, the probabilities favor more sideways action.

Possible trading range for the week is 8380 to 8660.

NASDAQ Friday Close at 1838

The NASDAQ generated a classic reversal this past week with higher highs, lower lows, and a close above the previous week's high. In addition, the NASDAQ was able to hold itself, intra-week, above the 50-day and 50-week MA's when weakness was being seen. As such, it is likely the index will lead the way to the upside this coming week.

The reversal in the NASDAQ suggests that an attempt at the previous intra-week high of 1880 will be seen this week. In addition, the high weekly close at 1859 also seems to be at risk of not only being tested but perhaps broken.

On a weekly closing basis, resistance is decent at 1859. Above that level there is no resistance until psychological resistance is reached at the 2000 level. On a daily closing basis, resistance is decent at 1844, and strong at 1862. Above that level, only the gap area at 1905/1947 would be seen as resistance. On a weekly closing basis, minor support will be found at 1827 and then decent support will be found at the 50-week MA at 1763. Below that, there is decent support at 1680. On a daily closing basis, minor support is found at 1796 and strong support at 1765. Below that level, strong support is found down between 1684 (200-day MA) and 1692 (most recent low close of some consequence).

The NASDAQ is outperforming all the other indexes and on a rally week, like this coming week promises to be, this index should be the one to watch as its resistance levels are clearly defined and close by. With the close at 1838, the first resistance the stock will need to address is 1844. Prior to the new 10-month daily close at 1859, made two weeks ago, the 1844 level was considered major resistance. As such, if the index is "not" going to attempt to make new highs this coming week, that resistance level should hold. Nonetheless, if the index is able to close above that level on either Monday or Tuesday, the two most likely days for strength due to the end of the month window dressing, attempts to close above the 1862 level and make a new 10-month daily closing high will come.

With the other 2 indexes quite a bit away from their 10-month highs, the NASDAQ will likely be the index that will signal this week whether further upside is coming, or whether this is a topping out formation prior to a decent correction. Expect strength to be seen during the first two days of the week. Nonetheless, the strength will likely come from window dressing for the end of the month, rather than from actual bullish news. As such, recent highs are not likely to be taken out, unless further positive news is released this week.

Possible trading range for the week is 1866 to 1785.

S&Poors 500 Friday close at 918

The SPX was unable to generate a close above the previous week's close even though the index was able to trade at and above that level in the last 10 minutes of trading on Friday. The failure to establish a higher close than last week seems to suggest that the index does not have the strength to generate an attempt at a new 10-month high this coming week, in spite of the strength that will likely be seen because of the end-of-the-month window dressing.

The SPX has the strongest resistance level at 936/940 of all the indexes due to the history of this area going back to 2002/2003. In addition, the index generated a failure-to-follow-through signal 2 weeks ago when the index broke above that level slightly, but was unable to maintain the break. With the SPX being the most watched index of all, it is unlikely that the market in general will be heading higher unless this index leads the way.

On a weekly closing basis, resistance is strong between 936 and 946 and again decent to strong at 968. Above that level there is nothing until the psychological resistance at 1000 is reached. On a daily closing basis, there is minor resistance at 921, stronger at 929, and strong at 946. Above that level resistance is again strong at 985. On a weekly closing basis, support is now strong at 882. Below that level there is minor support at 872 and then nothing until minor support is found again at 825. Strong support is at 800. On a daily closing basis, minor support will be found at 910 and strong support at 893, from the 200-day MA as well as from the most recent low daily close. Below that, strong support is found at 846 from the 100-day MA, as well as from an important daily close seen in October.

Just like the NASDAQ must be watched for clues to the upside, the SPX must be watched for clues to the downside, based on what it fails to accomplish. The index has 2 levels close by that are important resistances, on a daily closing basis. The 921 level is least of the two but the index failed to close above it on Friday, giving that level added importance. The most important level, though, is 929/931 as that level needs to be considered strong resistance as well as a major pivot point. A close above 929/931 would be considered short-term bullish and open up the possibility of the index continuing higher. Nonetheless, if the index fails to close above that level, it will likely mean that it is in a topping out phase and that lower prices will be explored over the next few weeks.

With end-of-the-month window dressing likely to be seen on Monday and Tuesday, the probabilities of the index getting up to a close at 929/931 are high. Nonetheless if the index is unable to generate a close above that level by the end of Tuesday, it is probable that selling will come in toward the end of the week. As it is, July is a month that is not expected to "shake the bed" very much. It is also expected that July will have a trading range much like June's (888-956), but with a slight downward bias, with a possible trading range for the month of 875 to 943.

With the index presently trading a bit above the middle of the expected trading range of July, it is expected that upside action will likely be seen in the first and perhaps second week of the month, followed by weakness toward the latter part of the month. Nonetheless, like in June, it is not likely that much will happen this coming month.

Possible trading range for the week is 910-943.


The summer doldrums period is upon us and the trading in the indexes has been slow and somewhat directionless. July is not expected to offer much of a change to the trading action unless the earnings reports, which start coming out on July 7th, show surprises. It must be mentioned that in 5 of the last 11 years, when the indexes have not been in a defined trend, the month of July has mirrored the month of June. At this time it cannot be stated that the indexes are in a defined trend, as such, it is likely that July will offer much the same kind of action and trading range as June.

The end of the quarter will come on Tuesday and it is likely that there will be some window dressing buying coming in, especially since there are no reports due out until Wednesday. In addition, the indexes showed some strength in the last two days of the week and that strength is likely to support the market on Monday and Tuesday. Nonetheless, there are several important reports due out next week from Wednesday through Friday that could give the indexes further direction.

With the exception of the NASDAQ, the indexes are far away from the highs seen 2 weeks ago. As such, it is unlikely that even if there is end-of-the-month window dressing that new highs will be made, or even attempted, unless the reports due out at the end of the week are better than expected.

Stock Analysis/Evaluation 
 
CHART Outlooks

Two of the mentions this week are short-term purchases. The other two are short positions with desired entry points that are substantially higher than the closes on Friday, and may not be reached this week. The sell mentions will stay in effect for next week, while the purchases are exclusively for this week. It is expected that the market will rally this week and begin dropping by next week.

UTX (Friday Closing Price - 51.55)

UTX, after failing to make new 7-month highs 3 weeks ago, corrected back down to the 200-day MA this past week. The stock was successful in testing that line on two different days and with the expected rally in the indexes this week, is likely to generate a rally back up to close a gap it left open between 53.85 and 54.03. In addition, the stock is also likely to attempt a re-test of the successful re-test of the 7-month highs at 56.97.

UTX is a DOW stock and with the high probability of end-of-the-quarter window dressing to be seen on Monday and Tuesday, the probabilities of a rally are high. In addition, the stock reached a psychological level of support at $50 that without strong negative fundamentals, or help from the indexes, is unlikely to get broken at this time.

On a weekly closing basis, resistance is strong at 54.95 and major at 56.39. On a daily closing basis, resistance is minor at 52.03, decent at 53.55 and strong between 54.88 and 54.93. Above that level, resistance is strong at 55.48 and major at 56.49. On a weekly closing basis, support is strong at 51.04. On a daily closing basis, support is strong between 50.61 and 50.81. Strong psychological support will also be found at $50.

UTX held itself above the strong daily and weekly close support between 50.61 (daily) and 51.04 (weekly), in spite of the fact the stock got into a strong short-term downtrend after the failure to generate new 7-month highs on its last attempt 3 weeks ago. With the likely successful test of supports, it is probable the stock will be moving up to fill the gap it left open between 53.85 and 54.03, as well as test the recent top it built up between 55.48 and 56.49.

The expected strength to be seen in the indexes at the beginning of this week, as well as the fact that its likely that in July the indexes will be testing the June highs as well, seems to suggest that UTX will be moving higher this week. The gap area at 54.03 is the first objective, the previous double top on the weekly closing chart at 54.95 is the second objective, and the strong resistance at 55.63 would be the highest objective.

Purchases of UTX between 51.04 and Friday's close at 51.55, and placing a stop loss at 50.34, and having an objective of 54.95-55.63, will offer a 4-1 risk/reward ratio.

My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the highest probability).

PDCO (Friday's closing price - 21.41)

PDCO had a very bearish flag formation that was destroyed with Friday's rally. As such, it is now highly likely the stock will be moving up to close the gap between 21.59 and 22.03. In addition, the stock was able to close above the 200-day MA for the first time in the last 14 months, giving the stock the possibility of not only closing the gap but perhaps generating more of a rally.

PDCO is still showing a possible bearish head & shoulders formation that does not give this trade a high probability number. Nonetheless, with the expected rally in the indexes this week, the erasure of the inverted flag formation, as well as the strong breakout on Friday above the 200-day MA, the possibilities of the h&s formation also being negated are high. If that happens, the trade could offer the chance of a high return, if the indexes continue higher.

On a weekly closing basis, resistance is decent to strong at 21.60 and very strong at 23.08. On a daily closing basis, resistance is strong at 21.60, decent at 22.69 and strong at 23.08. On a weekly closing basis, support is minor at 20.46 and very strong between 19.90 and 20.09. On a daily closing basis, support is decent at the 200-day MA at 21.10, decent again at 20.30, and very strong between 19.66 and 19.77.

It is evident that the 21.60 level, on a daily closing basis, is an important pivot point for the stock, as well as the possible left shoulder on the h&s formation. With the stock closing on Friday at 21.41, it will not take long to know whether this trade is a good one or not. Any close above 21.60 will likely generate rallies up near the $23 level. By the same token, if the indexes rally on Monday and Tuesday, and the stock fails close above 21.60 on either of those two days, it will likely mean the bearish Head & Shoulders formation is intact and the positives seen on Friday will be negated.

The breakout above the 200-day MA is the likely key to this trade. The stock should not go below, and more importantly, close below the 200-day MA at 21.00-21.10 any more, if the breakout is for real. As such, if able to pick up long positions close to the line, the risk/reward ratio on this trade will be good and the possibilities of success good enough.

Purchases of PDCO between 21.00 and 21.12, and using a stop loss at 20.66 and an objective of at 22.86, offers a risk/reward ratio of 4-1.

My rating on the trade is a 2.75 (on a scale of 1-5 with 5 being the highest probability).

MT (Friday's closing price - 33.31)

MT is a stock that often generates gaps, but consistently ends up closing them. Several weeks ago (3-4 to be exact), the stock successfully tested the 8-month weekly closing high at 37.50 with 2 closes (double top) at 36.36 and 36.49. After the successful re-test the stock generated 2 gaps down at 35.65 to 35.45 and at 34.65 to 33.85, as well as a drop down to 30.45. In that drop the stock got down near the 200 and 50 day MA's without breaking either one of them. The stock is now on its way back up, with the likely intention of closing the gaps it left above.

With the likely rally to be seen in the indexes, it is likely that MT will be closing the 2 open gaps, as well as re-test the previous successful retest of the 8-month high. With the probability that July will mimic June, in trading range, if the stock is able to reach up near the desired short entry levels, it offers a clearly defined risk/reward ratio as well as a high probability of success trade.

On a weekly closing basis, resistance is strong at 35.09 and then again at 36.30 where the 50-week MA is currently located. On a daily closing basis, resistance is minor at 34.99 and very strong at 36.36/36.49 where a double top presently exists. Above that level, resistance is also strong at 37.50 from the highest close in the last 9 months. On a weekly closing basis, support is minor to decent between 28.70 and 29.25 from 3 previous high weekly closes in that area. Actual previous low weekly close support is not found until 25.75 is reached. On a daily closing basis, support is minor at 31.81, stronger at 30.57 and psychologically strong at $30. Below that level, support is strong at 28.00, from the 200-day MA.

The probabilities favor MT heading higher this week, in conjunction with the indexes, and closing the two open gaps, as well as re-testing the strong double top resistance up in the mid 36's. Intra-day rallies could go up as high as 35.86 (34.99 on a daily closing basis). Such a rally would accomplish both objectives.

If July turns out to be a mirror trading range of June, with a slight additional downward bias, drops down to the $30 level, and perhaps as low as $28, could be seen.

Sales of MT at 35.63 or better and using a stop loss at 37.36 and having an objective of 28.11, will offer a risk/reward ratio of 4-1.

My rating on the trade is a 3 (on a scale of 1-5 with 5 being the highest probability).

TRLG (Friday's closing price - 21.58)

TRLG is a high end retail store catering to young people with money. The stock fell from a high of 31.82 to a low of 7.80 during last year's economic ills. During the last 16 weeks, the stock was able to rally back up to the 24.97 level, as well as generate a small correction over the past 3 weeks down to 18.92. Nonetheless, the stock seems to be in the process of building a major Head & Shoulders formation that could ultimately generate drops down to the $12-$15 level over the next couple of months.

After seeing weakness at the beginning of the week, TRLG was able to rally in the latter part of the week, with the help of the indexes, and close near the highs of the week. Such a close increases the probability of further rallies this week while testing the recent highs made, as well as building the right shoulder of the formation.

On a weekly closing basis, resistance is minor at 21.97 and very strong between 22.25 and 22.48. Major resistance is the recent high weekly close at 23.65. On a daily closing basis, resistance is strong at 22.27, minor at 24.01, and very strong at 24.52. On a weekly closing basis, support is decent at 20.98 and strong at 19.70. On a daily closing basis, support is very minor at 20.24, stronger at 19.48 and strong again at 18.81. Below that level there is no support at all, on either the daily or weekly chart, until the 200-day MA, currently at 15.96, is reached.

As mentioned above, TRLG seems to be in the process of building a Head & Shoulders formation with the left shoulder at 22.84, the head at 24.97 and the necklines at 18.37 and 18.92. All of these numbers are on an intra-day basis. At present, it seems probable that the stock is trying to build the right shoulder of the formation with a possible objective to the upside of 22.84 or somewhere thereabouts. With a rally expected to be seen in the indexes this week, it is likely that TRLG will be heading higher as well.

It must also be mentioned that TRLG has a major open gap between 18.00 and 18.37. Closure of that gap will ensure a break of the neckline and likely generate a move down to at least the 200-day MA at 15.96. Nonetheless, the H&S formation actually gives an objective of 12.90, which based on a low at 12.98 seen on October 8th, as well as on the nature of the straight up move without a correction from 7.80 to 24.97, seems to be very reachable.

Sales of TRLG between 22.35 and 22.84 and using a stop loss at 23.59 and having an objective of at least 15.90, offers a risk/reward ratio of at least 5-1.

My rating on the trade is a 4 (on a scale of 1-5 with 5 being the highest probability).

Updates 
Updates on Held Stocks
Open Positions and stop loss changes 

NUAN failed to participate in the late week strength in the indexes, other than to hold itself above the 50-week MA and previous low weekly close, both at 11.84. The stock was unable to generate a higher close than the previous week and maintained its short-term momentum to the downside. Nonetheless, if the indexes do show strength at the beginning of the week, rallies up to the 50-day MA, as well as 2 important low daily closes, all between 13.06 and 13.16 are likely to occur. On an intra-day basis, resistance is decent at 13.33. Support will be found at 12.00. It is likely that the stock will be trading within those two prices for the coming week. Any daily close above 13.16 or below 12.00 will likely generate further movement in that direction.

AMZN was able to close higher this week than the previous week and it is likely the stock will be attempting to test the high made 3 weeks ago at 88.56. With the strength likely to be seen in the indexes in the first two days of the week, rallies up to the 86.68 level are possible and perhaps even likely. Nonetheless, even if the index gets up to the 86.68 level at the beginning of the week, it is also likely to get down as low as 80.64 before the week is over, unless the reports at the end of the week thrust the indexes above their previous highs (unlikely). Likely trading range for the week is 86.68 down to 80.64. There is decent resistance on the intra-day chart between 84.14 and 84.30. As such it is possible the stock will drop down to 82.40. Purchases for a short-term or day trade can be attempted on such a drop in price.

JBL had a reversal type week with higher highs and lower lows. This came after the earnings report on Tuesday came out as expected and the indexes started to generate a rally. Nonetheless, at the end of the week, when the indexes were at their strongest, the stock fell back down to test the previous week's close at 6.85. The stock was able to close higher than last week on Friday and will likely see some upward movement on Monday and Tuesday in conjunction with the rally expected to be seen in the indexes. On a daily closing basis, though, resistance should be strong at 7.59. Support is strong at 6.61. Probabilities favor an inside week this week with a possible intra-week high at 7.69 and an intra-week low at 6.82. A daily close above 7.59 will likely generate a rally all the way up to 8.58, while a close below 6.61, a drop down to 6.36 or 6.03.

INTC had a reversal week with higher highs and lower lows than the previous week. In addition, the stock closed right on the 50-week MA at 16.30. The reversal is a strong positive, especially since upward movement in the indexes is expected to be seen Monday and Tuesday. Nonetheless, the intra-day resistance between 16.70/16.74 remains very strong and unless that level is taken out, the probabilities favor a sell off toward the end of the week. Based on the close on Friday, a rally up to 16.59 is likely to be seen on Monday or Tuesday. Nonetheless, if that level holds up, drops back down to 15.72 will likely be seen toward the end of the week. The stock has been in a totally sideways format for the last 10 weeks and in an even smaller trading range for the last 4 weeks. As such, a breakout should not be expected. Nonetheless, if it does happen, the stock could generate a strong move upward.

WFC had an inside week with lower highs and higher lows than the previous week. Inside weeks generally support follow through the following week in the direction of the recent trend (down). Nonetheless, if the indexes do show strength on Monday and Tuesday, the stock will likely show some strength as well. The stock has been attempting to get above the 200-day MA, currently at 23.80. So far, on a daily closing basis, it has failed to do so. Nonetheless, the possibilities seem to favor strength on Monday and Tuesday in conjunction with the anticipated rally in the indexes. The rally could take the stock as high as 25.00 to 25.48, where the stock would then again likely be a strong short. There is minor intra-day support at 23.63 and if the stock is unable to get below that level on Monday, liquidating the stock and looking to re-short above 25.00 might be the thing to do. Any daily close above 24.19 would be a short-term positive, while a close below 22.51 a strong negative.

 


1) UTX - Covered shorts at 51.04. Averaged short at 55.61. Profit on the trade of $919 per 100 shares (2 mentions) minus commissions.

2) KGC - Covered longs at 19.41. Averaged long at 15.96. Profit on the trade of $1685 per 100 shares (5 mentions) minus commissions.

3) INTC - Shorted at 16.08. Stop loss at 16.84. Stock closed on Friday at 16.29.

4) JBL - Shorted at 7.69. Averaged short at 8.20 (2 mentions). Stop loss now at 8.10. Stock closed on Friday at 7.16.

5) WFC - Shorted at 22.96. No stop loss at present. Stock closed on Friday at 23.89.

6) AIPC - Shorted at 29.56. Averaged short at 29.02. Covered short at 30.00. Loss on the trade of $196 per 100 shares plus commissions.

7) AMZN - Shorted at 82.95. Stop loss at 84.40. Stock closed on Friday at 83.38.

8) RSG - Shorted at 23.20. Covered short at 23.97. Loss on the trade of $77 per 100 shares plus commissions.

9) SOHU - Shorted at 67.80. Covered short at 67.79. Profit on the trade of $1 per 100 shares minus commissions.

10) DDM - Shorted at 28.67. Covered short at 28.63. Profit on the trade of $4 per 100 shares minus commissions.

11) K - Shorted at 44.88, at 45.42, and 45.90. Covered at 46.13. Averaged short at 45.40. Loss on the trade of $219 per 100 shares (3 mentions) plus commissions.

12) PDCO - Shorted at 20.70. Covered shorts at 21.36. Loss on the trade of $66 per 100 shares plus commissions.


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Disclaimer

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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