The Gilmo Report

April 15, 2018

April 15, 2018

The NASDAQ Composite Index got as far as its 50-dma on Friday at the open on another gap move to start the day, but reversed to close down on lighter volume. Note that the index also broke below the lower trendline of the ascending wedge that I noted in a tweet on Thursday.

Resistance at the 50-dma is logical, and the fact that it came on light volume amid a lot of nervousness over China tariffs, missile strikes on Syria, and the implications of the recent FBI raid of President’s Trump’s lawyer, Michael Cohen, ahead of the weekend is perhaps a slight positive. Thus, a small pullback here on lighter volume looks more normal than deleterious.

 

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The S&P 500 Index, however, seems to lack thrust as it reversed from a point still below its 50-dma on Friday on light volume. Both the NASDAQ and the S&P are roughly right back where they closed on Tuesday’s follow-through day, with the S&P ending the week on Friday below its Tuesday close. This is of course de facto evidence of the lack of thrust on the heels of the follow-through day.

 

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The lack of thrust is also evident in leading names or wanna-be leading names as the action is somewhat uneven. But there are some names acting reasonably well, and if the market doesn’t come to pieces and fail altogether on this current tepid rally attempt, some money may still be made. Overall, the indexes just look to me like they are chopping in big sideways ranges with a downward bias, follow-through day or not. In essence, the market has a case of the volatile blahs as it struggles a bit here.

Facebook (FB) is actually doing what I said I wanted to see it do per my comments in Wednesday’s report. After flashing two five-day pocket pivots as it regained the 20-dema on Tuesday and Wednesday, the stock held in a very tight range and right at the 20-dema on Friday. Volume dried up sharply to -50.6% below-average, creating a “voodoo” day at the 20-dema. Thus, this is theoretically buyable here using the 20-dema as a tight selling guide.

 

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Another news-worthy big-stock NASDAQ name trying to rise from the dead is Tesla (TSLA), which I last discussed in Wednesday’s report. It, too, has regained its 20-dema after getting decimated the week before, and is holding tight along the line with volume drying up slightly. Earnings are expected in about two weeks, so the question is who blinks first here along the 20-dema – the shorts or the longs.

Objectively, lacking any high-volume breach of the 20-dema, the bias here appears to be toward the long side. Note how selling volume on two prior moves below the 20-dema over the past week declined in succession. So, with selling drying up here, it may be the buyers who come breaking the door down like they did the prior week. Play it as it lies!

 

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Netflix (NFLX) typifies the hesitant sort of action even as it trends back up toward its highs. Notice how it has drifted further above its 50-dma, but stalled on heavy volume three trading days ago, and then on Friday churned and stalled on above-average volume. A good deal of its upward progress throughout this past week came on gap-up moves. Study the daily price bars carefully to see that three of the last four days show the gap-up open equal to the close.

All of this is moot, however, since NFLX is expected to report earnings Monday after the close. At that point we’ll have the opportunity see whether a new-high breakout or a break to the downside is in the cards for the stock, since I have no taste for playing earnings roulette with this one into earnings.

 

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Amazon.com (AMZN) is another sluggish big-stock name. It has drifted up and down over the past seven trading days on very light volume but remains well below its 50-dma. On Friday it attempted to clear the 20-dema but reversed with the market on slightly higher, but well below-average volume. Overall, the pattern is starting to look like a head-and-shoulders formation with earnings expected on April 26th.

As a short-sale pattern study, note that AMZN formed a smaller, fractal head-and-shoulders formation within the head of the larger potential H&S pattern it is currently in the process of forming. Earnings will likely figure into how this overall formation resolves, but so far, the action over the past two-plus weeks simply looks like a bear flag or a possible right shoulder in an overall H&S pattern.

 

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Nvidia (NVDA) is also showing some textbook weakness as it rallies into and reverses at the 50-dma. Note that it attempted to undercut & rally back up through the prior March 2nd low several times over the past two weeks before one finally took and the stock rallied up into the 50-dma. This is textbook short-sale action, since an undercut & rally move is a cover point, as I discussed in my book, Short-Selling with the O’Neil Disciples (John Wiley & Sons, April 2015).

The ensuing rally after the undercut of the prior March 2nd low then produces a textbook shortable rally at the 50-dma, at least theoretically. It’s obvious from the chart that all NVDA is doing is chopping back and forth with very little tightness in the base. Currently, it is acting like a possible late-stage, failed-base type of set-up with resistance at the 50-dma. Earnings are expected on May 10th.

 

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Cyber-security names are still a relative area of strength, but again, massive upside thrust is not to be found, although some have had some nice upside moves over the past few days. Okta (OKTA) posted a trendline breakout on Wednesday, just missing a pocket pivot by one day. It then came in to test the 10-dma on Friday as volume declined to -57.9% below-average, a textbook “voodoo” pullback. The 10-dma remains your reference for buyable pullbacks from here. Earnings aren’t expected until early June.

 

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Sailpoint Technologies (SAIL) remains extended, but we can watch for any pullbacks to the higher 20-dema at 21.02 as potentially opportunistic entry points. Earnings are expected on May 9th.

FireEye (FEYE) has had a nice move to higher highs, clearing the 19 price level on Friday before backing down a bit on declining volume. This is obviously extended, and you would look for pullbacks to 18 or better as lower-risk entries, if you can get ‘em. Earnings are expected on May 2nd.

 

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Fortinet (FTNT) didn’t give us much of a chance to buy it near the 10-dma after it got hit with some selling volume on Wednesday following an analyst’s downgrade to “equal weight” that day. Instead, the stock gapped back up to Tuesday’s highs on lighter volume, and then on Friday pulled back only slightly as volume dried up to -54.1% below-average. Pullbacks to the 10-dma at 54.65 would serve as your best, lower-risk entry opportunities, if, as I like to say, you can get ‘em. Earnings are expected on May 3rd.

 

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Palo Alto Networks (PANW) is a good example of strong upside thrust followed by feeble, round-trip action. The prior pocket pivot breakout has completely given way to multiple retests of the 20-dema. The latest came on Friday as the stock yanked back into the line on volume that was -39.7% below-average. Technically, this provides another lower-risk entry at the 20-dema, using the line as a tight selling guide. Earnings aren’t expected until May 31st.

 

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CyberArk Software (CYBR) continues to hold tight along and just above its 10-dma. The action is relatively tight, and volume dried up to -60.9% below average on Friday. The stock sits 57 cents above its 10-dma, but any pullback to the 10-dma, or even the lower 20-dema at 50.85 would offer lower-risk entries. Earnings are expected on May 3rd.

 

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Nutanix (NTNX) is holding up in what is now a four-week base, the first base its forming since breaking out of a long-term, cup-with-handle formation. Earnings are expected on May 1st so my expectation is that the stock will continue to work on this latest base going into earnings. However, I think the chart position on the weekly chart is interesting given that it has just broken out of a long-term pattern.

 

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Lumentum Holdings (LITE) is holding tight along the 20-dema and regaining the line on Wednesday. This looks constructive and the stock may continue hanging along the 20-dema, but it is in a buyable position as I see it. One can simply use the 20-dema at 63.42 as a tight selling guide. With earnings expected on May 2nd, it may, however, just keep base-building until then.

 

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The last time I discussed Planet Fitness (PLNT) in my report I told members to lay back and play this opportunistically by waiting for a pullback down to the 50-dma. That occurred a couple of weeks ago, and the stock rebounded off the line, and then posted a pocket pivot coming back above the 10-dma and the 20-dema. As I’ve noted in recent video specials, the stock is now holding tight along the two moving averages as volume dries up in the extreme.

On Friday, PLNT pulled into the 10-dma/20-dema confluence and held as volume dried up to -65% below average. Thus, this is in a lower-risk, buyable position, but earnings are expected on May 1st. Note that PLNT had its last big price move after earnings in late February, and since then has just based. The best price move within that pattern occurred after the recent pullback to the 50-dma. While this is buyable here, we would be looking for a robust move higher before earnings to build some profit cushion.

 

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Atlassian (TEAM) is right back up near its prior early-March highs and remains extended. Pullbacks to the 20-dema at 56.81 would offer lower-risk entries if you can get ‘em, but with earnings expected next Thursday, April 19th, there isn’t too much to do here before then.

Carbonite (CARB) continues to trade squeaky tight along its 10-dma and 20-dema. Volume dried up in the extreme on Friday, coming in at -80.8% below-average, dry as a bone! Earnings are expected on May 3rd.

Square (SQ) is still trying to make up its mind as to whether it wants to be a long or a short. The stock regained the 20-dema on Thursday as volume picked up slightly, only to gap up through the 50 price level on Friday at the open and then promptly reverse. By the close it posted a complete outside reversal to the downside on higher, but still well-below average, volume and finished the week back below the 50-dma.

Earnings are expected on May 2nd, but the stock looks like it may want to head lower ahead of the report. Once it reversed back below the 20-dema it looked like a short to me, and it did head lower from there. With the stock closing below the 50-dma, any small rally back up into the 20-dema from here might turn out to be another shorting opportunity.

 

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Applied Materials (AMAT) has wedged its way back above the 50-dma on light and declining volume, but still held the line on Friday on a small pullback as volume declined even further. I would view a breach of the 50-dma as a short-sale trigger, using the 50-dma as a guide for a tight upside stop. Earnings are expected on May 17th.

 

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For newer members: Please note that when I use the term “20-day moving average,” “20-day line,” or “20-dema” I am referring to the 20-day exponential moving average. I use four primary moving averages on my daily charts: a 10-day simple (the magenta line), 20-day exponential (the green line), 50-day simple (the blue line) and 200-day simple moving average (the red line). On rare occasions, I will also employ a 65-day exponential moving average (thin black line). In all cases I will mostly use the shorthand version of “10-dma,” “50-dma,” etc.

Friday night, the U.S. launched a missile attack on Syria in concert with its allies Britain and France. World War Three did not begin as a result, and the fact that it was done in cooperation with French and British allies comes off as a positive. For this reason, I would expect that the market will react positively to this now that it is out of the way, removing a major component of uncertainty.

Because of the saber-rattling over Syria, oil prices rose, driving oil stocks higher. With this event now over, for now, they may all come crashing down. This is why I don’t buy stocks based on current news events, but once the events simmer down, the stocks lose their primary driver. If we do see oil names pull back, it will be interesting to see how and whether they stabilize.

Meanwhile, the trade war of words continues to have its effect, but it was mostly Chinese-related names that took the heat on Friday after the U.S. began listing products that would be subject to the latest $100 billion in additional proposed tariffs. This creates unique risk for Chinese names, and is the primary reason why I haven’t discussed them in recent reports. There is just nothing there to bite on, frankly.

Finally, we are now moving into earnings roulette season, with NFLX being the first of the big-stock NASDAQ names to report earnings, which is expected on Monday after the close. This is the time of the quarter where I begin limiting my potential long action list of names to stocks that aren’t about to report earnings, and that will become the focus of my reports over the next 2-3 weeks or so. I will also be producing my new, short video “specials” perhaps 2-3 times per week as a way of providing members with some insight into how I generate my action plan for each trading day.

For those of you who follow me on Twitter, you will see notifications of blog posts when I put them up, so when new videos are posted you will see the notifications on Twitter. We are, however, going to set up an email notification to members this week, so we will see how that goes.

This market remains difficult, and while we may get a pop on Monday now that the Syria uncertainty is out of the way, it remains to be seen where the big trends, if any, develop in this market. For now, I see a lot of choppy, and at times tentative, action, but things may firm up one way or another. That is mostly what I’m watching for, while maintaining an opportunistic mindset toward my favored stocks. For now, the market trend remains up, but that is a tenuous “up.” Play it as it lies.

Gil Morales

CEO and Principal, Gil Morales & Company, LLC
Managing Director and Principal, MoKa Investors, LLC
Managing Director and Principal, Virtue of Selfish Investing, LLC

At the time of this writing, of the stocks mentioned in this report, Gil Morales, MoKa Investors, LLC, Virtue of Selfish Investing, LLC, and/or Gil Morales & Company, LLC held no positions, though positions are subject to change at any time and without notice.

Gil Morales & Company, LLC (“GMC”), 8033 Sunset Boulevard, Suite 830, Los Angeles, California, 90046. GMC is a Registered Investment Adviser. This information is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to GMC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Gil Morales & Company, LLC. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2008-2018 Gil Morales & Company, LLC. All rights reserved.