The Gilmo Report

April 24, 2016

April 24, 2016

 

          “Curiouser and curiouser!” – Alice

                    Alice’s Adventures in Wonderland by Lewis Carroll

 

This past market week was most certainly one for which we might borrow from the literature of the imaginative and eccentric author Lewis Carroll to describe as “curiouser and curiouser.” The week actually started off Sunday evening, when the futures began to tank hard after OPEC nations failed to reach a production freeze agreement over the weekend. That led to a gap-down open Monday morning, but the market recovered from its lows as oil stocks and crude oil itself rallied hard.

I’m sure that if OPEC ministers had foreknowledge that a failure to reach an agreement would achieve their goal of stabilizing oil prices they could have ended their meeting with no agreement a lot sooner! After an initial downside move overnight on Sunday, crude oil simply turned and rallied, ending the week with its highest close since the February lows. A curious reaction, indeed!

 

GR042416-Crude Oil Daily

 

On Tuesday, the white metal currently and still known as silver forged a clean breakout to higher highs. This sent precious metals stocks rocketing to the upside, but most of the moves fizzled somewhat by the end of the week.

 

GR042416-Silver Daily

 

Curiously, or perhaps we should say “curiouserly,” gold failed to follow in step with silver’s breakout. Instead the yellow metal was content with the idea of remaining within the confines of its current 2½ month price range. By Friday it closed roughly where it began the week on Monday, with no breakout in sight.

The action of course brought forth many theories trying to explain the white and yellow metals’ failure to correlate this past week. Some speculated that because silver is an industrial metal as well as a form of alternate currency and store of value its breakout was reflecting an impending improvement in the global economy. Others, most notably those who are bullish on precious metals in general, concluded that silver was simply playing catch-up since the gold-to-silver ratio was at an historical high. Maybe so, and maybe not.

 

GR042416-Gold Daily

 

If precious metals are rallying, along with commodities (and I should note that “stuff stocks” also performed well this past week), this might lend credence to the theory that the Fed will do nothing when it meets this week.

That would certainly offer a convenient explanation for the action in precious metals and commodities if it were not for the action in the Dow Jones Utility Index over the past few days, which paints an entirely different picture. Utilities, which were correctly forecasting a Fed that remains on hold as they rallied strongly over recent months, suddenly blew apart on Wednesday.

Wednesday’s breakdown led to the Utility Index slicing through its 50-day moving average before it stabilized a bit on Friday. Is this telling us that interest rates are going to rise soon? Or is this telling us that the market is moving away from defensive areas like utilities? Or both?

 

GR042416-$UTIL

 

Looking for an answer in the major market indexes, we note that there are some stark divergences emerging over the past few days. After steadily building up a series of distribution days over the past month or so, the NASDAQ Composite Index go smacked Friday after weak earnings from big-stock NASDAQ names like Microsoft (MSFT) and Alphabet (GOOG).

Things were looking fairly ugly at the open, and it looked like the breakdown in big-stock names (Starbucks (SBUX) was another big-stock NASDAQ name gapping down hard on Friday after earnings) was going to trigger a broad market sell-off. But as I noted in a mid-day blog post, breadth as measured by the Advance-Decline lines on both the NYSE and NASDAQ exchanges was in fact quite positive. By the close, my quote screen showed 2134 advances to 867 decliners on the NYSE, and 1761 advancers to 1049 decliners on the NASDAQ.

 

GR042416-$COMPQ

 

Thus while the big-stock NASDAQ names were getting pounded, most of the market was rallying. An interesting divergence, if not one that is curiouser and curiouser. By the close, however, the NASDAQ was able to hold above its 200-day moving average and closed just above mid-range on much heavier volume. This has the look of subtle supporting action.

The divergence in breadth was also evident in the action of the NYSE-based indexes, such as the S&P 500 Index. The S&P 500 merely tested its 10-day moving average early in the day and rallied to close up on slightly lighter volume. This has the look of an orderly and normal pullback.

 

GR042416-$SPX

 

Wednesday’s Fed policy announcement will likely have some effect on the market. With all the mixed signals coming from various corners of the financial markets, how any market reaction plays out is difficult to gauge before then. While silver itself has held tight over the past three days, Silver Wheaton (SLW), is pulling back into its buyable gap-up price range from this past Tuesday. This brings it back into buyable range using the 17.77 intraday low of the BGU day as your selling guide.

I do tend to think, however, that the fate of SLW and other precious metals stocks (you can throw commodities-related names in as well) will hinge on the outcome of this week’s Fed policy meeting. But, since we always look to play stocks as they lie, this is technically moving into a very buyable position here as it approaches the low of the BGU day’s price range at the 10-day moving average at 17.83.

 

GR042416-SLW

 

The action in individual stocks is quite varied, and I have to say that I have been making money on both the long and short sides over the past week or so as I maintain a bifurcated approach. As I’ve discussed in recent reports, earnings roulette season can create some strong opportunities for those who are nimble and savvy enough to capitalize on them.

Microsoft (MSFT) turned into a shortable gap-down Friday morning as it blew up following a weak announcement Thursday after the close. Right at the open, it set an intraday high at 52.43 and proceeded to plummet right down towards its 200-day moving average.

One would then have used the 620 intraday chart to cover once it went down to the 51 level. Note that at that point the stock was showing a MACD stretch followed by a MACD cross to the upside. In a situation like this where the stock is approaching a potential area of support, namely the 200-day line, it is important to watch for subtle turning signals on the 620 chart.

Sometimes I will short, cover, and then re-short a stock during the day as I work it hard and fast in a very active manner (that may sound wrong, but it isn’t! ;-p). Especially when a short-sale position is approaching an area of possible support, and even more so when it is extended to the downside.

 

GR042416-MSFT Intraday

 

We can see on the daily chart that MSFT was already fairly extended to the downside by the time it opened up on Friday. Thus the potential for it to at least stage a short-term intraday bounce at the 200-day line was reasonably high. From here I would look for any rally up into the 50-day moving average (blue line) at 53.45 as a potentially optimal short-sale entry point.

 

GR042416-MSFT

 

Alphabet (GOOGL) also gapped down on Friday after missing on earnings Friday after the close. While it is similar to MSFT in that it broke down from the right side of what was looking like an attempt to build a new base, it is different in that it gapped down to a point just above the 50-day line. I’m using the daily chart of GOOGL with an “L” here, but both it and GOOG look the same with respect to their moving averages, albeit at different prices. At the open, one had the option of using the intraday high 753.92 as a stop and shorting the stock right there.

The other option would have been to short the stock on the breach of the 50-day moving average, and then work it from there using the 50-day line or even the prior intraday high at 753.92 as a guide for an upside stop. Now, with GOOGL closing below the 50-day line, rallies up into the line at 747.14 can be viewed as potential short-sale opportunities.

 

GR042416-GOOGL

 

Both MSFT and GOOGL can now be added to the list of big-stocks that have morphed into short-sale targets recently, along with Netflix (NFLX) and Apple (AAPL). It is also interesting to note that all four stocks were making attempts to come up the right sides of new bases in Ugly Duckling fashion, but now they have all failed. Apple (AAPL) has proceeded lower since reversing at its 200-day moving average on heavy volume six trading days ago. On Friday, however, it actually found support right at its 10-week moving average on the weekly chart, not shown.

This shows up on the daily chart, below, as a move to a point just above the 50-day moving average. The stock then closed Friday in the upper half of its daily trading range. If one was alert to the reversal at the 200-day line two Fridays ago, one has made some decent “Livermore points” on the downside. Earnings are scheduled to be released on Tuesday after the close, and I would leave the stock alone until then. As was the case with MSFT and GOOGL, a new trading opportunity in AAPL may arise at that time.

 

GR042416-AAPL

 

Among these four big-stock NASDAQ failures, Netflix (NFLX) broke down from a position that is much lower in its pattern. MSFT, GOOGL, and AAPL were all much higher in the patterns and not as far down from their prior 52-week highs. After gapping down on Tuesday after earnings were announced Monday evening, NFLX is now stuck in a short three-day bear flag as volume dries up. Optimally, I would be interested in looking to short any rally up to the 50-day moving average, currently at 98.75, should that occur.

There is also always the chance that it could rally up through the 50-day moving average and then run into its 20-day moving average at 101.78. In either case, using the 620 chart can assist in the short-sale entry process. Personally, I strongly believe that any short-seller needs to have a tool like the 620 chart both to help time entries as well as cover points. It doesn’t necessarily have to be the 620 chart per se. If one can devise their own tool that works for them, then so much the better.

In my long experience as a short-seller, there are two areas where trouble arises. The first is in not taking profits when you have them, and the second is lingering too long in a short-sale position and getting whacked when it suddenly jacks to the upside. The 620 chart was devised to address both of these issues.

 

GR042416-NFLX

 

GOOG’s earnings didn’t do much to help out Facebook (FB) which gapped down at the open on Friday and just barely undercut its 50-day moving average before rallying to close mid-range. This came on heavy volume, and so has the look of support off of the 50-day line, similar to what we saw eight trading days ago.

With FB expected to announce earnings after the close on Wednesday, I’m not looking to do anything with the stock until then. My expectation is that whatever the outcome of the report, it stands a good chance of creating a decent trading opportunity one way or the other. For now I am happy to sit and wait for that.

 

GR042416-FB

 

Airline stocks have been decimated over the past couple of days. Even the leader, Hawaiian Holdings (HA), couldn’t hold up in the face of its Thursday after-hours earnings report and plummeted through its 10-day and 20-day moving averages on Friday. It wasn’t even able to find support around its 50-day moving average as it closed well beneath the line.

In this manner, two months’ worth of steady upside gains along the 10-day moving average go “poof!” in a flash and are erased in a mere two days. Such is the nature of this market, but it’s not like I haven’t discussed this many times. We are not in your standard trend-following O’Neil type of market where you mindlessly buy breakouts and expect to make two to three times your money. It is a rotational market where gains are limited, but still bankable if one is attuned to understanding what the market is willing to give them.

In this market, if you get a 20-30% gain from any buy point you can consider yourself lucky. I tend to advocate 10-15% profits as bankable, since 20% gains are far rarer. In any case, if one had purchased HA shares far lower in its pattern given that I began discussing the stock back in mid-February (see February 14th report), then selling at least half your position and banking profits was a sensible strategy. Personally, I would have sold everything before earnings since I do not like to play earnings roulette, especially in a stock that has already had a big price run.

 

GR042416-HA

 

Alaska Airlines (ALK) also announced earnings on Thursday and had its wings clipped as well. I’ve been discussing ALK as a possible Punchbowl of Death or POD top type of short-sale set-up, but it initially defied that assessment by rallying back up above its 20-day moving average last week.

However, if one was alert to Thursday’s action, when the stock broke back down through the 20-day moving average on above-average selling volume, it was possible to short the stock at that point. ALK then proceeded to gap down through both its 50-day and 200-day moving averages on heavy volume. Friday’s move can be viewed as a shortable gap-down type of move using the intraday high of 78.21 or the 50-day moving average at 78.03 as a guide for an upside stop. From here I would look at any rally back up to the 50-day line as a potential short-sale entry point.

 

GR042416-ALK

 

Delta Air Lines (DAL) gapped down Thursday in sympathy to the other airlines that announced earnings that morning. Anyone alert to that initial gap-down move on Thursday could have shorted the stock right there. It then proceeded to break down hard from there before reversing off of the intraday lows and closing near the peak of its daily trading range.

Again, using the 620 chart on Friday would have provided a clear signal to cover and take profits. Now we’re looking for any bounce back up into the 10-day or 20-day moving averages at 46.68 and 46.89, respectively, as potential short-sale re-entry points.

 

GR042416-DAL

 

Southwest Airlines (LUV) was the only airline to hold up on Thursday and Friday after announcing earnings Thursday morning. In fact, LUV bucked the trend in a meaningful way Thursday by posting a pocket pivot off of the 10-day moving average. On Friday it started to lose altitude right at the open in sympathy to HA’s Thursday after-hours earnings miss and Friday gap-down. But it again found support at the 10-day line and rallied on strong, above-average volume in a show of support at the line.

Frankly, it’s difficult to figure this out. Is the stock buyable on the basis of Thursday’s pocket pivot and Friday’s strong support at the 10-day line? Or will the overriding weakness in the group drag it down through the 10-day and eventually the 20-day lines? My guess is that LUV may succumb to group weakness, so rather than look to buy into this I would prefer to wait and see if it morphs into a short-sale target. In any case, this is “curiouser” action in the face of the group getting decimated this past week.

 

GR042416-LUV

 

On Friday morning I blogged that I was going for a short-sale trifecta by hitting three sports retailers all on the short side at the open: Nike (NKE), Under Armour (UA), and Skechers (SKX). All three had gapped up in sympathy to a strong earnings report from SKX the night before. I also blogged in real-time my reasons for taking profits in all three based on what I was seeing on my 620 intraday chart later on in the day.

As it turned out, taking profits in all three was the smart strategy, and I give all the credit to my use of the 620 intraday chart. All three of these names ended the day a fair bit higher than where I covered them all profitably. I think the charts are quite interesting. Starting with Nike (NKE), we can see that it has been consistently shortable on rallies up to the 200-day moving average. It has run into the line three times over the past three weeks, and each time it has moved lower.

It was again shortable on Friday as it opened up slightly in sympathy to SKX. I still consider this shortable on rallies up to the 20-day or 200-day moving averages at 60 and 60.33, respectively. However, I would also keep a close eye on UA and SKX, since if these stocks are able to build on their post-earnings gap-ups they could drag NKE up with them.

 

GR042416-NKE

 

These sports retailers have all been beaten down over the past several months, especially SKX. But we know that in this market the best upside moves can come in the ugliest of the Ugly Ducklings. Under Armour (UA) gapped up on Thursday after beating on earnings that morning, but the stock churned around before closing in the middle of its gap-up price range. On Friday it opened up higher in sympathy to SKX and then dipped into the red as it just barely undercut the 46.15 intraday low of Thursday’s gap-up move.

As I blogged during the day, this undercut, along with what I was seeing on the 620 chart and the fact that it was approaching the 200-day moving average, prompted me to cover my short and bag my point-and-a-half profit. In this market I am happy to scalp quick profits on the short side, especially when I can readily determine that they aren’t going pan out into much more than that. Credit the 620 chart with saving the day again.

Based on its ability to hold the intraday low of the gap-up day’s intraday price range, the real question is whether we can call Thursday’s move a buyable gap-up. We can’t really say that it violated the 46.15 low since it dropped less than 1% from that level on Friday. In a typical BGU, and in particular for a more volatile stock, which UA can be at times, allowing for 2-3% porosity on the downside is acceptable. Maybe UA and SKX represent the next wave of Ugly Duckling movers, and so UA can be bought using the 45.82 low of Friday as a very tight stop.

Otherwise, a breach of the 200-day line would bring it back into play as a short-sale target. All I can say is that my visceral experience from shorting the stock on Friday (and making money, luckily enough) is that there does appear to be a bid in the stock here. Play it as it lies.

 

GR042416-UA

 

Skechers USA (SKX) beat on earnings Thursday after the close but guided lower. Curiously, that lowered guidance, which can often kill a stock after earnings, and sent SKX gapping higher. Initially I saw it as shortable given that the stock was rallying right up into the prior highs just below and around the 34 price level. As with NKE and UA, I got away with making money on my short-sale trade in SKX, but by the close the stock had rallied back up to the middle of its gap-up price range.

The intraday low here is 31.77, and the stock closed at 32.73, about 3% above the low. There is still some overhead resistance from the left side of the pattern from late February into mid-March, so the possibility of a downside reversal is certainly a real one. What I would watch for here is an ability by the stock to hold the 31.77 BGU low, followed by a push through the highs of what is a six-month price range at 34.27. If this Ugly Duckling, bottom-fishing BGU (and it is quite ugly) holds, the stock could easily make a move up towards the 200-day moving average at 35.75.

 

GR042416-SKX

 

These sorts of post-earnings gap-ups that take a stock out of or back into the highs of what I call a “low base range,” can often lead to higher moves. We saw that in a broad number of names after they announced earnings in January and February. And some of these were cloud-related names like Workday (WDAY) and Splunk (SPLK), among others.

Another similar type of buyable gap-up move occurred Thursday in cloud software name ServiceNow (NOW). This took the stock up to a small area of price congestion from late January and just above the 200-day moving average. On Friday the stock backed up just a hair, and dropped about 2% below the 73.21 intraday low of Thursday’s intraday price range. Using the 620 chart, I decided to take a position on the turn, and NOW was able to clamber back above the 200-day line by the close.

Selling volume dried up a bit, but was still above average, which actually gives the stock the look of supporting action along the 200-day line. This looks buyable to me based on the gap-up move and the stock’s ability to hold the 200-day line, using the Friday low at 71.80 as a selling guide.

 

GR042416-NOW

 

NOW’s BGU-type move on Thursday engendered sympathy moves from a whole host of cloud software names, including those I’ve covered in recent reports like Workday (WDAY), Salesforce.com (CRM), and Splunk (SPLK)Workday (WDAY), for example, gapped up to its prior range highs at around 80 and then reversed in heavy volume. On Friday it opened down and traded as far south as the 200-day moving average before finding support and rallying to close near the top of its intraday trading range.

This is nothing less than the “Lather, Rinse, Repeat” or “LRR” strategy I’ve discussed using in these names. Sell at the highs of the range, buy at the lows of the range.

 

GR042416-WDAY

 

Salesforce.com (CRM) is no different as it gapped to a marginal higher high on Thursday in sympathy to NOW but could not hold that gain and closed about mid-range for the day. On Friday it gapped down with the NASDAQ but found support at its 20-day moving average. From the 20-day moving average the stock rebounded to close back above the 10-day moving average and in the upper part of its daily price range. Another LRR type of move.

 

GR042416-CRM

 

Both WDAY and CRM are trading above their 200-day lines, so in this sense we could consider their Ugly duckling rallies off of the February lows to be somewhat extended. Splunk (SPLK), on the other hand, is still well below its 200-day moving average, and it had a slightly different sympathy response by actually gapping up to a higher high. I’ve discussed a few times in recent reports my thinking that it could easily rally up towards the 200-day line, and its sympathy move to NOW’s BGU could be the start of this.

SPLK certainly acted stronger than WDAY or CRM on Thursday as it gapped to higher highs, and it also acted stronger on Friday. Unlike the other two stocks, it held the breakout and actually pushed to a higher closing high by the end of the day as sellers stayed away.

Certainly, anyone owning SPLK into Thursday’s opening could have easily employed the LRR approach by selling into the highs of the day and then buying back on the slight gap-fill on Friday. In candlestick parlance, SPLK came within nine cents of the 50.42 “window sill” low of Thursday’s upside gap’s “rising window.” Therefore we could view the stock as buyable using the 50.42 price point level as a reasonably tight stop with the idea of seeing the stock reach the 200-day line before it is expected to announce earnings on May 26th.

 

GR042416-SPLK

 

Alibaba (BABA) is expected to announce earnings on May 5th, so it is not clear to me that it will necessarily move substantially higher before earnings. However, given Wednesday’s pocket pivot and the ensuing low-volume pullback to the 10-day line, it is in a buyable position. And who knows, maybe it will surprise with another 5% of upside before earnings. If it does, then this is where you want to take a position, after which you can decide whether to play earnings roulette as the first week of May approaches.

 

GR042416-BABA

 

Fitbit (FIT) continues to act well following last week’s bottom-fishing buyable gap-up move. The only issue here is that earnings are expected on May 4th, but I am very interested to see what the stock does after earnings. The other side of the coin is that maybe the huge number of shorts in the stock currently will jump to cover before earnings, helping to give us maybe a 10% move from here before May 4th.

In the meantime, it has been a good trade if one enters on the pullbacks that have followed the BFBGU (forgive me for descending further into “acronym hell”). Like I wrote on Wednesday, a hairy pullback to the 10-day line at 16.75 or even the 20-day line at 16.10 would be your most opportunistic entries, but so far the low 16’s and 17’s are the best it has given us as it baby-steps its way higher.

 

GR042416-FIT

 

GoPro (GPRO), is also hanging in very tight just above its 10-day moving average after a deep-sea bottom-fishing pocket pivot position eight trading days ago. GPRO is expected to announce earnings on May 5th, so it may continue to track sideways until then. The best chance for a substantial price move before earnings would be if the huge short interest in GPRO decided to get out of the way first. GPRO is expected to post a huge loss of -60 cents a share when it announces, so anything better than this could send shorts scrambling for cover.

The best spot to pick up shares was the pullback to the 10-day moving average on Wednesday of this past week, and that remains the case for now. However, I tend to think that buying the stock ahead of earnings implies that one is expecting a more substantial upside move from current levels.

 

GR042416-GPRO

 

Square (SQ) continues to flutter around after undercutting its prior early April low and the 20-day moving average this past week. As I wrote in my Wednesday mid-week report, expecting to have a big move after the 32% move it had from the 12.05 breakout point to the late-March peak might be asking too much of the stock.

With earnings expected on March 5th, it could still continue to drift down towards its 50-day moving average, now at 12.48. A move down that far might be a better spot to try and pick up some shares as the stock might have better potential for a 10% bounce off the line.

Mostly, I view SQ as an example of a breakout that has a very nice move and then goes dormant. Everybody who saw the initial move, whether they played it or not, has seen the prior strength, and it gets somewhat obvious. Thus it needs time to work off all the heat and set up again. Whether it can have a vigorous upside move from current levels before earnings remains to be seen. In the meantime I think there are other stocks to play in the cloud software space, such as NOW, which has already announced earnings, and SPLK, which doesn’t announce earnings for another month.

 

GR042416-SQ

 

I wrote in my Wednesday mid-week report that GoDaddy (GDDY) looks more like a short than a long here, and so far it has been nothing but a short each time it pushes up into its 20-day moving average. However, since its breakout failure in early April when the company announced a 16.5 million share secondary offering, it has remained in a trading range.

That secondary offering has long since been priced and completed, and the stock has since been another one of these LRR ping-pong situations. Short the rallies into or just past the 20-day line and then cover on the ensuing decline below the 30 price level. Lather, rinse, repeat.

Now, with earnings approaching on the expected announcement date of May 5th, the stock is sitting at the low end of its current three-week price range as volume dries up sharply. Notice that each time it has dipped below the 30 price level it has rallied to close up closer to the 30.25 price at which the secondary offering was issued. While the stock could easily do nothing until earnings are released, I wouldn’t be surprised to see the stock bounce back up to the 32 price level before then. Meanwhile anything more conclusive or substantial than that ahead of earnings may be unlikely.

 

GR042416-GDDY

 

Below are my current Trading Journal notes on other names I’ve discussed in recent reports:

Acuity Brands (AYI) has finally met up with its 10-day moving average. This would be a lower-risk entry point using the 10-day line as a selling guide. The most opportunistic entry would be on a pullback down as far as the 20-day line at 244.98 which is still above the 239.08 intraday low of the April 6th buyable gap-up move.

Adobe Systems (ADBE) pulled right into its 20-day moving average on Friday as volume picked up to just slightly above average. This would represent your most opportunistic entry point using the 20-day line at 94.15 as your closest selling guide. Alternatively, one could use the low of 92.22 low of April 12th as your maximum selling guide. My preference of course is to use the tightest stop available. I can always look at re-entering if the stock successfully tests the April 12th low on an undercut & rally type of move.

Amazon.com (AMZN) pulled down into its 10-day and 20-day moving averages on Friday and found support near the 20-day line while closing just below the 10-day line. Earnings are expected later this coming week so there is nothing to do here until then.

Ambarella (AMBA) continues to hold in a tight range along its 10-day, 20-day, and 50-day moving averages since its bottom-fishing type of buyable gap-up move on March 26th.

Broadcom (AVGO) was a sell on Thursday per my discussion of the stock in my Wednesday mid-week report.

Continental Resources (CLR) is extended and would only be buyable on a pullback to the 10-day line or after the 10-day line catches up to the stock. Earnings are expected on May 4th.

D.R. Horton (DHI) came out with earnings Thursday and gapped up, only to reverse and close at the lows of the range. It continued lower on Friday as volume declined. I would leave the stock alone for now.

Fabrinet (FN) again pulled into its 20-day moving average over the past two trading days as volume remains low. Earnings are expected on May 2nd, so buying it here assumes it will have a significant price move before then.

J.P. Morgan (JPM) is extended from its 200-day moving average. A pullback to the line would be your best entry, but with the Fed meeting looming this week financials may only be in a reactive mood as they await the outcome of the meeting. An interest rate increase could send the financials higher, while a continued wait-and-see non-move from the Fed could have the opposite effect.

Mobileye (MBLY) closed below its 10-day moving average, which brings its 20-day moving average at 38.35 as a possible entry point on any further pullback from here. MBLY is expected to announce earnings on May 5th.

Nvidia (NVDA) is starting to look a bit wobbly. I would look to take profits if one had bought the stock on the March 16th pocket pivot down around 33. Otherwise the 20-day line at 35.77 remains a reasonable selling guide before earnings, which are expected on May 5th.

Panera Bread (PNRA) flipped out today and ran right into its 10-day moving average at 211.53 where it bounced sharply to close in the upper half of its daily trading range at 215. Earnings are expected to be announced this Tuesday and I would bank whatever profits one might have in this name and wait to see what happens after the report is out.

Silica Holdings (SLCA) is extended and like CLR can only be bought on a pullback to the 10-day line or after the 10-day line has caught up to the stock. Earnings are expected this Tuesday, so there isn’t much to do here until then.

Silicon Motion (SIMO) is expected to announce earnings this Wednesday, and my preference would be to take profits before then and wait to see where the stock goes after earnings. Otherwise, if one still owns the stock and believes their profit cushion is sufficient, there is always the option of choosing to play earnings roulette.

Tesla Motors (TSLA) continues to find support at the 20-day moving average, which it did three times over this past trading week. Pullbacks to the 20-day line at 244.84 remain buyable for now, but keep in mind earnings are expected on May 4th.

Vantiv (VNTV) is expected to announce earnings this Tuesday. The stock has not really progressed very far since I first discussed it back in mid-March. My preference would be to leave the stock alone until earnings come out, and then see whether an opportunity arises at that point.

The action this past week struck me as indicative of a rotational move in the general market. Names that became extended off of their February lows or recent breakout points, such as AAPL, NFLX, GOOGL, MSFT, ALK, HA, etc. are rolling over while we see stuff stocks like oils, metals, steels, basic materials, and railroads jack to the upside.

While we are certainly seeing some signs of rotation, one can certainly question whether it is healthy rotation. I think the answer to that will be a bit clearer once the Fed policy announcement is released on Wednesday. At that point we can get a better handle on what the rally in commodities and commodities-related stuff stocks, in conjunction with a big breakdown in utilities, is telling us.

For now the message is a bit confusing. However, I continue to maintain that the confusion can be minimized by simply focusing on the action of individual stocks. In this manner we are finding short-sale set-ups to play as well, and among the big-stock NASDAQ names these set-ups are starting to increase.

If we assume that big-stock NASDAQ growth names will be replaced by other big-stock names in a healthy rotation, then a bullish case can be made for the general market. Otherwise, the increase in short-sale set-ups might in itself be a clue of where this market is headed. With a number of big-stock names set to announce earnings this coming week, more clues will certainly be coming, so stay tuned.

On an administrative note, I want to inform members who haven’t seen it already that I’ve posted a special blog entry this weekend (independent of the regular report) covering the bio-tech stocks, a beaten-down group that is showing some signs of life as possible Ugly Duckling set-ups.

 

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 a position in BABA, FIT, and NOW, though positions are subject to change at any time and without notice.

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