The Gilmo Report

March 5, 2017

March 5, 2017

Wednesday’s big gap-up move seemed to run out of gas on Thursday, as the Dow Jones Industrials Index pulled in about ½ of a percent on lighter volume. Within the context of where the Dow is trading currently, 100 points isn’t much on the chart. So far the Dow has been able to hold above the intraday lows of Wednesday’s gap-up price range with volume declining.

 

GR030517-$INDU

 

The NASDAQ Composite Index also failed to follow through on Wednesday’s big-volume gap-up move to all-time highs. It is interesting to note that a breakaway gap move on Wednesday didn’t lead to anything that I would consider breakaway action. Obviously, it was strong technical action, but as is often typical of the market, a big show of strength one day may not necessarily lead to a strong follow-up the next.

Meanwhile, the index backed down on Thursday and Friday to test the 10-day moving average and fill Wednesday’s gap. Volume was lighter, so the action looks reasonably benign.

 

GR030517-$COMPQ

 

There is the idea that the big market gap-up on Wednesday might have been indicative of a so-called “blow-off top.” That is certainly a possibility we should be open to, but the first clue of a so-called blow-off top would be in the action of individual stocks.

For that reason, the problem for investors remains concrete: If long positions cannot hold support and bust through their stops, trailing or otherwise, we are out, end of story. Generally, this is always enough to get one out of the market before something serious occurs. But so far making big progress in individual stocks is a bit of a mixed bag.

Depending on what stocks you have at what time, your experience in the market can vary greatly at times. On Friday, being long Applied Optoelectronics (AAOI) was an enjoyable affair, with the stock streaking another 10.7% higher on heavy buying volume. That’s the type of action you like to see after a buyable gap-up (BGU) move after earnings six days ago on the chart. Even more interesting is that this rush to the upside is coming after the second buyable gap-up in the pattern so far this year.

 

GR030517-AAOI

 

On the other hand, if you are long U.S. Steel (X), you are not having nearly as much fun. As I wrote on Wednesday after X had broken out again, “…I wouldn’t be surprised if the stock simply moved back into its base.” And that’s exactly what it did to finish out the week, although it did find support at its 20-day moving average. The question is whether this is buyable here, based on the low-volume pullback into the 20-day moving average. I suppose one could take the shot, but the lowest-risk entry in my mind would be on a pullback to the 50-day line at 35.70, as was the case last Friday.

 

GR030517-X

 

If you also look at X’s close cousin, Steel Dynamics (STLD), not shown, you will see that it looks very similar to X. Currently it has settled back into its 50-day moving average, which could put it in a lower-risk buyable position. If it can hold its 50-day line, then perhaps X can hold its 20-dema.

We can also think about the various names in the materials, metals, infrastructure, airline, and oil spaces that had big moves right after the election. After an initial leg up, these stocks have either rolled over as the oils have, or simply floundered about without making any significant, further upside progress.

We can also think about all the hot new-merchandise IPOs and nascent growth names that bullishly emerged on the scene in the latter part of 2016, but which have since been decimated: ACIA, AIRG, TWLO, LN, PI, NTNX, and others have all made lower lows in recent days. I find myself looking for the next strong thematic plays that might lead to strong upside such as we saw with these names last year, but nothing significant has arrived on the scene.

There is, of course, this week’s arrival of the much-anticipated Snapchat (SNAP) IPO, which took place Thursday. But that needs to settle down and set up before we can consider it buyable. Two days of trading does not a set-up make, so there is no point in me showing the chart, but the first sign of buyable action could come within a few days of the IPO.

As an example, we can see that just seven days after it came public in May of last year, Acacia Communications (ACIA) had a relative pocket pivot. If we want to get all technical about it, we could argue that since the stock had no volume before it began trading, then the volume on the 7th day (this is starting to sound biblical J) was in fact higher than any down volume in the pattern over the prior ten days.

You can also go back and look at Twilio (TWLO), not shown, right after it came public in June of last year. Four days after coming public, the stock had a “relative” pocket pivot as well that began its uptrend from there. So, this another IPO tool to put in your bag of tricks as we watch the action in SNAP over the next few days.

 

GR030517-ACIA

 

Netflix (NFLX) is starting to shows some minor signs of distress as it breaks below its 20-dema on volume that is not heavy, and seems to reflect more of a buyers’ boycott then a sellers’ swarm. However, volume did pick up a fair bit on a relative basis, so if selling volume picks up again this week then a breach of the 50-day moving average could be in store.

NFLX was able to hold one penny above the 138.25 intraday low of its prior buyable gap-up move of nearly two months ago. By the close, volume had declined relative to Thursday’s selling. Bottom line here is that if one bought the buyable gap-up of mid-January, one has gone absolutely nowhere with the stock.

 

GR030517-NFLX

 

Notes on other big-stock names discussed in recent reports:

Apple (AAPL) is holding near its highs but is wedging slightly on the daily chart as it pushed up against the 140 price level on light volume this past Friday.

Alphabet (GOOGL) has not shown any follow-through after Wednesday’s pocket pivot off the10-day moving average. Instead it went down, and tested the 20-dema on Friday where it found some support as volume dried up. A good example of why buying the weakness following Wednesday’s strength was a better idea than chasing the strength on Wednesday. Technically GOOGL is still in a buyable position using the 10-day line as a selling guide.

Amazon.com (AMZN) is holding along the top of its base and right at the 10-day moving average as volume dries up. So far there has been no decisive upside move following the marginal base breakout of two weeks ago, but the stock can be considered to be within buying range of the base breakout through the 843 price area.

Facebook (FB) continues to track higher along its rising 10-day moving average, but buying volume is diminishing, Thus the current move to new highs represents minor wedging action (moving higher on lighter volume), which makes the stock vulnerable to a pullback. My guess is that it is getting something of a minor halo effect from Thursday’s SNAP IPO.

Priceline Group (PCLN) remains within buying range of Tuesday’s buyable gap-up move using the 1698.10 intraday low as a selling guide.

Circling back to other optical names that are cousins to AAOI, we can see that Arista Networks (ANET) has met up with its 10-day moving average as volume dries up. Technically this puts the stock in a lower-risk buy position using Friday’s low at 118.60 as a tight selling guide.

 

GR030517-ANET

 

It’s generally easy to find yourself extremely eager to buy a stock when it is showing strength and streaking higher, such as Lumentum Holdings (LITE) was back in the middle of February. Often one’s enthusiasm is dampened a bit once you see the stock pull back into support. From a psychological point of view, it’s really just the same steak, but without the sizzle, yet for some reason we tend to like that sizzle.

Here we have LITE pulling back in what looks like a normal but sizzle-free move into its 20-day moving average where it is showing some volume support. LITE priced at $400 million, upsized secondary offering of convertible bonds on Friday, and this is likely responsible for the higher volume seen on Thursday and Friday. The stock is in a buyable position here using the 20-day line as a selling guide.

 

GR030517-LITE

 

Notes on other optical names discussed in recent reports:

Ciena (CIEN) found support at its 20-dema on Friday, but is expected to announce earnings on March 8th. No need to play earnings roulette here, in my view.

Finisar (FNSR) was in a buyable position along its 20-day moving average Thursday morning, per my comments on the stock in my Wednesday mid-week report. It bounced smartly off the line today, but with earnings expected on March 9th there is no reason to do anything here unless you’re looking for a continued and tradeable move higher before earnings.

Juniper Networks (JNPR) continues to hold along its 50-day moving average in constructive fashion. It is closely related to FNSR and CIEN, so it will probably move in sympathy to both stocks when each announces earnings this coming week.

The video-gaming stocks remain the lipstick names of choice as they seem to hold up well during the market’s gyrations such as we saw on Thursday. Activision (ATVI) is acting well as its holds up tightly following Wednesday’s pocket pivot. I should point out, for the sake of accuracy, that this in fact missed being a ten-day pocket pivot by one day but was a bona fide, although just a single, five-day pocket pivot.

Meanwhile, the stock is holding tight as volume dries up, and I would consider any constructive pullback to the 10-day line at 45.82 as a potentially lower-risk entry opportunity.

 

GR030517-ATVI

 

Take-Two Interactive (TTWO) is holding nicely along its 20-day moving average, and flashed a five-day pocket pivot three days ago on the chart as it found support at the line on Wednesday. On Friday TTWO tested the 20-dema again but didn’t quite make it before finding support on a small increase in buying volume.

This looks buyable here, using the 20-dema at 57.13 as your selling guide. TTWO and ATVI’s cousin, Electronic Arts (EA), not shown, is in a similar position and is buyable on pullbacks closer to its own 20-dema at 85.85.

 

GR030517-TTWO

 

Netease (NTES) is having some trouble holding above the $300 Century Mark, and on Thursday got hit with some heavy selling volume as it cracked through the 10-day moving average. It did find support near the 20-day moving average but buying volume was weak on Friday. Buying the stock at the 10-day line would have resulted in a quick ejection from the stock, but it’s not clear that buying it here on the pullback closer to the 20-day line and the prior 278.80 intraday low of the mid-February buyable gap-up is a sure thing.

The action is somewhat erratic, and it may be best to wait and give the stock some time to settle down and tighten up. And if it blows through the 278.80 price level and the 20-day line on heavy selling volume in the same manner that it blew through the 10-day line on Thursday, all long bets are off!

In the meantime, it has been possible to scalp the stock on the short side when it has failed to hold the $300 price level over the past couple of weeks. In some cases, this is the sort of profit opportunity even a leading stock can offer investors who have no issues taking a bifurcated approach when the real-time evidence is there to act upon and they are willing to take a short-term swing-trading approach.

 

GR030517-NTES

 

Weibo (WB) is still sputtering around and unable to regain its 20-day moving average following last week’s high-volume gap-down break off the peak after earnings. Volume has remained light, but the stock can’t seem to catch a bid here. I was looking for this to pull a “LUie” type of move per my comments on Wednesday, but since it could not hold the low of Wednesday that trade is off the table.

Thus, a retest of the 50-day moving average looks to be in store for the stock, and I would be wary of buying this here until it can regain the 20-dema. In fact, the stock looks more like a late-stage failed-base short-sale set-up that is forming a short bear flag. For that reason, if you can borrow it, shorting the stock here using the 20-dema at 51.66 as a guide for an upside stop is a viable approach. However, speaking for myself I’d prefer to short it closer to the 20-dema if possible.

 

GR030517-WB

 

Alibaba (BABA) continues to go nowhere fast, and each show of strength within what is now a five-week base has failed to show any follow-up strength. In fact, each upside move essentially just leads to a pullback back into the lows of the base.

Of course, that doesn’t mean that all hope is lost. BABA could simply be working off some overhead from the left side of the chart. So far the action has been constructive, and the stock held tight at the 10-day line on Friday as volume dried up to -35% below average. Thus, this remains in a buyable position using the 99.94 intraday low of the January buyable gap-up move as your maximum selling guide.

 

GR030517-BABA

 

Notes on the other China Five names:

JD.com (JD) gapped up after reporting earnings on Thursday before the open, but the gap-up move did not hold as the stock closed the gap by the bell. On Friday JD tried to move higher after gapping up slightly at the open, but that also failed to hold as the stock reversed to close flat on the day and right near the lows of its intraday price range. With JD extended here, maybe at least a partial or full swap for BABA is something to think about.

Momo (MOMO) is expected to announce earnings this week. Nothing to do here until then, although anyone holding a position taken closer to the $20 price area based on my discussion of the stock in early January could consider taking at least partial profits ahead of earnings. Otherwise, you’re playing earnings roulette, something that didn’t work out so well for MOMO’s cousin, WB, last week.

Cyber-security names on my long watch list seem to have lost their mojo, at least on a near-term basis. What I find to be additionally troublesome is the fact that strong action in Fortinet (FTNT) and Barracuda Networks (CUDA), both of which posted pocket pivots on Wednesday, showed no upside follow-through and instead led to downside moves.

FTNT posted a nice supporting pocket pivot off its 20-day moving average on Wednesday, but the stock gave up the ghost rather quickly by reversing off the 10-day line on Thursday and closing down on the day. In the process, it quickly gave up all of Wednesday’s pocket pivot gains off the 20-dema.

On Friday, the stock pierced the 20-day line on increased selling volume, which in my view morphed the stock into a short at that point, using the 20-day line at 36.57 as a guide for an upside stop. Presto change-o, the stock moves from my long watch list to my short watch list in short order. We’ll see how this works out.

 

GR030517-FTNT

 

Barracuda Networks (CUDA) is hanging by a thread at the 50-day moving average after failing on Wednesday’s pocket pivot at the 10-day moving average. It tested the prior lows around the 23 price level early Friday morning and was able to bounce back above the 50-day line, but volume was lacking.

With the other, younger cyber-security stocks like Palo Alto Networks (PANW) and CyberArk Software (CYBR) failing to generate anything on the upside, their weakness seems to be spreading to FTNT and CUDA. For that reason, I’m beginning to think that both stocks could be headed lower from here. For now, I’m removing both FTNT and CUDA from my buy watch list, and FTNT has now been moved to my short watch list.

 

GR030517-CUDA

 

When it has come to the cyber-security space, it’s been the two bigger, older, and more established names in the group, Checkpoint Software (CHKP) and Symantec (SYMC), that have been breaking out and moving higher.Checkpoint Software (CHKP), not shown, is continuing to hold along its 20-day moving average with volume drying up. This would put it in a lower-risk entry position on the long side, but keep in mind that a high-volume breach of the 20-day line would be bearish for the stock.

Symantec (SYMC) looks to be acting better between the two, and as evidence we can see that it has posted a pair of five-day pocket pivots along the 10-day line over the past two days. Volume was sharply higher on Thursday, and about average on Friday as the stock held the 10-day line. While I would prefer to try and buy a pullback to the 20-dema at 28.52, the two five-day pocket pivots make the stock buyable here using the 10-day line at 28.84 as a tight selling guide. The idea here would be to look for a quick breakout to new highs in short order.

 

GR030517-SYMC

 

Veeva Systems (VEEV) can’t seem to make up its mind as it hesitates along the confluence of its 10-day and 20-day moving averages. While Wednesday’s wild shakeout and pocket pivot reversal to the upside looks impressive, it was simply met with high-volume selling on Thursday. Again, a strong technical move that leads to absolutely nothing. Volume declined on Friday as the stock failed to hold an initial move to the upside and closed near its intraday lows. However, it did hold above the 10-day line, which is at least partially to its credit.

So, if you think VEEV will sort things out soon and resolve to the upside, then it could be considered in a lower-risk entry position here using the 20-day line at 43.84 as a tight selling guide. Meanwhile, I don’t like all the red I’m starting to see on my indicators bars at the top of the chart. So, if you take a shot at this one, keep your stops tight, which I’m sure goes without saying!

 

GR030517-VEEV

 

I talked about watching Splunk (SPLK) as a possible long play in the cloud space in my Wednesday mid-week report, While I have made some money scalping it on the short side over the past couple of days, on Friday I noticed that selling pressure seemed to dry up at the 20-day moving average. So, in my view, after shorting the stock at the 10-day line on Thursday, that was the scalper’s cover point.

Now I’m trying to figure out whether the stock is a buy here along the 20-dema with volume drying up to -48% below average on Friday. At the very least, this can be tested on the long side here, using the 20-day line at 62.08 as a tight selling guide.

As with most of these stocks testing critical support, a breach of the 20-day line on volume would turn this into a short-sale target based on a failed base breakout attempt. There is a fair amount of red showing up on my indicator bars, and when I see this I consider a sign that taking a shot here requires remaining nimble and ready to play strong defense if it fails.

 

GR030517-SPLK

 

Workday (WDAY) is another cloud name that recently announced earnings, gapping down hard below its 20-day moving average and continuing down to its 200-day moving average. That led to a logical reaction bounce on Wednesday.

Over the past two days, WDAY has held tight as volume has dried up to -38.1% below average on Friday. This would qualify as a “Wyckoffian Retest,” that could lead to a move back above the 20-day moving average. The flip side is that this can also be considered as a potential short-sale target with the idea of shorting as close to the 20-dema as possible while using it as your guide for an upside stop.

How this resolves itself likely depends on what the general market does from here. A correction could see names like WDAY, SPLK, WB, and others that have had big failure-types of gap-down moves following earnings break their next levels of support. As someone who is willing to play a stock in either direction, depending on the real-time price/volume evidence, WDAY is interesting to me as a stock that could resolve either way, as is SPLK, particularly when the Ugly Duckling could become a factor.

No doubt this week’s gap-down break on heavy selling volume looks quite ugly, but also quite obviously so. Often that is when things move in unexpected directions. We might also note that WDAY is holding the 200-day line as it has also undercut all the lows that have been posted since it moved back above the line in early January.

 

GR030517-WDAY

 

The big-stock cloud name in the group, Salesforce.com (CRM) is another example of strength that leads to nowhere following Wednesday’s pocket pivot breakout. Instead, the stock turned tail and move back down to the 10-day line, where it held Friday on above-average selling volume. This may put the stock in a lower-risk buy position using Friday’s low at 81.65 as a tight selling guide, but stay nimble if you decide to take the shot.

 

GR030517-CRM

 

For newer members: Please note that when I use the term “20-day moving average,” “20-day line,” or “20-dema” I am referring to the 20-day exponential moving average. I use four primary moving averages on my daily charts: a 10-day simple, 20-day exponential, 50-day simple and 200-day simple moving average.

Notes on other long situations discussed in recent reports (stocks in lower-risk buy positions are denoted with a [B] after the symbol:

Carnival Cruise Lines (CCL) dropped below its 20-day moving average on increased and slightly above-average selling volume Friday. This looks troublesome, so look for a pullback to the rising 50-day line, now at 54.67 as a lower-risk and more opportunistic entry.

Charles Schwab (SCHW) [B] is just barely holding onto its recent base breakout, and remains in a buyable position using the 10-day line at 41.71 as a tight selling guide.

Incyte Pharmaceuticals (INCY) continues to move higher following its recent buyable gap-up after it was announced that it would be added to the S&P 500 Index. Watch for pullbacks to the 10-day line at 128.74 as potential lower-risk entry opportunities.

Glaukos (GKOS) failed miserably on its post-earnings gap-up attempt on Thursday closing near the lows of its daily price range. After opening at 51.91, the stock couldn’t find a low and kept trading down until the bell when it finally printed 47.70. In my view this is a sell, and members owning the stock should take profits and allow GKOS to spend some time stabilizing and base-building.

Goldman Sachs (GS) [B] is still within buying range of Wednesday’s breakout, using the 10-day line at 250.65 as a tight selling guide.

Nutanix (NTNX) blew up after earnings, diving 26% today. There was nothing to do with the stock before earnings, unless one was silly enough to play earnings roulette, and there’s even less to with the stock after earnings. Scratch this one from my long watch list.

Royal Caribbean Cruise Lines (RCL) was weak on Friday along with its close cousin CCL, but while CCL broke below its 20-day line, RCL only broke below its 10-day line and found support at the 20-day line. Selling volume was above average, which puts the stock in a do or die.

Square (SQ) [B] is testing its 10-day moving average, which puts it in a lower-risk entry position here using the line at 16.51 as a tight selling guide. Volume has been heavy on the sell-side on three of the past four days after the stock ran out of momentum at the 18 price level, so remain nimble here if you decide to take a shot near the 10-day line. My maximum selling guide would be the 16.32 BGU low of last week.

Tableau Software (DATA) dipped below support at its 20-day moving average on Thursday, which in my view morphs this into a possible short-sale target using the 20-day line at 52.82 as a guide for an upside stop. At the very least it has now been removed from my long watch list.

Twilio (TWLO) has come apart over the past two days and broke below key support at its 50-day moving average on Friday. This has been removed from my long watch list.

On the short side of the market, Nvidia (NVDA) remains one of my primary short-sale targets, and so far it has continued to flounder below its 10-day, 20-day, and 50-day moving averages. I continue to view this as shortable on rallies up to the 10-day line at 103.71, using that as a tight upside stop.

Should it continue to rally, then the 20-dema at 105.62 comes into play, followed by the 50-day line at 107.66. Usually, a late-stage failed-base (LSFB) set-up will have a couple of rallies back up toward the 50-day line.  So, from here I would tend to think that being opportunistic and waiting for just such a move back up to the moving averages would present a more optimal short-sale entry opportunity.

 

GR030517-NVDA

 

I know that there exists no shortage of opinions on the future of Tesla (TSLA), but in my view, all of that is just silly noise. When the stock showed me concrete evidence of a turn to the upside back at the cusp of December and January, I turned bullish on the stock, regardless of whatever I thought of the stock before. From there it had a very nice move back up to the highs of its now three-year mountain range formation.

When the stock gapped down last week after earnings, I saw the stock for what it was at that point: a short. That break then took the stock down to the 50-day moving average, where a logical reaction bounce ensued. Pardon the pun, but both of those assessments didn’t require a knowledge of rocket science to figure out.

From here a rally up to at least the 20-day moving average at 257.32 is quite possible, and the stock looks like that’s what it wants to do. Notice how we’ve getting this sort of Wyckoffian Retest here as the stock holds tight with volume declining. If it can regain the 20-dema with some authority, then it could rally further, particularly if too many shorts have piled on again too quickly. I’m open to this, and it doesn’t require any long-term opinion of what the stock may or may not do.

I don’t play that game because of all the times in my career I have seen people lose huge amounts of money becoming rigidly bullish or bearish with a stock. Just go with the flow.

Recall also that in my January 1st report I noted that TSLA would be my Stock of the Year on either side of the market. So, while it was a nice long from the low 200’s to a peak of 287.39 in mid-February, it could easily become a very nice short as we move through 2017. I can see it playing out either way, but the only way to operate in real-time is based on the objective evidence.

For now, TSLA looks like it wants to rally up at least a little further, perhaps to the 20-dema. But a volume breach of the 50-day line or a reversal at the 20-dema brings this into play as a short-sale target, pronto!

 

GR030517-TSLA

 

In general, it’s pretty clear that investors didn’t like hearing about TSLA’s cash problems and its need to once again dilute shareholders by offering more stock or more convertible debt, or both. The event-risk here is that TSLA floats some sort of large, dilutive, secondary offering that sends the stock gapping down. Hence there is some danger in holding this overnight if anyone tries to swing-trade this long for a bounce.

Personally, I think TSLA is an extremely interesting company, but I would also point out that I don’t allow that to get in the way of my assessment of the stock. In downtown Los Angeles, about 10 miles from where I live along the Santa Monica Bay, you will find big, white TSLA storage batteries being installed as part of what are called virtual power plants.

This is where Southern California Edison is storing excess electricity generated by solar panels, which does help to address the problem of down-time when the sun disappears behind clouds or planet Earth. However, these batteries offer only a short-term solution, and are not designed to store electricity for long periods of time. If TSLA can figure out how to make batteries with longer storage periods, then they might have something. Otherwise, lithium-ion batteries, made by others like Samsung, are something of a commodity.

GrubHub (GRUB) is a good example of how one must monitor stocks closely when they are hanging around prior lows, where an undercut & rally move is always possible. I pointed this out in my Wednesday mid-week report, and noted that a sustained move up through the 200-day line was something to watch out for.

 

GR030517-GRUB Daily

 

However, given that GRUB was sitting right along the 200-day line, the potential for a failure and reversal at the line was also a possibility.  How to handle this? Simple, with the aid of the 620 five-minute intraday chart. Below I show the 620 intraday chart as it looked on Thursday.

Note that the MACD had already been in a bearish cross position, but at the open the 6-period exponential moving average (orange line) was above the 20-period (blue line). Within about 20 minutes, however, the 6-period line crossed below the 20-period to confirm a 620 intraday sell signal, at which point it was possible to come after the stock on the short side.

This illustrates why short-sellers need to be nimble and alert, and able to process real-time information quickly and decisively. Animals traveling at the rear of the herd need not apply. In any case, GRUB has busted nicely over the past two days as it moved nearly 10% below the 200-day line on an intraday basis and is extended to the downside. Nice work if you can get it!

 

GR030517-GRUB 620

 

Frankly, I would not be surprised to see the market correct here. Of course, I also wouldn’t be surprised to see it move higher. But in the end, that’s not the real point – the action in individual stocks is the point. In some cases, I am seeing actionable short-sale set-ups, and in others constructive long set-ups. In other cases, stocks are just floundering about.

I do notice that there is a bit more bifurcation currently, which could be a subtle clue that a correction is at hand. But for now, just stick to what the individual stocks are showing you. If something breaks support, and you bought near support, you can flip out quickly at a small loss. In some cases, you can even flip to the short side.

Meanwhile, this is not necessarily an easy market to navigate, even with all the upside we’ve seen in the major market indexes over the past couple of months. As I see it, depending on which stocks you are in and when you are in them, you could be up nicely for the year, or you could be down slightly.

If you’re very unlucky and don’t heed stops, chase obvious strength, or attempt to play earnings roulette, you might be down a lot. It’s been that kind of an environment. If you buy a breakout in X, for example, you immediately get stopped out for a loss, but if you take the route of the Ugly Duckling and buy into weakness along the 50-day line you can make money in the stock by swing-trading it within the pattern. Unfortunately, the stock has been somewhat stingy when it comes to generating a new upside leg.

There are many examples of this in any number of leading and not-so-leading stocks. So just how one handles a particular stock can be a big factor. Operating shrewdly and opportunistically on weakness can work well, although it does help to be in the right stock at the right time.

Perhaps some danger lurks here as the indexes get extended to the upside. With the Fed signaling that a rate hike is at hand this month, the question becomes whether they can truly engineer the proverbial soft landing. Maybe they can, but history tends to argue that they can’t. Personally, I’ve never seen them pull it off. And with the historically obscene amount of liquidity that they have injected into the system over the past 8-9 years, there may be some instability built in here that will make itself known as interest rates begin to tip the other way.

Ah, but I digress. The only truly meaningful commentary and advice I can offer as I close this report is in fact rather simple: watch your stocks! J

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 FTNT and LITE, though positions are subject to change at any time and without notice.

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. ©2008-2017 Gil Morales & Company, LLC. All rights reserved.