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Issue #110 
February 15, 2009 | Newsletter
The newsletter with chart analysis for stocks and stock indexes |
Stock Indexes Analysis/Evaluation
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| Buy the Anticipation, Sell the News - Indexes Weakening!
DOW Friday close at 7859
The DOW gave up all of its previous week's gains this past week and closed on a new 71-month weekly closing low on Friday. The indexes failed to generate buying interest when Geithner's aid package to the financial community was regarded as lacking important detailed information as to how it would work. In addition, Obama's stimulus package was considered by many as having a lot of "fat" in it, as well as being a plan with many potential pitfalls that do not offer enough short-term solutions.
The DOW began to fall during the week when the traders started losing confidence in the ability of the programs to buoy the market. By the end of the week, chart pressures began to build once more and the bulls were unable to generate enough buying to hold the index above the previous low weekly close.
On a weekly closing basis, decent support is now found at 7740 and major support is found at 7528. Nonetheless, it must be mentioned that these supports are from 6 years ago and the 7740 level is not likely to offer the kind of support needed to turn the market around. On a daily closing basis, there is no support now until major support is reached at 7552. On an intra-day basis, only the November low at 7449 is left. On a weekly closing basis, resistance is now very strong at 8281 and decent at 8001. On a daily closing basis, resistance is now very strong at 8281, decent at 8078, and strong at 7937.
In spite of the fact that Obama's stimulus plan was all but confirmed/passed going into the weekend, the DOW failed to generate any decent buying on Friday. As such, the outlook for the near future is now grim as there are no new scheduled aid packages or plans to be unveiled, no possible Fed help with interest rates, and no confidence of an immediate recovery left in the market.
It is now evident that recovery is still far away, even it is possible within the adopted plans. The lack of buying interest may be more evident this coming week as there are no scheduled events that could be seen as positive catalysts. Under this scenario, a re-test of the previous low at 7449 is now likely and a new low is now possible. With the bears now back in control, selling pressure will likely be strong.
It must be noted that the DOW has no previous support of consequence below the 7500 level and therefore a break of that support could generate drops down to levels that at this time cannot be measured. With no news expected this week, as well as the index having had a successful re-test of the 8000 level on Friday, it is possible that the range this coming week could be 7850 to 7227. Nonetheless, it is probable that the previous weekly closing low of 7552, will play an integral part of the weekly close.
NASDAQ Friday Close at 1534
The NASDAQ continues to outperform all the other indexes as the general market has been much more resilient than the blue-chip or financial sectors. Nonetheless, that particular trend may start to wane now that the lack of confidence in finding successful solutions for the economy has begun to be evident. It must be mentioned that even though the index was able to hold itself above an important pivot point at 1500 this week, the index did close lower this week than the previous week making last week's close at 1592 into a successful re-test of the 20-week MA.
If the indexes do start to fall this week, the NASDAQ could be the one that is hit the hardest as there is a lot of room to fall before the previous low is reached. The 1500 level has been a major pivot point for the past few months and if the index starts to break it again, as it has done on 2 previous times, the negative reaction to a third break could be strong.
On a weekly closing basis, support is now very strong at 1476 and still major at 1384. On a daily closing basis, support is minor at 1525 and very strong at 1506/1508. Further support of minor nature will be found at 1490 and stronger support at 1476. Below that there is decent support at 1441 and again at 1398. Major support is found at 1316. On a weekly closing basis, resistance is minor at 1558 and very strong at 1592.
The NASDAQ is still the index to watch on any rally as it is evident that the buying interest is concentrated in this index. Nonetheless, the 1500 is a major pivotal point and if the index starts trading again below that level, it is likely to start receiving the bulk of the sales.
It is important to note that the index now has two open gaps, one above and one below, that continue to be magnets to the traders. On the upside, the index shows an open gap at 1636-1625 and below at 1384-1397. Since the November low, the index has traded between those two gaps awaiting a resolution of the trend. Both of these gaps have the possibility of being a breakaway gap and if they are, a second runaway gap is likely to be seen. It is important to note that a few weeks ago the NASDAQ did gap up but was unable to hold the gap open, thus negating the runaway gap scenario to the upside. If the index gaps down on Tuesday, it could be a sign that the lower gap will be filled and that a downtrend has restarted.
It must be mentioned after the close on Friday the indexes were trading substantially lower and it is highly possible that the NASDAQ will gap down on Tuesday. If that does happen, and the gap is not filled that same day, the probabilities of a drop down to fill the gap at 1384 and test the previous low at 1297 will increase substantially.
Possible trading range for next week is 1495-1384.
S&Poors 500 Friday close at 826
The SPX continues to be the main index to follow as it is believed that without recovery of the financial sector that no recovery in the market is possible. It must be noted that the SPX had a reversal week this past week with higher highs, lower lows, and a close in the red. It is also important to note that the index on Monday tested an important previous intra-day high at 877 with a rally up to 875, and with the failure to get above that level, has now created a double top at that level that looks ominous.
In addition, for the last 3 weeks the stock has been consistently testing the 800 level with drops down to 804-812 on 7 different occasions. Such a consistent and repeated attempt at a support level tends to make the level even more of a magnet as a break of that level will bring in strong selling. With the bears now seemingly back in control, attempts at that level will likely be seen again this week and if broken, a move down to the previous low of 747 will likely occur.
On a weekly closing basis, support is decent at 825 and major at 800. On daily closing basis, support is minor at 825, decent at 816 and decent to strong at 805. Major support is found at 752. On a weekly closing basis, resistance is now strong at 868. On a daily closing basis, resistance is minor at 835 and very strong between 869 and 874.
The SPX chart is beginning to look very top heavy as the index failed this past week to get above a previous resistance level of minor to decent consequence at 877 (874 on a daily closing basis). In addition, the index has consistently been testing the 800 level during the past 3 weeks and now finds itself at a juncture in which fundamental help is not likely to be found. It must be mentioned that the index has a major double bottom at 800 level, with the first bottom occurring in 2002 and that second bottom occurring 3 months ago. Such a double bottom should have generated a very strong and consistent move up after it was made. Nonetheless, the rallies have been muted and the return to test the level has been consistent since the second bottom was made. Such action tends to weaken the chart as every time the bears are successful in taking the index down close to the level, it creates more of a magnet and less of a support.
With little or no upcoming events or news that could generate strong buying this coming week, it is now likely the double bottom will be severely tested. If broken, strong selling will occur, as this is an index that represents what is presently wrong with the economy. Not only will a break of 800, on a weekly closing basis, cause substantial technical selling but a general disappointment as well as a collapse of confidence in the ability of the financial sector to recover any time soon.
The action in the latter part of the week, as well as the new weekly closing low in the DOW has set the stage for an attempt this week at breaking the support in this index. Possible trading range for the week is 812 to 743.
This past week the new administration unveiled an aid package for generating a recovery in the financial sector. Unfortunately the marketplace did not embrace the aid package with a lot of fervor as the details of the plan were seen as lacking clarity. In addition, Congress passed Obama's stimulus package this week but the difference of opinion over the validity of the program was great and not something that will be able to be confirmed either way for several months to come. As such, the bulls were unable to garner enough buying interest to generate upside momentum and the indexes seemed to deflate.
Much of the recent sideways trend and support of the lows has been based on hope that the new administration could come up with ways to avert the market crisis that has enveloped the world over the past year. Unfortunately, it seems that the plans so far proposed have not been strong enough to convince investors that the worst may be over. In addition, from a technical and fundamental basis, the downside now seems to be the path of least resistance as well as where a lot of stop loss orders are likely to be found. Resumption of the downtrend now seems to be the most probable course of action.
It must be mentioned that this coming week is option expiration week and that could be a monkey wrench. It is doubtful, though, that the indexes can rally based on that alone. The worst case scenario, in my personal opinion, would be a slight downtrend this week keeping the recent levels in stock and indexes in somewhat of a close view. If that happens, then the following week would be the strong drop.
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Stock Analysis/Evaluation
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CHART Outlooks
The close on Friday in the DOW gives reason to believe that for the next couple of weeks the indexes will be under selling pressure. As such, all mentions this week will be sales.
HPQ (Friday close at 35.87)
HPQ is a stock that for the last two months has been trading in a sideways fashion between a high of $37 and a low of $33. Nonetheless, over the past 3 weeks the stock has shown a tendency toward lower prices as the weekly highs and lows have been consistently lower than the previous week. In addition, on January 5th the stock shows a successful re-test of the previous weekly closing high at 38.28 with a close at 37.49 and 2 weeks ago that high was also successfully tested with a close at 36.85 and a red close this past Friday.
In addition, the 100-MA has been tested successfully on 3 different occasions, without ever once being able to get above the line. With the indexes likely heading lower as well as the trend in the stock leaning toward the downside, it is likely that the stock will follow the indexes down during the next couple of weeks.
On a weekly closing basis, resistance is now strong at the 36.85 level seen just two weeks ago. Not only is it the most recent weekly high close but also a successful test of the 20-week MA. On a daily closing basis, resistance is decent at 36.10 and again at 36.47. Above that level, resistance is very strong at the highest close seen in the last 2 weeks at 36.85. In addition, that level is also where the 100-day MA is currently located. On a weekly closing basis, support is minor at 34.,97 and strong at 34.75 from a minor double bottom located at that price. Below that, there is minor support at 33.53, stronger at 32.44 and major at 30.47.
HPQ shows very strong support down at the $30 level that has been in place for the past 5 years, nonetheless, the lows seen in November at 28.23 (30.47 on a weekly closing basis) have not yet had a re-test. With the stock starting to show deterioration in price over the past couple of weeks and the fact the DOW closed in a new 71-month weekly closing low on Friday, it is likely that a move back down to the $30 level is starting to occur.
It is also important to note that the stock has an open gap between 30.60 and 31.43 that will become a magnet should the stock begin to close below the strong support at $35. It must also be mentioned that the support at $35 has now been tested on far too many occasions in recent weeks, thus making the probability of a break occurring high.
Sales of HPQ at Friday close of 35.87 and placing a stop loss at 37.30 and having a intra-day objective of 30.00 or lower, will offer a risk/reward ratio of 4-1.
My rating on the trade is a 3.5 (on a scale of 1-5 with the strongest probability rating being 5).
CAT (Friday close at 30.94)
CAT is a stock that was able to generate a bit of support this week due to the fact that Obama's stimulus package will likely bring additional income to companies that are in the heavy equipment industry. Nonetheless, the stock has been unable to generate enough buying to get rid of a very negative looking chart that signals that a break of the $30 level is likely to bring the $20 level into view.
In addition, CAT generated a daily and weekly gap three weeks ago between 35.01 and 34.24 that brought about a 5-year low. That gap was successfully tested 10 days ago with a rally up to 33.85 and now the stock seems to be once again under strong selling pressure. With the DOW having made a new 71-month weekly closing low on Friday, it seems now highly likely the stock will be following in its footsteps.
On a weekly closing basis, resistance is now very strong at 33.28 (recent high weekly close and successful re-test of the previous low close at 33.30). On a daily closing basis, resistance is also strong at 33.28, as that has been the most recent high daily close. On a weekly closing basis, support is minor at the previous low of 30.85. Below that you have to go all the way back to 2003 and 21.99 to find a level of support of any consequence. Strong support is found at the 2002 low of 18.01. On an intra-day basis, only the low seen 2 weeks ago at 29.60 is found.
It is difficult to see CAT as a stock that is fundamentally unsound, especially when Obama's stimulus package could bring in additional income to companies selling heavy equipment for roadways and bridge repair. Nonetheless, the chart is looking so weak and the risk/reward ratio so clearly defined that it is a short position that a chartist needs to pay attention to.
The gap area up at 34.24 as well as the recent re-test of the gap at 33.85, offers a clearly defined resistance level and stop loss point to this trade. It must also be mentioned that not only was the gap area tested successfully but the previous important lows at 31.95/32.10 were tested successfully as well. In addition, the lack of support in the stock below the 29.60 level offers the possibility of a strong and swift drop in price should it be broken.
Sales of CAT above 30.90 and placing a stop loss at 33.38 on a stop close only basis, and having an objective of 20.62 (21.63 on a weekly closing basis) will offer 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).
RHT (Friday close at 15.29)
RHT generated a rally that started on November 17th from a low of 7.50 to a high seen last week at 16.45. This rally must be considered a short-covering rally from the drop over the last 6 months from a high of 24.84 to the 7.50 low. In addition, the $16 price represents a level that has been a major pivot point as well as support/resistance level since the year 2000. During this period of time, the stock has shown the $16 level to have been major support on 2 different occasions and major resistance on 6 different occasions.
With the indexes starting to show weakness and the stock having tried to break out last week, but failing to accomplish it, it is safe to assume that the stock offers a good short trade with a clearly defined risk/reward ratio as well as a high probability rating.
On a weekly closing basis, resistance is major between 15.85 and 16.19. On a daily closing basis, resistance is also considered major between 15.69 and 16.19. On a weekly closing basis, support is decent at 14.28, minor at 12.93 from the 20-week MA, decent again between 11.37 and 11.67, and major at 8.56. On a daily closing basis, there is minor support at Friday's closing price of 15.30, decent support at 14.65 and strong support at 13.52 from the most recent low daily close of consequence as well as from the 100-day MA, currently located at 13.21. Below that there is minor to decent support at 12.38/12.43 from both a previous low and high close of some consequence. Below that support is strong at 10.57 and major at 8.58 and again at 7.59.
It is quite evident that the $16 level has been a major pivot point for close to 10 years and with the new 71-month weekly closing low in the DOW this past week, it seems highly likely that the stock has seen its highs. In addition, this is a stock that has not yet tested on the weekly chart the recent lows. Drops back down to at least the $10 level with a good possibility of reaching as low as $8, do exist.
RHT did attempt a breakout this past week when it was able to close at 16.19 and above a previous double top on the daily closing chart at 15.69 as well as a close above the previous weekly close resistance between 15.85 and 16.03. Nonetheless, on both the daily and weekly closing charts, the stock has now given a failure-to-follow-through signal by closing on Friday below both of those levels.
With the indexes now giving signs that the downtrend may be resuming, it is likely that the stock will be heading lower. It is important to note that the stock does have a breakaway gap at 10.53-10.62 and a runaway gap at 12.56-12.75. Drops down to test the runaway gap at 12.56-12.75 are now possible and even likely. Should the stock close that gap, it is likely the breakaway gap at 10.53 will be closed as well.
Sales of RHT at 15.16 or better and placing a stop loss at 16.23 and having an objective of a drop down to at least 10.57, offers a risk/reward ratio of at least 4-1.
My rating on the trade is a 4 (on a scale of 1-5 with the strongest probability rating being 5).
SGR (Friday's closing price 29.24)
SGR is a stock that for the last 12 weeks has moved up from a low of 11.47 to a high seen two weeks ago at 31.18. During this period of time the stock has not yet seen one week where the low was lower than the previous week and therefore it can be said that the 4-year low made in November has not yet been tested. In addition, this past week the stock had a lower weekly close than last week, thus confirming a successful re-test of the psychological resistance at $30, on both the daily and weekly charts.
It is important to note that this recent move up of $19 has been done without any fundamental news. As such, it can be said that after the stock fell 87% in price during the previous 5 months, the move up has been more of a short-covering rally than anything else.
On a weekly closing basis, support is minor at 27.17 and then nothing of consequence until 20.47 is reached. On a daily closing basis, support is decent at 28.27 from the most recent daily low close as well as from the 20-day MA. Further minor support is found at 27.57 and a bit stronger at 25.27. Below that level no daily close support is found until the 100-day MA, as well as previous breakout high daily close is reached at 21.57. On a weekly closing basis, resistance is decent at 30.25 from the most recent weekly high close as well as from a psychological basis. On a daily closing basis, resistance is decent at 30.25 and again at 30.73. On an intra-day basis, resistance is found at 31.18. Above these levels there is no resistance of consequence until the $40 is reached.
It is evident that SGR has not yet been able to build a strong support base from which buyers could continue to buy with some degree of confidence in being able to control their risk (closest support level of consequence is down at $20). Because of that reason the stock is highly vulnerable to strong drops in price should the indexes begin to weaken. Up until now, the stock has been able to rally strongly (271%) based on the oversold/overdone condition that has existed. Nonetheless, with no nearby support of consequence in sight, indications of a decent resistance level having been built, and a weakening index market, the stock seems poised to begin a retracement of the recent up move.
It is important to understand that SGR is a large construction company that moved strongly down in price this past year based on the deteriorating housing situation. As such, it is also a stock that has been closely tied to what the general market does. At the current price of $30 it seems likely that the stock will pivot on that price based on what the indexes do. With a chart formation pointing to moves of at least $10 (or more) in whichever direction the indexes go, the trade becomes very attractive.
Sales of SGR between 29.13 and 29.64 and placing a stop loss at 31.28 and having an objective of 20.47 will offer a risk/reward ratio of at least 4-1.
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, with the red close this week, confirmed that last week's close at 11.04 created a double top at that level. In addition, with the red close on Friday, the stock also confirmed a successful re-test of two relatively important resistance levels at 10.30 and at 10.49 on the daily close chart. Such action seems to point to lower prices this coming week. Nontheless, the stock was able to stay above the $10 level on Friday and still leave some questions unanswered. It must be pointed out, though, that with the DOW closing in a new 71-month weekly closing low, it is likely that selling pressure will be seen this coming week. A daily close below the decent support at 9.68 is likely to confirm that the stock is heading lower. In addition, such a break would also signal a break of the 50 and 100 day MA's, thus giving more strength to the bears. On a weekly closing basis, the stock has no support below 9.63 and even then that support is minor. On the daily close chart, there is good support at 9.18 but if that level is broken, the next level of support would be 7.61. It is important to note that this stock still shows an open gap between 7.58 and 7.81 that will become a magnet once a close below 9.68 occurs. AMZN was unable to close on Friday at or above an important support on the weekly closing chart at 64.09. The inability of the stock to close above that level will likely bring in strong selling pressure this week. In addition, the stock closed on Friday below another minor support on the daily chart at 63.35, thus making the probabilities of further downside increase. The stock does show another decent support down at 61.06 (on a daily closing basis) and at 61.20 (on the weekly intra-week chart) that could slow the stock on the way down. Nonetheless if that support is broken drops down to the gap area at 57.24 would be possible and maybe even probable. Support at $60 is mainly psychological, as the actual support at that price is minor. Based on the action in the indexes on Friday and the probabilities they will fall this week, the stock should not go above Friday's high of 64.68. A close above 64.35 would be considered a short-term positive. FSLR closed lower this week than last week and made last week's close at 146.20 into a successful re-test of the weekly close resistance at 150.00. In addition, the stock tried repeatedly this past week to generate a daily close above the important psychological resistance at 150.00. The failure to accomplish that close has tilted the odds in favor of the bears. FSLR has been trading in a clearly defined and tight trading range between $140 and $150. A daily close above 150.00 or below 139.75 will likely generate further movement in that direction. With the indexes now under selling pressure, the probabilities of downward movement have increase. A close below 139.75 would be quite bearish, as it would not only break the recent low close but also break the 50 and 100 day MA's. Should that happen, drops down to the $110 level could easily occur. ITG also confirmed last week's close at 23.45 as a successful re-test of the previous high weekly close at 24.66. Support on the weekly closing chart is decent between 20.68 and 20.97. A break of that support would likely thrust the stock down to test the 4-year low at 14.25. On the daily chart, the stock now also shows 2 successful re-tests of the previous daily high close at 25.00 with a close at 23.45 and on Thursday at 22.91. A daily close below 22.22 would put the stock under selling pressure and a close below 21.72 would break the 100-day MA. There are several daily close supports between 21.47 and 21.75, but a close below 21.47 would likely generate a drop down to at least the $20 level. A close above 22.91 would be a positive. This is a stock that generally follows the indexes and if they are under pressure this week, this stock will likely follow. HON also confirmed last week's close at 33.45 as a successful re-test of the previous high weekly close at 34.66. The stock does show a head & shoulders formation that almost got triggered this week when the stock went below 31.00. Nonetheless, the stock was able to close above the 31.69 level of support (neckline as well) and prevented that formation from getting triggered. The stock rallied on the news that the company was able to increase their dividends, as well as on the rally in the indexes on Thursday. Nonetheless, the stock was unable to generate the kind of close that would point to higher prices and with the indexes falling, it is likely the stock will fall this week as well. A close above 33.45 would be a positive while a close below 31.69 a big negative. SGR closed this week lower than last week and confirmed last week's close at 30.25 as a successful re-test of the psychological resistance at $30. It is important to note that the stock has not yet had even one week with lower prices than the previous week since the stock made its 4-year low in November. Stock with no corrections or re-test of the lows are extremely vulnerable to strong moves down when a strong support level is reached or the indexes show the likelihood of a downtrend resuming. On an intra-day basis, the stock now shows at least one successful re-test of the previous high of 31.18 with a subsequent move up to 31.97. If the stock goes below Friday's low of 28.04 on Monday, it will also show a second successful re-test of that high. In addition, a red close on Monday will also show a successful re-test of the daily closing high of 30.25. A close below 28.27 any day this week would be bearish. The stock seems to be set for a strong move down in the coming week with the probability of the $20 level being its main objective and the possibility of even lower levels also existing. TNE did show a successful test of the 20-week MA when it closed lower this week than last week. Nonetheless, the support on the weekly chart between 11.58-11.91 is strong and even if the indexes start going down, there is a good possibility this stock will stay above those levels. On the daily closing chart, the stock shows decent resistance at 12.86 and decent support at 12.50. Until the stock is able to close above or below either of those two levels it is impossible to give any further opinion on what the stock will do. Major resistance, on a daily closing basis, is up at 13.37 and major support is down between 11.33 and 11.57. The charts seem to lean a bit on the sell side but not enough to liquidate long positions. The stock shows an open gap between 13.01 and 12.80 that if not closed could generate downside action. A break above 13.67 would be bullish while a close below 11.33 bearish.
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1) TNE - Purchased at 11.80. Stop loss at 11.17. Stock closed on Friday at 12.64.
2) FSLR - Shorted at 148.52. No stop loss at present. Stock closed on Friday at 144.45.
3) SGR - Shorted at 29.12. Stop loss at 30.35 on a stop close only basis. Stock closed on Friday at 29.24.
4) NUAN - Shorted at 10.19. Stop loss at 10.59 on a stop close only basis. Stock closed on Friday at 10.12.
5) AMZN - Averaged short at 61.98 (3 mentions). Stop loss at 64.45 on a stop close only basis. Stock closed on Friday at 63.26.
6) FSLR - Covered short at 142.91. Shorted at 140.25. Loss on the trade of $266 per 100 shares plus commissions.
7) HON - Shorted at 31.30 and again at 33.42. Now averaged short at 32.575 (4 mentions). Stop loss at 34.10. Stock closed on Friday at 33.06.
8) ITG - Shorted at 21.72. No stop loss at present. Stock closed on Friday at 23.45.
9) SGR - Liquidated at 29.32. Shorted at 28.72. Loss on the trade of $60 per 100 shares plus commissions.
10) RHT - Shorted at 14.78 and again at 15.35. Averaged short at 15.065 (2 mentions). No stop loss at present. Stock closed on Friday at 15.29.
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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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