The Gilmo Report

July 10, 2013

July 10, 2013

The Russell 2000 Index, which I noted in my weekend report had made a new closing high on Friday, led the way on Monday as it broke out to a higher high, and the NASDAQ Composite Index followed suit today as it moved to a new closing high on lighter volume. The NASDAQ now joins the Russell 2000 in a de facto uptrend continuation. 

 

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The S&P 500, on the other hand, is finding resistance at the prior June highs, churning around a bit today on roughly even volume, although in the context of the prior rally this is not necessarily weak action. So far the move off the late-June low has been a steep one as the market still appears fixated on just how fast the Fed will taper off on QE.

 

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Following the release of the Fed meeting minutes today, the market gyrated around and closed in mixed fashion while bonds took more heat. The daily chart of the iShares 20+ Year Treasury Bond ETF (TLT), shows another dead cat bounce failing as the TLT makes a break for last Friday’s lows. After hours today as I write this report, Fed Chief Ben Bernanke is giving a speech where he is emphasizing in the ensuing Q&A session that current employment numbers overstate the strength of the jobs market and that continued Fed accommodation will be necessary. This is sending futures higher after-hours, but with the NASDAQ Composite and Russell 200 Indexes already in de facto rally continuations, this may be moot.

 

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Most of the stocks I’ve been looking at in recent reports have acted well. These “roundabout” situations, where leading stocks that have corrected begin to issue pocket pivot buy points along the lows of their bases and begin moving up the right side, are generally working quite well. As we move into “earnings roulette season,” however, it will be up to each investor to decide how big of a position they want to hold in any stock they currently have a decent profit in as it approaches its earnings announcement. Unless I have a sizable profit going into an earnings announcement, I’m generally content to try and hold on with a 10-20% position size.

 

Tesla Motors (TSLA) was added to the NASDAQ 100 Index, effective July 15, and this had the effect of sending the stock into a brief gap-up move above the 125 price level. The stock continues to act well as it holds well above the 114.90 breakout point in the prior flag base.

 

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I’ve liked Solar City (SCTY) since its bottom-fishing pocket pivot of ten trading days ago on the chart. SCTY put in another pocket pivot as it continues to round out a potential “punchbowl” like pattern, as I discussed in detail over the weekend. This latest pocket pivot is an add point, but the stock remains buyable on any pullbacks closer to 40, in my view. This is based on the current and prior price/volume action as it tries to round out the lows of this current base.

 

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Sunpower (SPWR) is finally pulling back after moving straight up into new high price ground last week. Pullbacks down to the 22-23 price area look buyable to me, but I would probably expect the stock to digest its prior gains here for at least a few days.

 

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Valeant Pharmaceuticals (VRX), which I previously discussed as buyable along its 10-day moving average a couple of weeks ago (see June 30th report), moved higher from that point and is now holding up relatively tightly along the 90 price area as it builds a little handle and potentially sets up here for another move higher.

 

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Santarus (SNTS) staged a clear buyable gap-up move on Monday, using the 22.48 intra-day low of the gap-up day as your selling guide. The stock held above that level nicely today and closed just positive as volume declined on the day, which is constructive action. SNTS’ move on Monday occurred following a buy recommendation from a large brokerage firm, but that does not take anything away from Monday’s buyable gap-up move, which is a technical fact. This remains in buyable range.

 

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Three-D Systems (DDD) continues to move sideways after moving up and off of its 50-day moving average, but no definitive buy points have shown up yet. As long as the stock continues to hold above its 50-day moving average, it is in position for a potential new buy point.

 

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Stratasys (SSYS), on the other hand, gave us a buy signal on Friday with its big-volume trendline breakout. The pullback down towards the 86-87 level and the 10-day moving average is where the stock was buyable over the past couple of days. Today SSYS moved back up towards its prior all-time highs as it recovered most of the past two days’ worth of downside.

 

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Netflix (NFLX), which has had two pocket pivots coming up off the lows of its current base, as I discussed in my report of July 7th, moved up to resistance at its prior 52-week high before staging a logical pullback today. The stock closed in the upper part of its daily range which looks constructive as we await the next buy point in the stock.

 

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Angie’s List (ANGI) gapped up on Friday, but volume was suspiciously low, as I discussed in my report of this past weekend. After announcing that Q2 paid memberships were below expectations yesterday, the stock gapped down and today moved right to its 50-day moving average. In my view this action is bad enough to warrant selling the stock.

 

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The other Internet bulletin board/consumer review stock that I’ve discussed in recent reports, Yelp (YELP), has acted in opposite fashion to ANGI as it broke out of a tight, eight-day range yesterday, and held above that breakout point on a pullback today before closing near the top of its intra-day range. This is continued constructive action on the heels of its prior breakout about two weeks ago.

 

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I theorized about a possible ascending base breakout in Cree (CREE) in my report over the weekend, and so far the stock is holding above that breakout point. I would view the stock as buyable on any pullbacks to the 10-day moving average, currently at 66.08 and roughly at the point of the ascending base breakout. This all comes on the heels of CREE’s pocket pivot buy point of eight days ago on the chart (see June 30th report).

 

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Trulia (TRLA) is another one of these “roundabout” formations that is working as it has followed through on its bottom-fishing pocket pivot of over two weeks ago, which I first discussed in my report of June 30th. TRLA is now moving up the right side of a potential new base, awaiting the next buy point.

 

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Acadia Pharmaceuticals (ACAD) continues to hold up very tightly along its 10-day moving average. This despite having a bit of a false start yesterday as it tried to move above the 19 price level, but came back in to close slightly up on the day. This still looks fine to me, and quite buyable with the idea that it should continue to hold the 10-day line.

 

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Hot IPO Gigamon (GIMO), which staged an IPO flag breakout on Friday on what was a pocket pivot move, has continued higher. On Monday GIMO got hit with a “hold” rating which sent the stock down towards the 29 price level, within buyable range. The stock is now clearly extended and I would look to buy any pullbacks below 30.

 

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Short-sale targets like Celgene (CELG) and Biogen Idec (BIIB) for example, have not broken down and for all we know these stocks are simply building new bases as well, as the chart of BIIB shows below. BIIB is holding tightly along its 50-day moving average. This puts it in position for a type of “bottom-fishing” pocket pivot if it can muster a move up and off of the 50-day line on volume that is heavier than any down volume in the pattern over the prior ten days. This would be the 1,172,461 shares it traded on July 2nd. In this manner one trader’s head and shoulders formation becomes another trader’s “roundabout” set-up.

 

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On the basis of what some of these leading stocks are doing currently, I can’t find much fault with the market, whether one chooses to label it as in a “correction” or not. Certainly, as the indexes move up towards new high ground on a steep ascent off of the late January lows, the potential for a pullback increases. Unless we begin to see the indexes reverse on heavy selling volume and leading stocks break down, I can only say that the long side is the primary place to be in this market currently, pending further evidence to the contrary.

 

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 positions in ACAD, SCTY, and TSLA, though positions are subject to change at any time and without notice.

 

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