The Gilmo Report

February 1, 2012

February 1, 2012

The market started the week out fretting over “Greek Haircuts” and other monsters lurking in the closets of investors, but the selling never got very heavy as weak hands sought the short-term exit door. I’m still waiting to see some enterprising fashion entrepreneur come up with a new fad in hairstyles: The Greek Haircut, where you go in not knowing whether the hair-stylist is going to shave off 50% or 70% of your hair. I suppose that’s one hairstyle that comes with its own “wall of worry.” In the meantime the market does what the market will do, and for now that seems to be moving higher on higher volume, as we see on the daily chart of the NASDAQ Composite Index, below. Other than my clever segue into today’s report with the Greek haircut references (well at least my mother thinks it’s clever), there isn’t much to say except that the uptrend continues and leading stocks continue to act well with a mishap here and there such as AMZN yesteday and CMG today after earnings, but in the meantime there is enough that is new going on elsewhere to drive this market higher.

NASDAQ Composite Index Gilmo Report Chart

Gold and silver both continue to act well after their respective pocket pivot buy points as each of the big precious metals ETFs, the SPDR Gold Shres (GLD) and the iShares Silver Trust (SLV), have come up through their 50-day moving averages on strong pocket pivot signature volume and held those gains in recent days. The GLD is extended from any reasonable buy point right now, but the SLV has paused just long enough for its 10-day moving average to catch up to it, as we see in the daily chart of the iShares Silver Trust (SLV) below. So far, SLV has paused to deal with a little bit of overhead congestion between here and the 34 price level, and I would watch for some sort of possible pocket pivot off the 10-day line if SLV continues to move sideways, giving the 10-day more time to catch up. Notice also the black triangles on the chart beginning five days ago, which are what we call “ants” that indicate the stock is up 12 out of 15 days or better at that point, a sign of strength. So far SLV and GLD remain constructive holds pending the next buy signal.

iShares Silver Trust (SLV), Gilmo Report Chart

Monster Beverage (MNST) continues to act well, as we see in the daily chart below, pulling back to its 10-day moving average, more or less, over the past few days. Remember that MNST does not necessarily have to hold its 10-day moving average as support since it has never shown a tendency to obey the 10-day line. In MNST’s case it is its character to obey the 50-day moving average, so if you are hung up on having to use a moving average as a support guide here I would stay with the 50-day moving average for now, although that is a ways down from MNST’s current price. I would, however, expect the stock to hold the $100 price level on any normal pullback, and certainly the 97 price level which is the top of its prior base from which it gapped up 2 1/2 weeks ago. Right now it’s doing much better than that despite two analyst downgrades this week. Today the stock picked up some support in the form of a pocket pivot volume signature around the 10-day moving average. I would watch for a bona fide pocket pivot move up through the 10-day moving average here to add to any position taken on the initial buyable gap-up. So far there is nothing wrong with MNST, as it holds up well, in my view.

Monster Beverage (MNST) Gilmo Report Chart

Last Wednesday I pointed out the pocket pivot buy point in Spirit Airlines (SAVE), shown below on a daily chart, as it was coming up through the 50-day moving average following a shakeout below the lows of the base. The stock pulled back slightly and found support at the 50-day moving average over the next two days as volume receded before picking up again as the stock move up towards its highs. Today the stock broke out to new highs out of what I see as an IPO base-on-base formation. SAVE came public in late May at $12 a share and actually broke out of a short flag formation before correcting with the market and forming a longer base. Another breakout as the market made its lows in early October led to the formation of this most recent base, completing the base-on-base formation. The big volume spike on the chart is due to an 11-million share secondary offering that appears to have been well-absorbed by the market. SAVE is a smaller stock, hence somewhat more volatile, but this remains potentially buyable with the idea that it should hold the 50-day line at 15.65.

Spirit Airlines (SAVE) Gilmo Report Chart

We’ve tracked Biogen Idec (BIIB) ever since I first discussed it as being buyable off the 110 price level along its 50-day moving average and the top of its prior base in my report of December 26th. In that report I noted the subtle pocket pivots occuring along the 50-day moving average before the big breakout up through the 50-day moving average on January 3rd. Starting with that pocket pivot buy point, there were a total of seven pocket pivots in the base off the lows and leading all the way up to the day before today’s breakout to all-time new highs for this veteran bio-tech leader, and we followed them all the way up in this report. Obviously, this is a buy point on the new-high base-breakout, using standard stops for any new BIIB purchases on this basis today or later. Despite the fact that the smaller bio-techs I’ve discussed in recent reports are acting okay, it seems that big-stock bio-techs are more in favor, such as AMGN and CELG. Money wants to move into the bio-tech sector, and the steadiest flows appear to be in the bigger, liquid stocks right now. Let’s take a look at CELG to see what I’m talking about.

Biogen Idec (BIIB) Gilmo Report Chart

Below I show CELG’s daily and weekly charts. Note the tight action in the daily chart here as the stock comes up through the 10-day moving average, just missing the required volume levels for a pocket pivot buy point. Based on this action, I might expect a breakout through this three-weeks-tight-in-the-making that CELG is forming on the weekly chart. This looks quite constructive, and CELG has strong fundamentals with a two-quarter earnings acceleration. I think this can be bought using the 20-day moving average at 71.72 as your stop.



F5 Networks (FFIV) got a little bit of a scare on Friday of last week when Riverbed Technologies (RVBD) got creamed after it announced earnings, but RVBD’s business model is not FFIV’s, and the market figured this out pretty quickly four days ago on the daily chart, below, as volume came up and supported the stock off the 10-day moving average. So far FFIV is holding its buyable gap-up move of ten trading days ago, and today we saw volume pick up slightly as the stock came up and off of its 10-day moving average. With technology stocks a leading group here, FFIV is definitely one of the potential leaders, and among the cloud-computing stocks is in the best position to potentially move higher, faster, in my view. (CRM) and VMWare (VMW) have more overhead supply to work through in their patterns, so if I want to play the group, FFIV is the vehicle of choice. One can continue to use the low of the gap-up day at 116.49 as your downside guide for a stop pending the next potential buy point.

F5 Networks (FFIV) Gilmo Report Chart

In my report of January 18th, exactly two weeks ago today, I made note of the tight action on the weekly chart of Tibco Software (TIBX) along the lows of a potential base, and the next day, the 19th, the stock came up and out of this tight range, as we see on the daily chart below. Nine trading days ago TIBX followed up with a pocket pivot buy point move up through its 50-day moving average, and today followed up with another pocket pivot buy point up and off of its 10-day moving average which is above the 50-day moving average, something I like to see when stocks are coming up off their lows. Right now we have the 10-day and the 20-day turning up, so I would like to see the 50-day follow suit. Nevertheless, it is sufficient to operate on the basis of this series of pocket pivot buy points alone, with today’s pocket pivot being potentially buyable with the idea that the stock should hold the 10-day moving average, preferably, or the 50-day, ultimately. My personal preference is to keep stops tight on something like this and with today’s move coming on above-average volume I would expect it to hold the 65-day exponential moving average at 26.08.

Tibco Software (TIBX) Gilmo Report Chart

Invensense (INVN), the Omnivision Technologies of 2012, as I’ve discussed in previous reports, has seen some considerably wild action surrounding its earnings announcement of four trading days ago. On that day, the stock closed right at its 10-day moving average, and then three days ago issued a continuation pocket pivot buy point off of the 10-day moving average. However, the stock has run nearly 70% since I first notified Gilmo Report members of INVN’s pocket pivot buy point in the 10-11 price range in my report of January 4th, and I still tend to think it needs to build a base here if it has more upside in the cards. This is evident in the fact that the pocket pivot of three days ago did not lead to continuation highs, but rather ran into sellers who likely saw the move as a short-term double-top. If you have a low cost basis on this, there is no reason to sell it as you can certainly give it time to build a new base as long as it continues to do so constructively. For now I would simply monitor how it handles this pullback, which so far is seeing the stock come off on diminishing volume today, so I would look for it to stabilize in here soon enough.

Invensense (INVN) Gilmo Report Chart

ALXN – as discussed in my report of last week, ALXN was buyable off the 20-day moving average on its recent pullback and today the stock made a new all-time high.

CXO – holding its recent breakout through the top of its recent range in the 104-106 area. This remains potentially buyable with the idea that it should hold the 102 price level on any pullback, roughly.

LULU – has moved up off the 10-day moving average. As it moves to new all-time highs it may experience a little bit of resistance from the left side of the pattern in the 64-65 price area, but so far holding up just fine.

STMP – biding its times going into earnings, but watch for yet another pocket pivot off the 10-day moving average where the stock has been resting over the past couple of days, should that occur.

SLXP – interestingly, the stock never violated the intra-day low of its buyable gap-up on December 20th, although dipping below it on an intra-day basis eight trading days ago. Stock is wedging back up to its high at around 50, but there is no place to try and buy this here.

TSCO – held tight going into earnings, which were announced today after the close. After-hours the stock is edging down about a buck or so, and I would watch for a potentially buyable pullback on the open if it can hold the 77-78 level. Roughly.

VPHM – stock is still holding along its 10-day moving average, which it has held for about 15 weeks, therefore you want to use a violation of the 10-day moving average as your downside guide for a quick stop here.

Members should refer to recent reports for discussions of stocks not mentioned in this report since the situations for those stocks likely remain the same. Otherwise, feel free to email in your questions to In the meantime, all we know for sure is that the market continues to make higher highs, and as it flirts with the highs of this market since the 2009 bottom, the situation with individual stocks continues to blossom and broaden. Many right now are making much of the so-called “golden cross” in the major market indexes with the 50-day moving average now moving up above the 200-day moving average. For me it is still just a matter of watching my stocks and focusing on the price/volume action, not the news flow or the latest gee-whiz technical achievement of the market indexes. Don’t get me wrong, it is certainly constructive, but if the market remains in a bull rally long enough, then naturally the 50-day moving average is going to get above the 200-day moving average, so this is something akin to looking in the rear-view mirror since it only reflects the market’s strength over the past 50-days relative to the past 200. To me it is more confirming then predictive. The first buy signals in stocks occurred many days ago, which also makes the “golden cross” in the indexes moot. Meanwhile the action in leading stocks remains very relevant, and for now the long side remains in full force.

Gil Morales

CEO & Principal, Gil Morales & Company, LLC

Principal and Managing Director, MoKa Investors, LLC
Principal and Managing Director, Virtue of Selfish Investing, LLC

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