The Gilmo Report

August 26, 2018

August 25, 2018

The S&P 500 Index made a second run at all-time highs on Friday after Tuesday’s failed attempt, but the NASDAQ Composite Index wasn’t about to let the NYSE-based index steal the show. The NASDAQ cleared the 7933.31 level early in the day on Friday and pushed higher from there to close at 7945.98 on slightly lighter volume.

Adding impetus to the move were comments from Fed Head Jerome Powell at the Jackson Hole symposium. Leading stocks across the board, particularly those that I’ve discussed in recent written and video reports, were on fire. Most are now well extended.

 

GR082618-$COMPQ

 

Not to be outdone, the S&P 500 Index made another run at its prior January highs after failing on Tuesday’s attempt in a stalling day off the peak. After some fits and starts as the day wore on, at one time clearing the old high and then dropping back below it, the S&P 500 finally cleared its January all-time high of 2872.87 and Monday’s all-time intraday high at 2873.23 to close at 2874.69. Volume was lighter.

All this came on a week that included news of a plea bargain by one of the President’s former attorneys and the failure of lower-level talks between the U.S. and China that were supposed to produce a roadmap to a trade settlement by November. In the end, what didn’t kill the market this past week only served to make it stronger.

So far, my theory that we may be looking at something like the summer of 2010, when the market started a new up leg after chopping around all summer long, is holding up, but we’ll see how that goes. The market has shown a tendency to sell off whenever it has poked its head into new-high ground over the past five weeks, as we can see on the chart below.

 

GR082618-$SPX

 

Apple (AAPL) continues to act admirably as institutional money favors the stock with its low P/E, decent growth, and healthy dividend. It spent the week moving tight sideways as its 10-dma begins to catch up to the stock price. As I wrote on Wednesday, a low-volume meet-up with or pullback to the 10-dma would be your reference for a potentially lower-risk entry opportunity.

 

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Amazon.com (AMZN) was a bit sluggish amid Friday’s move to all-time highs by the NASDAQ Composite, but its chart pattern remains constructive. The stock ran into some increased volume selling on Thursday, and on Friday churned around on declining volume. It remains above its 10-dma, however, so that a low-volume test of the line could present a lower-risk entry position. Otherwise, the 20-dema remains the more opportunistic reference point for buyable pullbacks.

 

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Nvidia (NVDA) posted a base breakout on Thursday on strong volume. It then followed through with another new high on Friday as volume has come in at above average all week long. The stock is currently within buying range of this base breakout, and therefore actionable on that basis.

The move is, however, straight up from the bottom, but I’ve seen a number of these so-called SUFB patterns just keep going higher. A couple of ready examples of this type of action that I noted this past week were found in names like Veeva Systems (VEEV) and WorkDay (WDAY).

 

GR082618-NVDA

 

Netflix (NFLX) has continued higher following three U&R long triggers in just one week. The stock looked like it was in trouble on Thursday as it reversed back below its 20-dema. The 20-dema is often a reference point for overhead resistance on a reflex rally of this nature.

But, Friday morning, SunTrust Bank came out with a buy recommendation on NFLX, sending it back up through the 20-dema and up to higher highs. That would have re-triggered the U&R long set-up coming up through the 344 low. In addition, NFLX’s action on Friday qualified as a pocket pivot at the 20-dema. Therefore, any low-volume retest of the 20-dema could present a lower-risk entry from here.

 

GR082618-NFLX

 

Facebook (FB) still looks like dead money as it trundles along the 170 level and just above its prior post-earnings gap-down lows. Over the past eight trading days, the 10-dma has served as solid resistance on any rally attempts. In this position it’s difficult to assess whether it has a better probability of moving higher or lower.

Obviously, if FB broke below the prior post-earnings gap-down intraday low of 166.56 and then rallied back above it, we would have a clear U&R long trigger on our hands. That would be similar to what NFLX has been doing since it triggered its first U&R by pushing back above the lowest of three lows in its pattern on Monday.

In FB’s case, the other potential scenario is that it is currently in a Wyckoffian Retest of that 166.56 low. Therefore, I think the most concrete way to test that would be to look for a move back above the 10-dma as a long trigger while using the 10-dma as a tight selling guide. If the market’s new highs hold, and we are embarking on a strong, new upside leg, then I would expect FB to at least stage a reaction rally from here.

 

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Tesla (TSLA) continues to hold tight along its 200-dma as volume dries up. This keeps it in a buyable position based on the voodoo action along the 200-dma, using the line as a tight selling guide. Volume dried up sharply to -65% below average, a clear voodoo volume signature at the line. On the flip side, a breach of the 200-dma could bring the stock back into play as a short-sale target.

The news flow on TSLA has been about as negative as it can get, with reports of droves of employees leaving for AAPL, that the company is in turmoil, that Elon Musk is on drugs, and, of course, the ongoing developments in the current SEC investigation. But so far, despite J.P. Morgan (JPM) trying to sledge-hammer the company with a downgrade and $191 price target, TSLA has refused to die.

On Friday night, the Wall Street Journal reported that CEO Elon Musk had decided to shelve his efforts to take the company private. We’ll see what kind of effect this has on the stock come Monday morning. As I’ve said before, I tend to think that a change in CEO, whereby a strong industry name who knows how to run an auto manufacturing operation takes over, could send the stock higher. Play it as it lies.

 

GR082618-TSLA

 

Zebra Technologies (ZBRA) has lost momentum up around the 170 level and looks set for at least a pullback to its rising 10-dma. Pullbacks to the 10-dma at 165.56 would bring the stock back into a potentially lower-risk entry position. Technically, however, it is still within range of the early August buyable gap-up base breakout.

 

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Twilio (TWLO) didn’t give opportunistic traders a chance at an entry on a pullback, holding tight at its 10-dma early Thursday morning and then launching higher into all-time high price territory. Thursday’s move also qualified as a continuation pocket pivot on heavy volume, and the stock is again extended on the upside. Pullbacks to the 10-dma at 77.07 would offer lower-risk entries from here.

 

GR082618-TWLO

 

Etsy (ETSY) continues to drift back up toward its BGU intraday highs on light volume Friday, posting another all-time closing high. To me, this is a classic QE market type of rally that just persists to the upside in slow, churning fashion without any significant upside volume. That speaks more to an absence of sellers rather than a plethora of buyers, but as long as the balance remains in favor of buyers the stock will simply keep rallying.

 

GR082618-ETSY

 

Stitch Fix (SFIX) shrugged off Wednesday’s stalling action, turning back to the upside on Thursday and then just continuing higher on Friday. The stock remains extended and only pullbacks to the 10-dma at 34.42 would offer lower-risk entries from here.

 

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Sailpoint Technologies (SAIL) posted an all-time high on Friday with volume coming in well above average. The stock was last buyable along the lows of the prior BGU and the 28 level. As of Wednesday, the stock was also within range of its BGU base breakout. But as of Friday’s close, it is extended. Pullbacks to the 10-dma at 29.24 would remain references for potentially lower-risk entries from here.

 

GR082618-SAIL

 

Roku (ROKU) kept rocking on Friday as it jacked to another all-time high on above-average volume. Volume declined slightly from Thursday’s levels, but that is not necessarily a problem. The stock is, however, extended, and only constructive pullbacks to the 10-dma at 57.76 would offer lower-risk entries from here.

 

GR082618-ROKU

 

Turtle Beach (HEAR) did not hold support at the confluence of its 10-dma and 20-dema on Friday, breaking below the two lines on declining and light volume. It appears set for a test of its 50-dma, which, if it occurs on light volume could present a lower-risk entry point. In addition, the sell-off, which was relatively slight, was also news-based.

Shares were down Friday on fears related to the slowdown in revenue growth for the popular video game, “Fortnite.” But HEAR has broad exposure to the PC gaming market and is looking to benefit from a new upgrade cycle. So, this pullback may be temporary, and thus provide an opportunistic entry closer to the 50-dma.

 

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ZScaler (ZS) posted an all-time high on Friday after clearing a trendline breakout on Wednesday, as I discussed in my report of that day. The stock is still just within the 5% buying range of the breakout, so is actionable on that basis. My preference, of course, would be to have either picked up shares at the Wednesday intraday lows or on the trendline breakout, as I now consider it to be slightly extended for my taste. Earnings are expected on September 5th.

 

GR082618-ZS

 

Perspecta (PRSP) finally met up with its 10-dma near the lows of its current BGU price range. The stock got as low as 23.05 on Thursday before rallying back to the upside as volume declined. It then pushed back up to the highs of the post-BGU price range on even lighter volume. This remains an active BGU long set-up, but one should look for a pullback closer to the 10-dma at 23.08 as a lower-risk entry point.

 

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Chinese names ran into trouble on Thursday following a big outside reversal to the downside by Alibaba (BABAafter reporting earnings Thursday morning. The stock initially gapped up near the 200-dma, looking like a potential bottom-fishing buyable gap-up. But it was never able to post a clear intraday low and kept dropping all day long before closing near the lows of its daily trading range.

Note that the BGU carried the stock right up to the 200-dma, but it was unable to clear the line. The fact that it couldn’t clear the line early in the day made it look more like a shortable gap-up (SGU) since one could use the 200-dma as a guide for a tight upside stop. If the stock had been able to push above the line, then one could return to playing it as a BGU, using the 200-dma as your tightest selling guide. It is now extended on the downside.

 

GR082618-BABA

 

Iqiyi (IQ) remains above its 28.01 prior low after triggering a U&R on Monday when it first rallied back above it. It has since gone sideways but is holding above the prior low and the 10-dma. This remains an active U&R long situation using the 28.01 low or the 10-dma as tight selling guides.

 

GR082618-IQ

 

Huya (HUYA) failed to hold the 27.05 level, which had triggered a U&R long entry on Thursday morning. That was the third U&R failure for the stock in one week as it now finds resistance along the 10-dma. While the stock doesn’t look very appetizing in this position, it can nevertheless still be watched for a potential future U&R if it can eventually clear and hold the 27.05 price level.

 

GR082618-HUYA

 

Notes on other names discussed in recent written reports:

Carbonite (CARB) remains extended. Pullbacks to the 10-dma at 39.49 would present lower-risk entries from here.

Intuitive Surgical (ISRG) posted an all-time closing high on Friday and is now extended. It was last buyable after posting two pocket pivots along its 10-dma the prior week. Pullbacks to the 10-dma at 528.91 would offer lower-risk entries from here.

Okta (OKTA) posted an all-time closing high on very light volume after breaking out on Thursday, also on very light volume. Because of its extended position and the low-volume breakout, the stock is not in a buyable position. With earnings expected on September 6th, I don’t see much to do here unless one already bought the stock along the 50-dma over a week ago per my comments at that time.

Square (SQ) continues to trundle to all-time highs on light volume and is extended. It was last buyable along the 10-dma on Monday per my comments over the weekend.

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.

In my Wednesday report I wrote that I felt that most of my best ideas were a bit extended at that point. After Friday’s action, most of these are even more extended, as the rest of this report, above, makes obvious. My ideas have been working well, and those who began working many of these stocks much earlier in their patterns when I first discussed their lower-risk entries have clearly benefited.

With the NASDAQ, S&P 500, and Russell 2000 Indexes moving to all-time highs on Friday, the question of a new upside leg in an ongoing bull market is on the table. But it’s not necessary to answer that question since, as I prescribed in my last report, one need only go with the real-time set-ups at hand when they present themselves.

In addition, and as I’ve repeated endlessly in my reports, the best way to handle a volatile, at times uncertain environment, is to buy stocks as close to a critical support level while using that support level as a tight selling guide. Thus, we seek to buy constructive weakness and avoid the urge to chase strength. Operating on that basis has helped to provide clarity in otherwise difficult and perhaps at times confusing environment.

With many favored stocks now extended, it is a matter of seeing how they handle their next pullbacks and consolidations. At the same time, we can look to use such pullbacks as lower-risk entry possibilities for entering or adding to long positions. Take it from there.

On an administrative note, please note that I am on call for jury duty this week, so this could affect the timing of my mid-week report. Depending on when or whether I must show up at the courthouse, the normal Wednesday report could be published on either Tuesday or Thursday. We will keep members posted on this as the week progresses.

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 ROKU, 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.