The Gilmo Report

August 29, 2012

August 29, 2012

 

As the old trader’s bromide goes, “Never short a dull market.” And as the market tracks sideways in a short range over the past couple of weeks, as we see in the daily chart of the NASDAQ Composite Index, below, things have been relatively quiet from an index point of view. And so, in direct contravention to the old trader’s bromide, bears do in fact seem to be in the mood to short a “dull” market as short interest on the NYSE is now at a whopping 20.2%, which to me speaks of decidedly negative sentiment. Either someone knows something, or the bears are piling up on the wrong side of this market which remains in a confirmed rally. While some argue that low levels in the CBOE Volatility Index (VIX) are a barometer of rising complacency in the market, NYSE short interest appears to paint a different picture. Meanwhile, QE rhetoric flows and the market looks forward to Fed Head Ben Bernanke’s speech on Friday. While the indexes have been more or less quiet, leading stocks have been able to make progress even as the market stands firm.

</p

Precious metals are still holding above their respective 200-day moving averages after pulling back today following a positive Fed Beige Book report. This raised questions about impending QE, giving investors an excuse to take profits in the metals after their sharp run-up off the earlier August lows. As we see in the daily chart of the SPDR Gold Shares (GLD), shown below, it pulled right back to its 200-day moving average today on above-average selling volume. The iShares Silver Trust (SLV), not shown, also pulled back to its 200-day line and held. Over the weekend I advised using pullbacks to the 200-day moving average in the GLD and SLV as an opportunity to add to existing positions or to initiate positions. Note also that the GLD has pulled down to its 10-day moving average as well, as the 10-day line has been moving up sharply and is just about to intersect the 200-day line. I would look for this 10-day/200-day moving average confluence to provide some short-term support, and if one buys into this pullback I would at the very least use a violation of the 10-day line as a selling guide.

SPDR Gold Shares (GLD) Gilmo Report Stock Chart

Apple (AAPL) and Amazon.com (AMZN), two of the three current big-stock NASDAQ leaders along with Google (GOOG) are more or less tracking with the general market as we see in their daily charts, below. AAPL has held tight sideways as sellers disappear while AMZN has moved to an all-time price high as it slides higher along its 10-day moving average. For now there is nothing to do but sit with respect to both of these stocks.

Apple (AAPL) Gilmo Report Stock Chart

</p

I have considered LinkedIn (LNKD) to be potentially buyable in the low 100’s based on accumulation I have been seeing in its weekly chart, as well as the recent sharp increase in the number of mutual funds owning the stock over the past quarter. Members can review all of my reports in the month of August and late July for my discussions of LNKD, which I tend to think of as the “last man standing” among the formerly vaunted social-networking stocks. Today LNKD finally came through with a pocket pivot breakout through the top of its short one-week range, as we see on its daily chart below. LNKD traded strongly into the close even as the general market indexes sagged a bit, closing right at 109. This puts it within four points of its recent 113 high in the handle of a strangely-shaped cup-with-handle type of base formation. This range-breakout type of pocket pivot buy point (as opposed to one coming up through and/or up off the 10-day moving average) is potentially buyable using the 50-day moving average at 104.45 as a selling guide.

LinkedIn (LNKD) Gilmo Report Stock Chart

Michael Kors Holdings (KORS) remains in a tight formation as it consolidates continued strength and remains well above the 10-day moving average, as we see on the daily chart, below. The 10-day line might like an opportunity to catch up here, but so far KORS has not obliged on a pullback yet. The pattern so far has a stair-step look to it since the buyable gap-up move on August 14th, as the stock has continued to push higher. The 10-day moving average is now at 52.35, a little over a point from where the stock closed today, so a pullback to the 10-day line would not be out of the question. Selling volume, as is evident on the chart, still hasn’t reached any truly appreciable levels which are constructive. If you are still sitting with a position purchased first on the basis of the buyable gap-up around the 48 level and then added on the breakout through the 50 level, or just bought on the breakout, there isn’t much to do here but sit, pending a new buy point emerging in the chart. Of course, as the 10-day moving average rises to meet the stock, this always brings into play a possible continuation pocket pivot off the 10-day line, so for now that is something to watch for.

Michael Kors Holdings (KORS) Gilmo Report Stock Chart

Mellanox Technologies (MLNX), which I last discussed in my report of August 22nd after it had flashed a couple of continuation pocket pivot buy points along its 10-day moving average back then, has continued to move higher following those pocket pivots and an ensuing pullback, as we see in the daily chart below. MLXN appears to be building an ascending flag or channel as it slowly marches higher during the market’s sideways movement over the past eight trading days. If one bought the continuation pocket pivots of a couple of weeks ago there is nothing to do but sit. MLNX has been tracking above the 10-day moving average for a little over six weeks now, and if it does so for another week then that would mean it has held above the 10-day line for at least seven weeks and therefore we would use the 10-day moving average as a selling guide for the stock based on the Seven-Week Rule.

Mellanox Technologies (MLNX) Gilmo Report Stock Chart

Exactly one week ago in my August 22nd report, I noted the continuation type of pocket pivot in Rackspace Holdings (RAX). In the context of the overall pattern and the stock’s prior gap-up move, RAX had enough momentum back then, it appeared, to send the stock up towards the $60 price level, and as we can see on the daily chart below RAX has more or less pushed up into that level. The question now is whether it pauses here to go sideways for a bit and digest its prior strong gains or whether it simply pushes up and out to new highs. I would expect, however, that if the stock is going to make a run for new highs it will have to work off some of the bullish momentum in the straight-up move it has experienced since the start of August and try to build some sort of handle here over the coming days and weeks.

Rackspace Holdings (RAX) Gilmo Report Stock Chart

Salesforce.com (CRM) didn’t show much follow-through to Friday’s pocket pivot reversal, but perhaps within the context of the prior sharp upside move off of the 120 low of early August the stock may need a digestion phase as it pulls back here. One thing I didn’t particularly care for was Thursday’s move below the 10-day moving average that came on above-average volume. Within the context of the stock’s prior sharp upside move, however, this may be less of an issue, but the stock may still need a little more time to consolidate that prior move. Notice also that some overhead resistance exists in the 155-160 price area, roughly, so the stock might need more time. In the meantime I would keep this on a short leash, and if it violates Thursday’s low at 143.66 I would consider backing away from the stock for now – there are better situations to be involved in currently. Conversely, another pocket pivot type move back above the 10-day moving average would be another buy signal for the stock, but that may also require more time.

Salesforce.com (CRM) Gilmo Report Stock Chart

Solarwinds (SWI) has been on my radar since it had a big-volume buyable gap-up-and-run move back on July 25th. Since then the stock has had another gap-up followed by a move up into the 55 price area before finally settling down into a little flag formation, as we see on the daily chart below. Yesterday SWI hit my volume alerts as it traded enough volume for a pocket pivot, but the stock was unable to move above its 10-day or even 20-day moving averages, each at 55.23 and 55.20, respectively. Selling volume has remained very dry within this flag formation, and as the flag continues to form in constructive fashion I am closely watching for a bona fide pocket pivot type of move here to get more aggressive with the stock. One can nibble along the lows here in the 54-55 price zone, keeping a very tight stop along the 54 price level, with the idea of getting bigger on a more decisive buy signal. One for the watch list and your price and volume alerts.

Solarwinds (SWI) Gilmo Report Stock Chart

 

While much is made of Fed Chairman Ben Bernanke’s upcoming speech in Jackson Hole, Wyoming on Friday, it seems to me that the Chairman won’t be likely to announce any new sweeping QE venture by the Fed, and the market likely knows this. We could always see some selling following the speech if nothing new is hinted at, but so far there is no evidence to support the idea that the market is in the throes of some “triple top” and in imminent danger of rolling over. Leading stocks continue to act well, and so it becomes a matter of simply watching your stocks and sticking to your plan while being open to new opportunities as they emerge irrespective of where or how the general market is trading as it tracks within its “dull” late-August range. Stay tuned.

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

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.