The Gilmo Report

July 10, 2016

July 10, 2016

The Bureau of Labor Statistics’ monthly jobs report gave investors a surprise by posting an increase of 287,000 new non-farm payrolls, far more than the 175,000 that was expected. Gold sold off and the dollar rallied on the news, while the market shot to the upside.

The market’s reaction might seem a little illogical given that the sharp rally off of the Brexit sell-off low two Mondays ago was ushered along by happy thoughts that it would keep the Fed on hold. However, as we should know by now, trying to apply logic to this market is a pointless exercise. Ultimately it all comes down to the action of individual stocks.

From the perspective of individual stocks, things had pulled into lower-risk, buyable positions earlier in the week. The action on Friday was merely the cherry on top of the sundae that was already in the process of being made by that point. Meanwhile, the indexes put on a show of strength on Friday by moving to higher highs on increased trading volume. The NASDAQ Composite Index is now making a run for its prior highs and the top of what is a year-long price range.

 

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The S&P 500 Index on Friday broke out to its highest levels of the year and is just shy of breaking out through the highs of May 2015 and into all-time high price ground. Like the NASDAQ, the strong upside move Friday came on higher trading volume. Over the past year we’ve seen the indexes push back up to their highs, only to roll over again in a big, wide-ranging consolidation that extends back to May of last year. Is it different this time? Will a breakout to new highs by the indexes lead to a sustainable bull trend?

 

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While we cannot determine with any certainty whether the indexes’ current run for the highs will lead to a glorious new bull market, we can take solace in the fact that we don’t have to. We can just focus on the action of individual stocks, which is quite effective in getting us where we need to be when we need to be there. As we saw on Wednesday, the big outside reversal to the upside had bullish implications, at least for the indexes, and Friday’s action attests to that. While the action is exciting, it does not, however, alter my general approach to handling individual stocks.

When a position gets extended to the upside 10-20% or more, it becomes a candidate for the taking of at least partial profits. When a favored long idea pulls down into a logical area or point of potential support, that is where we should be looking to pick up shares. Because of the erratic and trendless market environment, this has been the only way to ensure that progress can be made. Sitting on a decent profit in a stock with the idea of holding out for that big move is more likely to leave you with no profit.

So we simply continue to approach the market as we have. The main point I would make is that even if the general market starts out on a new bull market trend, we have many tools at our disposal for the purpose of re-entering positions after we’ve taken profits on an initial price move. Therefore, an active approach does not have to preclude one from riding any massive trends should they become more common in this market.

Getting back to Friday’s action I noted that the U.S. dollar initially rallied on the strong jobs number, while precious metals sold off. By the close, however, the dollar was up only slightly while precious metals had turned back to the upside, with the SPDR Gold Shares ETF (GLD), not shown, moving to a new 52-week closing high. The iShares Silver Trust (SLV), shown below, also posted a new 52-week closing high.

Based on the action of the metals and the dollar, it looked to me as if the market had decided that, while the jobs number was perhaps strong enough to indicate that the U.S. economy was not falling off a cliff, it was also not strong enough to prompt the Fed to immediately begin raising rates. In some sense, it was like the proverbial Goldilocks’ porridge – not too hot and not too cold.

My favored precious metals stocks, Silver Wheaton (SLWand Agnico Eagle Mines (AEM), both fared well on Friday, but only SLW posted a new 52-week high. Volume came in at above average as SLW simply continues moving steadily higher after its trendline base breakout on June 3rd.

I can certainly see how with all the news flow and all the uncertainty about what the Fed will or won’t do, and when it will or won’t do it, might make it tough to hold precious metals and precious metals stocks. But if you look at stocks like SLW and AEM, they have held all of their breakouts so far in 2016. So while we might complain about the lack of consistent trends in stocks, both SLW and AEM show that there are some in this market. However, note that SLW and AEM would not fit O’Neil criteria since both have negative earnings growth.

 

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Most of the new merchandise names I discussed in my blog post of last weekend have actually done quite well over the past week. While Weibo (WB) was only mentioned in passing in that blog post, it was discussed in detail in my report of last weekend as I made a comparison between it and Baidu (BIDU) in 2007. After setting up last week along its 10-day moving average (seven trading days ago on the chart), WB launched up towards the highs of its price range. It then pulled in on Wednesday on a “voodoo” pullback before breaking out on Thursday on heavy volume.

While this was much more optimally buyable last week along the 10-day line, technically this latest breakout through the 29 price level remains within buyable range for those who like to buy standard-issue breakouts.

WB has already had two previous breakouts in 2016 as it has steadily trended higher. Each breakout, however, led to a 15-20% move before the stock settled back into a new base. Note that one could have sold into those moves and then bought back each time within the base when the stock flashed voodoo pullbacks into its 10-day and 20-day moving averages.

The last voodoo pullback occurred on May 23rd, just before the stock broke out in late May. That buyable pullback was discussed in a blog post at that time. With the stock now breaking out for the third time in 2016, the only caveat is that things might be getting a bit obvious by now. But for now there is nothing to fear as long as the current breakout holds up.

 

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Gigamon (GIMO) is another new-merchandise play that had a good week, at least by Friday. The start of the week was a little less propitious as the stock broke to the downside to test its 20-day moving average on Wednesday. This, however, was an opportune entry point, and the stock has since moved to a higher high. From here pullbacks into the 10-day moving average at 37.22 would offer your best entry points. GIMO tends to be a volatile stock, so sharp buyable pullbacks in the stock are common. Wait for them.

 

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Atlassian Corp. PLC (TEAM) is yet another new-merchandise name acting well over the past week. On Friday it closed at its highest high since January of this year and is getting back up to where it was trading right after its IPO release date in December of last year. The stock was quite buyable this past Tuesday when it pulled in to test the 20-day line. From here I would look for any additional pullbacks to the 20-day line, currently at 25.69, as the most opportunistic entry points.

 

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Acacia Communications (ACIA) has been a volatile beast over the past three weeks as it has swung about in what is now a 28% deep, three-week cup formation. On Thursday and Friday, it attempted to clear to new highs but was batted down each time on relatively higher volume. This looks to me like it needs to settle down and tighten up a bit. However, if one is nimble enough to play the volatility then I suppose any retracement down towards the 10-day and 20-day lines near the 40 price level might present an opportunistic entry point.

The trap here, however, is in thinking all the exciting price moves in the stock since it came public in May at $23 a share will automatically lead to further price highs. It may be that the stock needs some time to build a more coherent base somewhere in here, particularly with earnings expected to be announced late in July.

 

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Twilio (TWLO) is another new-merchandise name that has been something of a hot IPO much like ACIA. It hasn’t been around as long, but is showing constructive action as it works on what is so far a little six-day flag formation. We can see that with the stock now trading eleven days since its IPO release date, the 10-day moving average has now shown up. On Friday volume dried up to its lowest levels since the stock came public, and I would watch for volume to continue drying up as it comes closer to the 10-day line at 33.51.

 

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Overall I have to say that I am pleased to see a number of new-merchandise names acting well. In this regard, I would have to say that my blog post of last weekend was quite timely. Another name making it through my new-merchandise screens is Zayo Group Holdings (ZAYO), which came public in October of 2014. I generally consider any stock that has come public within the past 2-3 years to be a new-merchandise candidate. Some new merchandise names catch fire quickly, but others need some time to percolate and ripen, such as WB, for example.

ZAYO might be one of those names that takes a little more time to get going. I recall that it caught my eye when it first came public in 2014 at $19 a share and then ran up to a peak of 32.18 over the next 11 weeks. Now it is attempting to break out of a roughly 1.5-year long base formation. On Friday ZAYO broke out on volume that was only 6% above average, but it was a breakout nevertheless. Note also that the stock has been shaking sellers out over the past couple of weeks. Most recently it found volume support at the 50-day moving average this past Wednesday.

A pullback closer to the 28 price level might be the most optimal entry opportunity, but the stock is in buyable range nevertheless. In this case using the 50-day moving average as a selling guide would keep risk to a minimum.

 

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Mobileye (MBLY) was featured in a Wall Street Journal “Heard on the Street” column Thursday morning, and the stock initially opened to the upside. I saw one blurb on Briefing.com mention the article as expressing a “positive” view on the stock.

After reading the article myself, however, it struck me as being a bit on the negative side as it associated MBLY with a recent fatal accident involving Tesla Motors’ (TSLA) Autopilot mode. With respect to MBLY, the article observed that, “The company’s technology hasn’t been implicated as being at fault, but the accident is serving as a stark reminder of the limitations of self-driving systems and the dangers posed when those systems lull drivers into taking their attention off the road.”

Given that MBLY had run up about 44% from its mid-June low of 33.93 to a late June high of 39, this article likely gave sellers an excuse to take profits as they hit the stock on heavy volume early Thursday. I was watching the five-minute 620 chart all day, and noted the sudden, heavy wave of selling that hit the stock just before 8:30 a.m. PDT, two hours after the open.

The stock then came in to retest that low twice more, and on the third test held tight in a little doji as volume ticked up slightly. This looked like supporting action near the 43 intraday low, and once the sellers were washed out the stock was able to turn back to the upside about 90 minutes later. We then saw a 620 buy signal confirm as the MACD had already turned twice and the moving averages were now crossing positively when the stock was trading at around 43.60. That was the time to consider coming into the stock on an intraday basis.

GR071016-MBLY Intraday Chart

 

By the close MBLY had regained its 10-day moving average and closed about mid-range on the daily price bar with volume up on the day, a show of support at the line. On Friday it gapped back above 45, hung around for a little while and then proceeded higher from there. It may be too much to ask for MBLY to suddenly launch higher, but on the basis of the prior buyable gap-up move of the prior week, it certainly has that potential. MBLY did close above the 45.29 intraday low of the buyable gap-up day on June 30th.

The question now is whether all the weak hands were shaken out on Thursday. In any case, any retest of the 10-day line at 43.70 could present additional entry opportunities, so that is something to watch for.

 

GR071016-MBLY Daily

 

Tesla Motors (TSLA) has been able to rally up to the confluence of its 50-day and 200-day moving averages, but it has been churning along the lines over the past two days on light volume. Notice also that the 50-day line has now crossed below the 200-day line in a black cross. It has also filled the “falling window” from the big gap-down move it had back in late June, and this could also serve as resistance for the stock. The question here is whether the stock is about to morph back into a short-sale target as it fills the gap and runs into resistance at the 50-day and 200-day lines.

That’s a distinct possibility, and it may be that the stock is shortable here using the 220 price level as a guide for an upside stop. Otherwise, while the stock did present us with a very nice undercut & rally move off of the lows of the Brexit sell-off two weeks ago, I would not be looking to buy it here just yet. Any profit made playing the U&R move over the past two weeks should likely be safely sitting in the bank.

 

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In my Wednesday mid-week report I noted that Netflix (NFLX) had posted a big stalling bottom-fishing pocket pivot (BFPP) coming one day after the gap-up BFPP that sent the stock back above its 50-day moving average. That second pocket pivot occurred on Tuesday of this past week, after the stock had pulled back into its 20-day and 50-day moving averages early in the day.

Had one bought the early-morning pullback they would have realized a quick 6-7% gain as the stock shot back up towards the 200-day moving average. But proving that strength like that is best sold into, the stock then came right back into the 20-day and 50-day lines on Wednesday.

As I discussed in my report of that day, the pullback brought the stock right back into buyable range. On Thursday another test of the two moving averages showed up as volume dried up. That turned out to be buyable as the stock then pushed back to the upside, gapping slightly higher on Friday.Volume was relatively light on Friday, but with earnings expected in a little over a week from now things may settle down a bit here ahead of the number. NFLX’s action over the past five days demonstrates that avoiding the urge to chase strength and instead exercising patience by waiting for the next pullback is the preferred method.

 

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Amazon.com (AMZN) is surging after last week’s little nip and tuck into its 10-day line six trading days ago on the daily chart. Wednesday’s breakout occurred on below-average volume but qualified as a five-day pocket pivot volume signature. A second five-day pocket pivot was added on Friday as the stock made another all-time high on increased, but below-average, volume. Technically, the stock is within buying range of Wednesday’s low-volume breakout, but keep in mind that AMZN is expected to announce earnings on July 28th.

 

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While AMZN has led the way as the big-stock cloud name, the other names in the wolf pack have remained interesting. Recall that in my Wednesday mid-week report I discussed the Wyckoffian Retest set-ups I was seeing in all the cloud names other than AMZN that have been covered in recent reports. On Friday all of these names jacked to the upside as the Wyckoffian Retests performed according to script. The moves were seen across the board in this cloud-stock wolf pack move that looked like something straight out of a reality-TV show titled, “Wyckoff’s World.”

Every single one of these cloud names that were showing similar Wyckoffian Retests on Wednesday all launched higher on either Thursday or Friday or both in likewise similar fashion. Adobe Systems (ADBE), Citrix Systems (CTXS), Salesforce.com (CRM), ServiceNow (NOW), Splunk (SPLK), Workday (WDAY) had all made lows on “Brexit Monday” the second day of the sell-off that started three Friday’s ago.

The ensuing bounces in each of these names then pulled back earlier this week in Wyckoffian Retests, setting up the moves higher at the end of the week. We can look at one of my favorites in the group currently, Splunk (SPLK), as an example of how this worked out. We can see that after undercutting its late May low and the 200-day moving average the stock immediately moved back up above the 50-day line and up to the 20-day line in rapid succession. That then led to a four-day pullback that finally ended on Tuesday as volume dried up on the retest.

One more little dip and rise on Wednesday took the stock back above the 50-day line, and on Friday the stock was able to push decisively through its 20-day moving average. Volume increased slightly on the day but came in at above average. If SPLK is going to regain its prior pre-Brexit high near the 60 price level, it may have one more little constructive pullback into the 20-day line at 55.50. That is something to watch for this week as I would tend to think that a continued market rally will in fact see the stock regain the 60 level.

 

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Another cloud in Wyckoffian Retest mode this past week was ServiceNow (NOW). The stock was actually one of the weakest of these cloud names in the midst of Wyckoffian Retests as it did not rally as strongly off of the Brexit sell-off lows of two weeks ago. Surprisingly, on Friday it had the biggest upside move of any of them on a 6.3% jack back above the 20-day moving average. The question now is whether the stock is revving up to clear the 50-day line again or whether it will fail and morph back into a short-sale target.

That, in fact, is a possibility for any of these cloud names that have rallied back up into or near their 50-day moving averages. The flip side is that this is just another example of the Ugly Duckling Principle at work in this market. Often, when stocks start looking quite ugly on their charts, they recover and return back to their prior highs. And in fact many stocks over the past two weeks have shown just this sort of Ugly Duckling action.

 

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Workday (WDAY) will complete our examination of these Wyckoffian Retests in motion over the past week. After running into resistance at its 50-day moving average two Fridays ago, WDAY pulled in over the next two days with volume drying up. This was the retest in action, on Thursday and Friday the stock moved back to the upside, clearing all of its major moving averages in the process. With WDAY sitting right above the 50-day and 20-day lines, it could hold tight and then attempt to proceed higher from here, so that is something to watch for this week.

The flip side, of course, is that this latest rally up into the 50-day line will meet with the same fate as the last one, and the stock will head back to the downside. On the one hand, we want to stay alert to the potential for these to morph back into short-sale targets. On the other hand, we must respect the Ugly Duckling Principle and be able to assess the real-time action on its specific merits without taking a rigidly bullish or bearish view of the stocks.

 

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Ambarella (AMBA) had a nice, continuous three-day move back to the top of its one-month price range to finish off the week. I might look for a little bit of overhead resistance from the left side to bring the stock back in a bit. The 10-day line is too far down in the pattern, although a pullback to that level would probably be your most opportunistic entry point should that occur. Volume did pick up on Friday but has remained below average all the way back up to the top of the range.

But as with most stocks in this market, your buy points for the most part don’t occur on obvious, high-volume moves to new highs, they occur on pullbacks into logical areas of support. Thus, with AMBA, the time to come into the stock was on Tuesday or Wednesday of this past week, in accordance with our preferred method of operating in this market.

 

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FireEye (FEYE) might be revving up to move higher as it sits tight along its 10-day and 20-day moving averages. Volume had been drying up since last week’s pocket pivot, but it picked up on Friday as the stock moved up slightly. That upside move might have been helped along by a positive earnings report from another cyber-security name, Barracuda Networks (CUDA). CUDA announced earnings on Thursday after the close and then gapped up Friday morning.

I tend to think that the closer to the 10-day line at 15.85 you can buy FEYE the better. However, a pullback to the 50-day line at 15.57 would be the most opportunistic entry point. FEYE is not expected to announce earnings until August 4th, so barring any buyouts or buyout rumors, it may not do much until then.

 

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Speaking of Barracuda Networks (CUDA), the company has posted triple-digit earnings gains over the past two quarters, although sales have languished at a multi-quarter low of 11%. Quarterly after-tax margins have improved substantially to double-digit levels, a first for the company. In any case, the earnings report was seen as positive enough to spark a buyable gap-up move in the stock using the 17.50 intraday low of the BGU price range on Friday as a selling guide.

 

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Looking at the weekly chart, we can see that CUDA came public back in November of 2013 at $18 a share, set up in a little IPO U-Turn formation and then doubled in price over the next five weeks. After reaching a peak of 44.40 it then built a more than year-long base and tried to break out in April of last year. It then had three big waves of selling, seen as three major down legs in the pattern, before bottoming out in January of this year. For most of 2016 so far it has been trying to recover. This past week’s buyable gap-up move comes after a strong prior upside rally.

You might also notice that the buyable gap-up move on Friday also represents a breakout through the mid-point of an eight-week double-bottom base formation. So from a macro-perspective there is some basis for thinking there might be more upside potential in the stock from here.

At the very least, treating this as a buyable gap-up and using the 17.50 intraday low of the BGU or the 17.65 double-bottom breakout point as a selling guide makes it feasible for a long-side test. In the meantime, keep an eye on the cyber-security group, as steady improvement among some of these names, like FEYE and CYBR, for example, could indicate that a wolf pack recovery is in process.

 

GR071016-CUDA Weekly

 

Fabrinet (FN) was holding along its 50-day moving average on Wednesday as it flashed a voodoo volume signature, as I discussed in my report of that day. On Thursday it followed up with some volume supporting action off of the line as it closed in the upper part of the daily price range after testing the line early in the day.

That was followed by a lower-volume move back up above the 10-day and 20-day moving averages. Now I would watch for some sort of trendline breakout as the stock edges up into the middle of its prior base. In any case, the most opportunistic entry occurred on Thursday per my discussion of the stock in my Wednesday report. Now it’s a matter of seeing how well FN holds the 10-day and 20-day lines from here. Constructive action along the lines could set up another lower-risk entry point. Earnings are not expected until mid-August.

 

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Yirendai Ltd. (YRD) obviously got a little ahead of itself by Wednesday of this past week as it went on an 18% upside run off the 20-day line on Tuesday and Wednesday. On Friday the stock reversed near the highs at the left side of the one-month base and gave up a little less than half of its prior gains. Notice that this pullback brought the stock right into the mid-point of its “W” formation which can also be viewed as a double-bottom breakout point just above the 15 price level. The 10-day and 20-day moving averages are also moving up and starting to approach the stock.

What we want to watch for is another pullback into the 15 level or the 10-day/20-day moving average confluence on light volume. This might present another lower-risk entry point. YRD tends to be volatile, with one-day moves of 10% or more not uncommon for the stock.

YRD is an interesting little Chinese name that runs an online consumer finance marketplace that matches borrowers to investors, and which has posted triple-digit earnings and sales growth over the past six quarters. Nevertheless, it remains a higher-risk name, and is best bought at lower-risk points within the base.

 

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I have maintained a two-side view of Facebook (FB) as it has rallied back up to its 50-day moving average since it can still be viewed as a possible late-stage failed-base short-sale set-up. However, we still have to consider the fact that FB remains a big-stock market name with the potential to move higher when the Ugly Duckling pays a visit.

I’ve discussed in recent reports over the past two weeks how FB filled its gap-up move from late April and then turned back to the upside after the Brexit sell-off. That whole dynamic has helped to set up the current move back above the 50-day moving average. The question now is whether enough remaining weak hands have been shaken out of the stock, setting up the potential for a breakout through the 121.08 peak of this current base. Note that over the past three days, FB has flashed two five-day pocket pivots as it has retaken the 50-day line.

FB is expected to announce earnings at the end of July, and we might notice that the past two earnings announcements led to gap-up moves after the stock was looking rather weak. Each of those post-earnings gap-up moves did not lead to much in the way of further upside, however, and since late January FB has been building what looks like a sloppy base-on-base formation.

Perhaps this time around FB will show some strength before earnings, and with the stock sitting right on its 50-day line there is some potential for that IF the general market continues higher. Unless I were to see some heavy selling send the stock back to the downside, it looks more buyable than shortable here. Some low-volume action along the 50-day line, or on a pullback to the 20-day line at 114.99 would help to confirm the bullish case, outside of an outright move to higher highs from here.

 

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Alibaba (BABA) keeps giving buyers a chance to buy the stock at the 50-day moving average. Another test of the line on Friday met up with increased volume and the stock then closed near the peak of its daily trading range. Earnings aren’t expected until the second week of August, so the stock has some time to move higher if it wants to. So far the pattern since early May looks like it has been steadily shaking weak hands out as it has dipped down to the 200-day line three times since then.

It has the look of an inflated beach ball that gets pushed underwater, but its buoyancy just keeps it coming right back up to the surface. The surface in this case is the 50-day line, and while I was a little concerned with the low-volume rally back up above the line last week, I liked seeing some volume come in as supporting action on this past Friday.

BABA is about a single point above the 50-day line as of Friday’s close, which keeps it in buyable range using the 50-day line as a selling guide. I also should emphasize that when I say “selling guide” I mean using the line plus another 2-3% of downside porosity to set your stop based on your own risk-preference.

 

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My general view of moving averages is that they are not hard lines. They are more like fuzzy zones, and if one studies how stocks act around moving averages one will see that there is often a fair amount of porosity around the line.

Porosity simply refers to the manner in which a stock might briefly dip below or rise above its moving average a small amount before moving back in the other direction. Because so many investors and traders watch moving averages closely, the potential for the crowd to be faked out when a stock moves through a moving average, even if only barely and/or very briefly, looms large.

As I see it, there are only two ways to protect against being shaken out when a stock briefly moves through a moving average. The first is simply allowing for 2-3% additional movement through the moving average when setting your stop. The second is by stopping out at the line, but then being ready to buy the stock back (or re-short if working a short-sale) if it goes back the other way.

Unfortunately, there are no magic stops, and sometimes even setting a stop 2-3% beyond the moving average doesn’t guarantee you will get shaken out (or “shaken in” when selling short). In such a case one is then faced with the option of being willing to re-enter the position if the moving average is regained.

From my own perspective, I simply remain extremely flexible, and always willing to re-enter a stock if I find that I have been shaken out or in, as the case may be. Ultimately I find that flexibility is a key factor in dealing with the whole issue of what to do when your stock moves through a moving average based on whether you are long or short the name.

Notes from my Trading Journal regarding other long ideas discussed in recent reports:

Activision Blizzard (ATVI) pulled back into the top of its base on Tuesday where it was last buyable. It is now extended from its recent base breakout and would only be buyable on pullbacks into the 39-40 price area.

Electronic Arts (EA) was last buyable on the pullback to the 20-day moving average on Wednesday, per my discussion of the stock in last weekend’s report. On Friday the stock broke out to a new high on below-average volume.

Nvidia (NVDA) powered to a new high on Friday on above-average volume. As I wrote in last weekend’s report, the stock was buyable on pullbacks to the 20-day moving average, and that occurred on Tuesday at around the 46.36 price level. NVDA closed today at 50.85. It is now extended in my view, and I would only look to buy the stock on pullbacks to the 10-day line, now at 47.19.

Twitter (TWTR) was buyable along the 10-day line per my discussion of the stock in my report of last weekend. It pushed to a higher high on Friday on above-average volume. This is currently extended, but pullbacks to the 10-day line, now at 16.95, remain buyable.

Zendesk (ZEN) broke out to a higher high Friday on slightly above-average volume. It was last buyable along the 20-day moving average on Tuesday when it posted a voodoo volume signature along the line.

As I wrote in my Wednesday mid-week report there wasn’t much on the short side that looked all that enticing at that time, and that remains the case over this weekend. I still want to maintain awareness with respect to where my short-sale target stocks are trading at within their chart patterns. But the reality is that unless the market starts to weaken again the short side is not, for the most part, the place to be.

Meanwhile the objective action among individual stocks indicates that the long side has been the place to be. And this has been the case even for stocks that are coming up off their lows in Ugly Duckling fashion, as many of these cloud names have shown. I might also add that the Wyckoffian Retest set-up has been seen among a broad number of individual stocks over the past few days. Just run through your short-sale watch list and you will see what I mean. Most stocks are recovering in similar fashion, from AVGO to MSFT to VRSN, while a name like AYI is breaking out!

In fact, if we look at a daily chart of Verisign (VRSN), a name that was previously on my short-sale watch list, we can see that it flashed a roundabout pocket pivot on Friday on very strong volume. This came after a retest of the 200-day line (somewhat Wyckoffian as well) which in turn occurred after an undercut & rally move.

That undercut & rally came after the hard two-day Brexit sell-off sent the stock below a prior May low in the pattern and the 200-day moving average. And so we see a prior short-sale target stock morph back into a long-side target on the roundabout move. Thus VRSN now becomes buyable using the 50-day line as a selling guide, but keep in mind that the company is expected to announce earnings on July 28th.

 

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I provided a number of actionable long ideas in my Wednesday mid-week report, and most of those names have continued higher. While a few are in buyable range where indicated in this report, most are in extended positions awaiting the next pullback. What I am most interested in seeing here is a general market breakout to new highs that is able to sustain. That would be a major change from what we’ve seen over the past year where every new index high has merely led to another sell-off and correction.

In this regard we have to consider the potential catalysts for such a move. I expressed the idea two weeks ago following the Brexit vote that the Brexit was in fact a positive development. I felt at the time that it could create a wash-out in the general market that would set up a rally. In fact, that’s pretty much what we’ve seen over the past two weeks.

Meanwhile I think there are many new technologies and innovations percolating out there in the general economy. The November elections are less than four months away. Perhaps it is too optimistic of me to think that the market might be sensing some change that would at least take the lid off the broad spectrum of innovation that percolates beneath the economy’s surface.

The market is at all times all about the possibilities. Sometimes the greatest opportunities and possibilities occur when you least expect them, particularly if you do not allow yourself to be open to them. And there is only one way to do that, and that is by focusing on the real-time action of individual stocks. For now, and until further evidence to the contrary presents itself, their message is clear. Take it from there.

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 CUDA, FB and MBLY, though positions are subject to change at any time and without notice.

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