The Gilmo Report

February 22, 2012

February 22, 2012


The current act of the great Greek Tragedy of 2012 came to a close Monday night with a whimper as the Europeans “agreed” to bail out mostly French, German and other European banks who had displayed some very poor due diligence loading up on too many Greek bonds. At first the market rallied in reaction to the news, but it did not take too long before it became something of a “sell the news” situation. The reality is that we seem to be having Greek bailouts every couple of months, and the Greeks seem to be continually passing “austerity measures.” Okay, so we know the Europeans are going to print another 120 billion Euros to pay off Greece’s creditors, ostensibly another wave of QE in what has become an ocean of QE that sloshes and crashes against the market’s shores, but what does the market really think? Well, not much, apparently, since it appears to have elicited a big yawn from the NASDAQ Composite Index, shown below on a daily chart. I’ve been writing that a 3-5% short-term correction would be something the market is certainly entitled to, but so far all we see this week is two down days on declining volume as the index remains above its 10-day moving average.

NASDAQ Composite Index Gilmo Report Chart

Stock selection is still important in this market environment as there have been the occassional “slam dances” in certain stocks – witness Gilead Sciences (GILD) last week. But with the Europeans printing again, and of course the Fed waiting in the wings with QE3, the precious metals have no choice but to go higher, and this may be the place to be concentrated, in my view. The iShares Silver Trust (SLV) flashed a pocket pivot buy point yesterday, and today this was confirmed in the SPDR Gold Shares (GLD), shown below on a daily chart. You have to like this double-trendline breakout on above-average volume that also qualified as a pocket pivot volume signature. The GLD is a little bit extended from its 10-day moving average, but this breakout on pocket pivot volume as well as decently above-average volume tells me that the odds are heavily in favor of the precious metals going higher from here. With all the fiat-currency printing going on as governments around the world are trying to devalue their currencies (even the insufferable Swiss are trying to devalue their Franc!), I almost feel more comfortable owning the gold and silver ETFs than stocks. In any case, These are clear buy/add points for anyone building or initiating a position in the SLV, GLD, AGQ, or DGP ETFs that I traffic in.

SPDR Gold Shares (GLD) Gilmo Report Chart

It would have been exciting to see LinkedIn (LNKD) run the shorts over yesterday as it attempted to clear the 95 price level on what was strong volume early yesterday, but instead the stock found what I would consider logical resistance at that level. Thus the stock reversed on above-average volume. Little follow-through selling came into the stock today, however, as it found support along the 89-90 price level, about where I figured it would, with volume drying up sharply. Recall when CF Industries rallied up to the 176 level, which was a prior peak in its pattern similar to LNKD’s at the 95 level, it found similar resistance, but eventually moved beyond the 176 price level. I show the daily chart of CF further below LNKD’s chart for your reference. With so many shorts in the stock, and more “smart guys” clamoring to short it more, I don’t think this pullback will last that long. I like it pulling back into the 10-day moving average down to 86.99, so I have no problem buying more LNKD here with the idea that it should hold the 10-day moving average, more or less. Given its sharp upside move over the past couple of weeks it was probably premature for it to break out through the 95 level, and needs to do a little work first. Use the low-volume pullbacks to buy the stock, using the 82 level as your ultimate stop.

LinkedIn (LNKD) Gilmo Report Chart

The daily chart of CF industries (CF) illustrates the pause it need to take, albeit briefly, at the 176-177 price level, roughly at its prior peak as I’ve drawn on the chart. CF then pulled right back to the top of that breakout level and has drifted back up towards its 190-and-change highs. As long as I’ve got this chart up here, I should note that so far CF is acting okay, but keep in mind that move from below 130 to above 190 was a very fast one, so I would not be surprised to see it move sideways for a bit here, and as long as it remains above the 176-177 level it looks okay to me. With fiat-currency printing the order of the day, I look for commodites and perhaps commodities-related stocks like fertilizers to have some potential here, although as you all know, for my money, I prefer to play gold and silver as QE plays.

CF industries (CF) Gilmo Report Chart

If you bought F5 Networks (FFIV) on the buyable gap-up in mid-January and have been sitting with it ever since, don’t fall asleep just yet! As can be seen on the daily chart of FFIV below, the stock flashed a very subtle pocket pivot buy point today as it dropped below its 10-day moving average and then recovered on a very subtle pocket pivot buy point. This looks buyable with the idea that it should hold the 10-day moving average, roughly, going forward. I have to admit that I had a position in FFIV but got bored and went on to something else, namely LNKD on its fantastic buyable gap-up move a couple of weeks ago. FFIV may be ready to come back into play here. At least the pocket pivot buy point today confirms that the stock is not asleep, and so investors should likewise probably not be too eager to go to sleep on FFIV.

F5 Networks (FFIV) Gilmo Report Chart

Monster Beverage (MNST) will be announcing earnings tomorrow after the close, and the nice thing is that instead of trying to flash a big pocket pivot tomorrow, it did so today, as we see on its daily chart, shown below. The first pocket pivot attempt was perhaps a bit early, but at least now with this pocket pivot buy point occurring today, we get a chance to see how the stock acts tomorrow. Should it follow up today’s pocket pivot with further upside tomorrow, that would certainly be a good sign, and I myself, being up over 10% on an initial MNST position already, would be inclined to hold a 20% position going into earnings if the stock moves higher tomorrow. Remember, a 10% gap-down move in MNST after earnings would impact your portfolio by 2% if you have a 20% position in the stock, so consider your position size and your current profit cushion in the stock, and how they would impact and be impacted by a gap-up or gap-down in the stock. MNST already guided higher earlier, which is what caused the gap-up move up through the 50 area, post-split, so there should really be no surprises.

Monster Beverage (MNST) Gilmo Report Chart

Over the weekend I made some brief comments about MasterCard (MA), at the end of my report, and I noted that the stock remained within buying range of its recent breakout through the 385 price level, roughly, as it moved along its 10-day moving average in constructive fashion. Over the past two days the stock has given us two pocket pivot buy points in a row off of the 10-day moving average. If you look at the volume bars on the chart, you can see that when MA comes off nobody really seems interested in selling the stock, so the buying volume coming in this week has set it hopping a bit here off the 10-day line with a couple of nice pocket pivots. Visa (V), not shown, has also been tracking along its 10-day moving average after a couple of gap-up moves in February, but it has not shown the kind of strength over the past two days that MA has. If I had to choose between the two based on the current price/volume action, MA would probably be my first choice, although I wouldn’t be surprised to see V suddenly spring to life here as it follows MA higher as well.

MasterCard (MA) Gilmo Report Chart

Some updated notes from my trading diary on stocks discussed in recent reports:

AAPL – I still tend to think that this has made a short-term top, but as long as the market continues to act well AAPL has likely not made a final, climactic top. Thus I am waiting to see if another buy point shows up in the stock at some point going forward.

ALXN – above-average volume move off the 10-day line is constructive.

ABMD – has pulled back to its breakout point at 21.50 and the 20-day moving average. Potentially buyable here using the standard 7-8% stop, maximum.

AMZN – still a possible short-sale candidate if the market gets weak, but so far holding just below the 50-day moving average. Consider this a “security blanket” short if you own some stocks and are a bit skittish.

BIIB – has not violated its 50-day moving average yet, but a slow-mover at best. I prefer stocks that act more in sync with the market’s strength, but BIIB is probably still okay as long as it does not violate its 50-day moving average.

CXO – acting fine. Not much to say here other than that a pullback should hold the 105-106 price level, roughly.

CLR – continuing higher along with the rest of the oil patch, but this is your oil leader as far as I’m concerned.

ISRG – to repeat myself from over the weekend, the stock is holding tight here just above the 500 price level. Potentially buyable on the basis of the Livermore Century Mark Rule, using the 500 level as a quick stop for any additional stock bought up at these price levels. Otherwise, ISRG is a big-stock leader in this market among the strong-acting medical-related stocks.

INVN – trying to build a second base here. I continue to consider INVN to have a strong and compelling fundamental theme as a maker of motion-sensor chips for smartphones and other handheld devices. Just be patient and wait for the next buy point to come along – if INVN is a strong “new merchandise” leader, it will.

LULU – Violating the 10-day moving average. I say sell it.

PCLN – has broken out of its base going into earnings this week.

STMP – busted its 50-day moving average and violated the 50-day line today. A clear sell on this basis, although there were some warning signs per my discussion of the stock in my February 12th report as I said I did not like the high weekly volume in the handle that STMP was trying to form. Ultimately, the 50-day moving average was the maximum sell point, and that is clearly the case now.

SWI – holding the 10-day moving average, so watch for a secondary buy point in the form of a possible pocket pivot move off the 10-day line, should that occur.

TIBX – still holding along its 10-day moving average, but closed today below the 10-day line. This is not critical since it has not shown a tendency to “obey” the 10-day moving average anyway. Thus contiunue to watch for a possible pocket pivot up through the 10-day line should it occur.

TSCO – the attempted breakout from a short 4WT flag formation hasn’t gone anywhere, but as long as the stock holds the 82 price level it is probably okay. So far it has continued to hold the 82 level, and may be getting ready to make another run for its recent highs. I think it’s worth a short here using the 81-82 level as a quick downside stop.

VPHM – slashing through its 10-day moving average. A violation of the 10-day line is a sell signal, but so far that hasn’t occurred. Watch for this however, as the stock goes into earnings next Thursday.

VMW     – moving up the right side of its base. Allied with FFIV and RAX, all of which are acting fine here. May need to go sideways here for a bit.

If there are other stocks that I have not mentioned here, please refer to any prior reports that mention them, using the search function on the website. If I haven’t said anything new about them here, then my prior comments likely still apply.

The market doesn’t act badly here, despite the fact that yet another “solution” to the Greek crisis, a crisis that was providing the wall of worry that the market apparently eagerly climbed, did not result in a big rally yesterday. But then, that is probably because the market doesn’t discount the present, so the present news had no impact. Duh. From here, the market appears to be assessing the future, and in this regard it tends to act like it wants to simply rest here, for however long it decides, before going higher, maybe tomorrow, maybe next week. In the meantime, watch your stocks, and take a hard look at the precious metals which look very good here, in my view.

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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