The Gilmo Report

May 1, 2016

May 1, 2016

The market ran into some trouble on Thursday when the NASDAQ Composite Index pulled a big outside reversal to the downside as volume picked up sharply. The move sent the NASDAQ back below its 200-day moving average, and on Friday it continued lower to close just below its 50-day moving average.

Volume ballooned on what was the last trading day of the month. It did, however, find some support off the lows of the day to close roughly in the middle of its daily trading range. So depending on how you squint your eyes when you look at the chart, it can look like supporting action or just another day of distribution.

 

GR050116-$COMPQ

 

The NASDAQ’s woes have largely been a function of big-cap, or as I like to call them, “big-stock” index names getting smacked over the past few days. As a result, the NASDAQ 100 Index (NDX) has taken a pounding over the past week or so. On Thursday it in fact upstaged the Composite by pulling a big outside reversal to the downside that broke below both its 50-day and 200-day moving averages.

On Friday the NDX churned around as it tried to find support along the highs of the low price range it formed between mid-January and early March of this year. With both the NASDAQ and the NDX well extended to the downside after six straight down days in a row, we could be set up for a small bounce here.

 

GR050116-$NDX

 

The S&P 500 Index looks much better on a relative basis as it merely pulls further below its 10-day moving average while holding well above its 50-day and 200-day moving average. With the index closing in the upper half of its daily trading range on Friday it has the look of supporting action. The 2040 level on the S&P 500 looks to present near-term support. Meanwhile the rising 50-day moving average, now at 2032.31 is moving into a position to help bolster this area as a potential level of support for the index.

 

GR050116-$SPX

 

As I wrote in my Wednesday report, the market may be less concerned about what the Fed will or won’t do than it is about continued economic slowing. All of the economic data out this past week pointed to weaker numbers, including New Home Sales, Durable Goods Orders, the Case-Shiller 20 City Housing Index, and the Chicago Purchasing Managers Index all came in weaker than expected.

But a weakening economy runs into the propping potential of the Fed, such that the irresistible force of continued QE negates the immovable object of a stagnant economy. The end result of this is a market that continues to swing around in a wide range as it has since the middle of last year. Of course, if you understand the nature of the beast it is still possible to make money in this market, and my own experience so far in 2016 bears that out. And of course understanding the nature of the beast means that a shorter-term swing-trading approach will trump a longer-term approach.

The one area of this market that causes me to speculate that a more intermediate- to perhaps even longer-tem trend could be developing is in the precious metals space. This has been the place to be on the long side over the past few weeks as the precious metals and their associated stocks have trended higher in a relatively consistent, albeit typically volatile, manner. That was certainly the case this past week as the Fed essentially confirmed that it is at least confused enough to do nothing.

This sent the U.S. Dollar tanking and precious metals rocketing higher. The white metal continues to lead the way as the iShares Silver Trust (SLV) blasted to a higher high on Friday. What is most interesting about the SLV’s move throughout April is that buying each of the gap-ups in the SLV and treating them as buyable gap-ups (BGUs) would have worked.

The SLV has not violated the intraday lows of the two gap-ups seen on April 11th and 19th, and it gapped up again on Friday. Of course, for those who follow the actual silver commodity, it doesn’t gap since it trades continuously overnight. It is, however, interesting to note how the gaps in the SLV, which doesn’t trade overnight, have worked. We can compare the daily chart of the SLV to the daily chart of the actual commodity, below, to see how this works.

 

GR050116-SLV

 

GR050116-Silver Candlestick Daily

 

In any case, as I’ve written in the last two reports, silver’s recent range breakout and continued move higher was likely to eventually drag gold into higher-high territory as well. On Thursday, the SPDR Gold Shares (GLD) finally got up off of its lazy rear and posted a trendline gap-up through the base it has formed since early March.

I have considered the GLD to simply be moving in a price range since early February, but if you want to get technical the actual base started in early March. Either way, Thursday’s trend-line breakout led to a bona fide range breakout to higher highs as volume picked up nicely.

 

GR050116-GLD

 

With central banks around the world remaining in an accommodating posture, with some, as in Europe and Japan, implementing NIRP or negative interest rate policy, the ground appears to be fertile for a continued upside trend in precious metals.

This of course translates into a corresponding move in the precious metals stocks, all of which rocketed higher on the last two days of this past trading week. Although any number of other precious metals stocks work, my favorite has been Silver Wheaton (SLW) because of its access to both gold and silver production streams.

In fact, if you compare SLW to names like NEM or GOLD, for example, you will notice that it has better upside thrust as it benefits from the more rapidly rising price of silver. Another strong performer in the group that I’ve previously mentioned in my blog posts is Agnico Eagle Mines (AEM).

However, the final boarding whistle for SLW, or even AEM for that matter, was on Wednesday as I blogged at the time. If the Fed sat pat, I was ready to buy SLW on that basis, and so far that has worked out. With these names extended, it is now a matter of seeing how and when they consolidate the sharp gains of the past two trading days.

 

GR050116-SLW

 

While precious metals stocks seem to have found their mojo, the story with most everything else has been one of chop and slop. Most names tend to move up and then back down in typical LRR (lather, rinse, repeat) fashion. And while earnings roulette season has brought with it the usual number of shortable gap-down (SGD) moves, it has also resulted in some moves that appear unable to decide whether they are buyable gap-up (BGU) or shortable gap-up (SGU) situations.

From a practical standpoint, I use a 620 intraday chart to help me figure this out on the day of a particular gap-up in a particular stock. For example, Amazon.com (AMZN) is famous for its BGUs and SGDs following earnings. Last time it announced earnings back in January, it gapped down and plummeted down to -31.9% below its 52-week high. On Thursday after the close, AMZN came out with its current earnings report, sending the stock gapping to the upside. The first question that comes up is, of course, whether this is a BGU or an SGU.

 

GR050116-AMZN

 

These days, I start watching it very closely on the 620 chart about 30 minutes before the open. Here we can see that AMZN actually issued a 620 sell signal about 10 minutes before the opening bell. If one has the ability to trade in the pre-open session, sometimes one can take action at that time, before the bell. After opening up at 666 (an ominous opening price?) AMZN tried to rally up towards the blue 20-period moving average but could only make it up as high as the 6-period moving average. It then worked its way lower before bottoming out at 654.40.

At that point the MACD lines were stretching to the downside, and the MACD lines actually crossed to the upside a few minutes later. Generally I will use this sort of configuration as a cover signal on a quick scalp for 10 points or so. AMZN then rallies back up to the 20-period line where it fails and retests the lows by undercutting the 654.40 level and bottoming out at 654 even. Notice that volume is drying up on this undercut, so this would be another cover point. It then spends the rest of the day chopping sideways.

 

GR050116-AMZN 620 Intraday

 

Technically, despite the fact that AMZN was a better short on an intraday basis on Friday than a long, it is only 1% above the 654 intraday low of the gap-up range. Therefore, if one is playing this as a BGU on the long side, one could theoretically buy the stock here and use the 654 low as a selling guide.

LinkedIn (LNKD) was another post-earnings gap-up move on Friday morning, but this one was more of a bottom-fishing buyable gap-up. LNKD had already gapped down massively back in February after a bad earnings report, and Friday’s gap-up move was taking it right into the highs of that gap-down price range, as I’ve highlighted on the chart.

What one might have noticed is that Friday’s gap-up open was pushing right up into the highs of the intraday price range of the February 5th shortable gap-down break. Based on this, my tendency was to view it as a short at as close to the highs of the day as was possible that day.

 

GR050116-LNKD

 

From a practical standpoint, the ONLY way to figure this out is by using the 620 chart. Notice that 15 minutes before the opening bell LNKD confirmed a 620 sell signal as the moving averages posted a bearish cross. The MACD lines had already posted a bearish cross about 20 minutes earlier.

Once the stock opened, there was one rally right up to a point near the 20-period moving average, where it was possible to throw out a short. That actually turned out to be the intraday high at 130.99 after opening up at 129.01. My thinking here is that entering a short at this point with the idea of using a 620 buy signal as a cover point was a feasible way of handling it.

Keep in mind that while I start out stalking this as a short, if it were to flash a 620 buy signal that then forces me to cover my short, I would then look to go long and play the stock as a standard BGU. As it turned out, LNKD kept trading lower all morning before the MACD became stretched out on the downside where the first low was formed at around 7:30 am Pacific time, an hour after the open.

Notice that the stock never clears the orange 6-period line and proceeds to make lower lows. Often, after I see a MACD stretch to the downside, I can then wait for the stock to cross back above the 6-period line and use that as a confirming signal to cover on the basis of the initial MACD stretch.

That was good for a nice morning short-sale scalp, and then the stock just bobbed back and forth for the rest of the day. It still looks like a short to me, but with the stock setting an intraday low at 123.86 and closing at 125.31, it could potentially be played as a standard BGU on the long side come Monday morning.

 

GR050116-LNKD 620 Intraday

 

These examples help to illustrate the various interpretive features of the 620 chart. That’s why I use it as a tool and not a system. It helps me gauge where I might be with a position during the day, and in a market where things can look quite ugly one moment and then change the next, this is a critical tool in my trading arsenal.

Notice that the action in both LNKD and AMZN as short-sale plays right off the open gave us their best downside price moves within the first 2.5 hours of trade. This is consistent with something I’ve discussed previously where I find that the fattest part of a shortable price reversal at the open tends to occur within the first 2-3 hours of the trading day.

Once you get the MACD stretch to the downside (and most definitely after you get any further undercut of the initial MACD stretch low) you can bag and tag your profit. At that point your time is probably best utilized by heading off to the golf course to hit some balls or to the beach to catch a few waves for the next couple of hours before coming back in time for the last two hours of trade.

In general, I find the 5-minute 620 intraday chart to be an invaluable tool in helping me to gauge just how much the market is going to give me. Sometimes it can also work on the upside, because in this market it doesn’t pay to be piggy. It is an inherent part of my short-term swing-trading approach.

Facebook (FB) was also a BGU on Thursday morning that actually worked better as an intraday 620 short-sale play. Chasing the BGU on Thursday would have netted you nothing, but shorting it on a 620 signal before the open at around 120-121 would have been good for 4-5 points of downside.

Chasing the BGU and buying it right at the open would have left you underwater. Now, what’s interesting to note (and I’ll leave to you all to study the 620 chart on FB for both Thursday and Friday on your own), is that FB never flashed a 620 buy signal until later in the day on Friday. In this case, if one had been playing FB short from the gap-up on Thursday, this would be the spot where it all turns back into a normal BGU. You would cover any short position, and go long at that point, treating the overall action on the chart in normal BGU fashion.

With FB setting an intraday low of 116.23 on Thursday, its ability to close well above that level on Friday after pushing down as low as 115.84 kept it alive as a BGU. The move to the 115.84 low wasn’t even half of a percent below the 116.23 BGU low, so in my view FB remains in play as a BGU. Volume declined on Friday as buyers gained the upper hand. For now I’m inclined to view this as a long here using the 115.84 low of Friday as a hyper-stop or another 2% lower or so forth as a stop for those who would want to give the stock more room.

A lot of this probably depends on what the general market does from here. If the market weakens further then FB could easily test the 10-day line at 112.12 or worse. For now, however, the BGU parameters for a long trade remain in force and also provide us with a ready reference for a tight stop just in case the market situation goes sour this coming week.

 

GR050116-FB

 

On the basis of what is going on with most if not all of our current short-sale targets among the big-stock NASDAQ names, some argument can be made for at least some sort of reaction rally this week. After all, the NASDAQ Composite has been down for six straight days and could be oversold on a short-term basis.

Let’s cycle through these big-stock NASDAQ short-sale targets, starting with Microsoft (MSFT). The stock was shortable on Tuesday as it rallied into the intraday high of its prior shortable gap-down two Fridays ago, and it has proceeded to undercut its 200-day moving average since then. Down at Friday’s close it is now testing the low of early February as it gets extended to the downside. A blip back up into the 200-day line at 50.63 would bring it into shortable range.

 

GR050116-MSFT

 

Starbucks (SBUX) was another one I blogged about on Tuesday as a short when it rallied right up into its 200-day moving average. It then reversed on the day and has since moved lower. Notice that it has now undercut the March low at 56.67 as well as another low in late February at 56.28. This could set up a rally back up towards the 200-day line at 58.49 where the stock would become optimally shortable once again.

 

GR050116-SBUX

 

Alphabet (GOOGL) has also continued lower, and if one were watching the 620 chart on Thursday one would have seen a clear intraday sell signal as the stock staged a big outside reversal to the downside. This reversal took the stock below its 200-day moving average where it closed on Thursday.

On Friday the stock churned around in a narrow range as it tries to hold along the lows of late February and early March. So far it has actually undercut only the March low at 704. In this position, a rally up to the 200-day line at 719.06 would be the next reference point for a possible short-sale entry. However, note that its position on the undercut of the early March low as well as its extended downside move off the peak of two weeks ago puts it in a logical position for a rally attempt.

 

GR050116-GOOGL

 

Apple (AAPL) is another one of our big-stock NASDAQ short-sale targets, and it has continued to move lower as it plumbs no-man’s land well below both its 50-day and 200-day moving averages. AAPL closed in the upper part of its daily price range on Friday as it tried to put the skids on a decline that has seen the stock close down 10 out of 11 days in a row.

Notice, however that it is starting to undercut the line of lows that extends from late January to late February. Given that the stock has declined over 17% off of its peak of two weeks ago and is extended on the downside, this would be a logical point for a rally attempt of some kind. Your nearest reference point for a shortable rally would be the highs of the shortable gap-down day at 98.71.

 

GR050116-AAPL

 

Netflix (NFLX) has also continued to slide lower over the past couple of weeks. It is now more than 21% below its peak of two weeks ago. I noted in my Wednesday mid-week report that selling volume has been drying up over the past few days, and that has remained the case until Friday. On Friday NFLX closed in the upper half of its daily price range as volume picked up. This gives a slight hint of supporting action along the lows. Notice also that it is testing the lows of late February as well. Therefore this is a logical position from which a reaction rally could ensue.

The nearest reference point for a shortable rally in NFLX would be the 10-day line at 94.77 followed by the 20-day line at 97.65. After that you have the 50-day moving average at 98.93. Any one of these could serve as resistance for a rally, although I tend to view the 20-day and 50-day lines as the more solid of the three. However, a rally up to the 10-day line first can always be tested on the short side provided one maintains a tight stop.

 

GR050116-NFLX

 

Overall, we can see that these big-stock NASDAQ short-sale targets are all in logical positions for some sort of reaction rally attempt. This in turn argues for a possible general market reaction rally based on what the individual stocks are telling us.

Southwest Airlines (LUV) joined its pals in the airline group by breaking up on Thursday with a nose dive right through its 20-day moving average. As I wrote in my Wednesday mid-week report, it was shortable at the line with the idea that “…one could use the 20-day line at 45.77, a mere 20 cents above where the stock closed today, as an extremely tight ‘hyper-stop.’”

That strategy would have worked very nicely on Thursday as the stock bee-lined right to its 50-day moving average. It did, however, find some big-volume support at the 50-day line on Friday. This makes it appear ripe for a rally back up towards the 20-day line at 45.51, which could present another short-sale entry opportunity.

 

GR050116-LUV

 

I actually blogged on Thursday that I was going after airline stocks on the short side once I had determined that the market was getting into trouble later in the day. The one I went after was the one I discussed in my Wednesday mid-week report, Hawaiian Holdings (HA).

HA was holding in a short bear flag just below its 50-day moving average after it had busted through the 50-day line after earnings two Thursdays ago. As I discussed in the Wednesday report, one could look for any kind of rally back up into the 50-day line as a short-sale entry opportunity, or one could just short the stock where it was using the line as a guide for an upside stop.

This is a good example of where market context comes into play. Since I considered this a short one way or the other, the fact that the market began to weaken sharply later in the day provided the context for me to take the latter strategy of just hitting the stock where it was at that time.

That approach worked as the stock reversed to the downside and then on Friday broke out to the downside from the short four-day bear flag. From here there’s nothing but wide-open skies all the way down to the 200-day moving average (red line). However, a reasonable near-term downside target from here would be the prior base breakout point around the 40 price level.

 

GR050116-HA

 

The airlines, which were one of the hottest Ugly Duckling rally groups off of the February lows, demonstrate how these long set-ups can quickly morph back into short-sale set-ups.

Delta Air Lines (DAL), not shown here on a chart, is way extended to the downside after I first discussed it as a short around the 50-day and 200-day moving averages a couple of weeks ago. It is now approaching its February lows, and based on the fact that is has come down over 12% below its 50-day line can probably be banked. From here I would view rallies up into the 10-day moving average at 44.53 or the 20-day moving average at 45.37 as potential short-sale entry points on any ensuing reaction rallies.

I had previously discussed Alaska Airlines (ALK) as a possible Punchbowl of Death or POD short-sale set-up, but it wasn’t until after it announced earnings that the POD came into full bloom. There we actually several short-sale points on the way down. The first was the initial breach of the 20-day moving average on the day of earnings. Remember that in the case of a potential POD, the first sign of a breakdown is generally a break below the 20-day moving average.

The second short-sale point occurred on the gap-down through the 50-day moving average the next day. The third was the quick blip back above the 200-day line that reversed the day after that and five trading days ago on the daily chart. ALK is now well-extended to the downside as it gets blown out of the skies. On Friday it undercut a very short-term low from late February, and it is not clear whether this is enough to create some sort of reaction rally from here.

 

GR050116-ALK

 

ALK’s weekly chart shows the POD-like formation that can also be viewed as just a late-stage failed cup-with-handle base. It is somewhat POD-like, however, and the breakdown off the peak on the right side is also very typical of a POD breakdown. ALK also reveals a pattern that is quite similar to a large number of other Ugly Duckling type of set-ups that I’ve been looking at on the long side over the past couple of months.

 

GR050116-ALK Weekly

 

For example, while Adobe Systems (ADBE) has looked constructive on its daily chart (although it is starting to wobble a bit over the past two trading days), its weekly chart shows an extremely v-shaped cup-with-handle formation. While it is only about 27% deep, the cup has some very POD-like characteristics in that it is comprised of seven down weeks followed by five up weeks. There is also some stalling along the highs in the 96 price area.

ADBE isn’t expected to announce earnings until June 21st, but its weekly chart reveals some potential weaknesses. On Thursday the stock broke below its 20-day moving average, the first time it has done so since early March. This was followed by a rally back up into the 20-day line on Friday. The question here is whether the stock is morphing back into a possible late-stage failed-base situation and whether this initial breach of the 20-day line is the first clue. Last week’s breakout attempt came on very light volume on the daily chart, and as it failed, volume picked up.

This shows up on the weekly chart as a stalling week last week with weekly volume picking up slightly. Suffice it to say that I am starting to become skeptical of ADBE as a long idea. In the process it may be setting up as a possible LSFB/POD type of short-sale set-up. If the general market weakens early this coming week, then this rally back up into the 20-day moving average might just be a short-sale point, so keep an eye out for that.

 

GR050116-ADBE

 

Workday (WDAY) is another Ugly Duckling long set-up that has some technical vulnerabilities that become more evident on the weekly chart. It has come up out of a 37% deep, extremely v-shaped cup formation and has rallied right up into an area of price congestion that extends from early January back into 2015. I’ve highlighted this area of congestion on the chart, and the question is whether this represents meaningful overhead resistance for the stock. So far it has, but WDAY is expected to announce earnings on May 24th, so it is possible that nothing is resolved until then.

However, the stock is currently bouncing along its 200-day moving average on the daily chart, not shown. A breach of the 200-day line would quickly bring the stock into play as a short-sale target, particularly since it is also now below its 20-day moving average. Remember that a breach of the 20-day line is usually your first clue of a potential LSFB/POD breakdown. Keep an eye out for this, particularly if the market weakness further in the coming days or weeks before WDAY’s earnings report is due out.

 

GR050116-WDAY Weekly

 

Salesforce.com (CRM) is similar to WDAY, as can easily be seen by comparing the weekly charts of each. CRM has come up from the lows of a similarly extremely v-shaped cup formation that is over 29% deep. The cup itself more or less consists of 5-6 weeks straight down and then 7-8 weeks straight up the right side.

Notice that over the past several weeks the stock has floated higher on very light volume. This might be a clue that demand is waning up here, and all it takes is some sort of catalyst to tip the stock back to the downside. That could come in the form of earnings which are expected to be announced on May 18th. On the daily chart, not shown, CRM has been able to hold above its 20-day moving average. A breach of the 20-day line would be the first clue of a potential failure to come.

 

GR050116-CRM Weekly

 

Under Armour (UA) turned out to be a shortable gap-up after earnings on something I call an “ejection seat” move. It starts out with a gap-up, but like a pilot’s ejection seat only results in a brief blast to the upside that hovers in mid-air for a bit and then rolls over and heads back down to earth. This took it down to fill the gap from whence it tried to rally on Thursday. The weak general market dragged it back below the 10-day line, however, and on Friday it drifted below the 200-day moving average (orange line) and closed the day just below the line.

One could try and short the stock here using the 200-day line at 44.17 as a guide for a stop. Alternatively, one could look for a rally up to the 10-day line at 45.23 as a higher entry point.

 

GR050116-UA

 

Nike (NKE), not shown, remains shortable on any rally up to its 20-day moving average at 59.64. Skechers (SKX), also not shown, is still holding up after its buyable gap-up. It showed some supporting action on Friday as it closed mid-range and is still well above its 10-day moving average at 32.02 and the intraday low of the BGU day at 31.77.

Among names I’ve been watching on the long side, most everything pulled back with the market over the past two days. In some cases, the pullbacks may create some opportunistic entries if not at least lower-risk entry points if they don’t hold. For example ServiceNow (NOW) actually morphed into a short on Thursday as it broke below the 200-day moving average, but found support at the 10-day line on Friday. Volume picked up slightly on Friday, which helps to bolster the case for supporting action at the line.

The flip side is that it has failed to hold the BGU intraday low at 73.15 and the 200-day moving average. In fact, if we consider the close below the 200-day line four days ago on the chart as the first close below the line, then Thursday’s move to a lower low constitutes a technical violation of the 200-day line. For this reason, if one had bought the stock above the 200-day line on the basis of the BGU of two Thursdays ago, NOW is a sell. This also brings into play the possibility of using a weak rally back up into the 200-day line at 72.86 as a short-selling opportunity.

 

GR050116-NOW

 

Panera Bread (PNRA) found support at its 50-day moving average for the second time in three days on Friday and closed back above its 20-day moving average but a few cents below the 10-day line. PNRA did announce earnings on Wednesday after the close and beat estimates while raising guidance, but the stock hasn’t demonstrated any decisive desire to move higher.

Not even an analyst’s buy recommendation and $250 price target seems to be able to get it moving as it remains in what appears as a handle to a somewhat boxy cup formation. Maybe PNRA is revving up for a true base breakout. But with so much impetus in the way of a strong earnings report and forward guidance along with an analyst’s buy recommendation and big price target, I would have expected it to do so before then.

While one could theoretically buy this using the 50-day line at 209.78 as a guide for a downside stop, we might also keep our eyes peeled for any potential late-stage base-failure.

 

GR050116-PNRA

 

Fortinet (FTNT) made a break down to its 10-day moving average on Friday, bringing this past Wednesday’s bottom-fishing buyable gap-up (BFBGU) into question. The stock did, however, manage to close at 32.51, just nine cents above the 32.42 BGU intraday low. Unfortunately, if one had bought the stock on Wednesday or Thursday, Friday’s break might have easily pushed you out of the stock. But a shrewdly opportunistic trader might have seen the pullback to the 10-day line, which also coincided with the stock filling its prior Wednesday gap, as a buyable event.

That would have turned out to be correct, at least by Friday’s close. The real question for FTNT, as with any other potential long idea in this market, is whether it has the potential for a significant upside move, particularly if the general market situation worsens. For now FTNT simply demonstrates that sometimes laying back and waiting for the most opportunistic entry, especially when things look their bleakest, is the best way to try and buy any stock.

 

GR050116-FTNT

 

In that vein, we might consider that Biogen Idec (BIIB) has pulled into a lower-risk entry position. On Friday the stock came down into its 20-day moving average but found some slight support as it closed not quite mid-range on the day with volume coming in above average.

However, the other big-stock bio-techs all got hit pretty hard on Friday. Gilead Sciences (GILD), not shown, suffered the worst blow as it turned into a shortable gap-down at the 50-day moving average Friday morning after it missed on earnings after the close on Thursday. Prior to that, GILD had been the strongest-performing big-stock bio-tech off of the February lows. Proof that things can change quickly in this market.

At the very least, BIIB’s pullback here offers a lower-risk entry following the prior week’s bottom-fishing pocket pivot, using the 20-day line at 273.36 as a tight stop.

 

GR050116-BIIB

 

Below are my current Trading Journal notes regarding other names I’ve discussed in recent reports:

Acuity Brands (AYI) dipped below its 20-day moving average on Friday but held above the 239.08 intraday low of the April 6th buyable gap-up. This is probably as low-risk of a buy point that you could hope to get in this stock if one assumes that it won’t just blow apart from here.

Continental Resources (CLR) is expected to announce earnings May 4th.

Fabrinet (FN) has pulled back to its 20-day moving average where it found some volume support and closed mid-range on Friday. Earnings are expected on Monday, so there’s nothing to do here until then.

Fitbit (FIT) is expected to announce earnings on Wednesday. It did manage to hold a pullback to the 10-day line twice this past week, but with earnings coming up there is nothing to do here until then, as I see it.

GoDaddy (GDDY) has been good for short-sale scalps every time it pushes up to or just beyond the 20-day moving average, but earnings are expected on Wednesday, so I’m not inclined to do anything with the stock until then.

GoPro (GPRO) is expected to announce earnings on Thursday, May 5th. The stock keeps getting tagged with negative commentary, which has weighed on the stock since its big-volume bottom-fishing pocket pivot of April 13th. Nothing to do here until earnings are out.

J.P. Morgan (JPM) found support at its 200-day moving average on Friday which brings it into a low-risk buy zone using the 200-day line at 62.69 as a guide for a tight downside stop.

Mobileye (MBLY) closed below its 20-day moving average for the first time since mid-February as it starts to wobble a bit ahead of its expected earnings announcement on May 5th. Nothing to do here until then.

Nvidia (NVDA) has dipped below its 10-day moving average with earnings expected this Thursday. The stock actually had a pocket pivot, which I failed to note in my Wednesday mid-week report, but has since failed. Given NVDA’s extended position after its rally off of the February lows, this is not surprising. In this market, stocks only rally so far, as the airline group has aptly demonstrated.

Silica Holdings (SLCA) came out with earnings yesterday after the close. The stock had a v-shaped pocket pivot today off of its 10-day moving average, but I would look to buy shares on any pullback into the line at 24.94.

Silicon Motion (SIMO) is coming apart after announcing earnings, but this seems to be consistent with a general movement of money out of semiconductors, as we saw with Broadcom (AVGO), which issued a sell signal last week and has since been removed from my long watch list. Other semis that have been cut from the list include MA-Com Technology Solutions (MTSI) and Maxlinear (MXL).

Splunk (SPLK) returned to the 10-day line on a pullback this past Friday as volume came in well above average for some supporting action. This would bring it into a low-risk entry area using the 10-day line at 51.24 or the 20-day line at 50.35. However, earnings are expected on Thursday after the close so there is nothing to do here until then.

Square (SQ), I must admit, has surprised me by rallying all the way back up towards its high just underneath the 16 price level. Volume was light all the way up until Thursday, which was the peak of the rally over the prior five days. The stock pulled in on Friday, but with earnings due out this Wednesday I am not in the mood to play earnings roulette with this or any other stock going into earnings.

Tesla Motors (TSLA) announces earnings on Wednesday. This will be fun to watch, but no need to play earnings roulette with the stock going into earnings, particularly since TSLA broke below its 20-day moving average on Friday. This thing could gap down on earnings just as easily as it could gap up, and I would prefer to react to either type of move as appropriate once earnings are out and the coast is clear.

Vantiv (VNTV) failed immediately on its BGU attempt and fell right back into its base on Thursday. It then pulled down further on Friday but was still able to hold two cents above its 20-day moving average on heavy volume. Thus it has the look of quasi-supporting action. Is this an Ugly Duckling entry point in its finest form? One way to test that would be to take a position here at the 20-day line and use the line, plus perhaps another 2% or so, as a guide for a very tight stop.

Aside from taking advantage of opportunistic setups in stocks that I have on my long watch list, not much looks all that appetizing on the long side. The bottom line is that the short side has worked most effectively over the past couple of weeks. Meanwhile, if you do buy something, it tends to have a quick upside move and then gives it all up just as it looks set to build up a head of steam. Certainly, a number of short-sale targets, especially among the big-stock NASDAQ names I’ve discussed in recent reports, are in logical positions for reaction rallies as we move into the new trading week.

Any reaction rally may provide some long trading opportunities on a short-term basis. I still do not believe that this market has the ability to produce anything of a longer-term trending nature. Therefore, we also want to keep an eye out for any rallies that bring short-sale targets into more optimal entry areas.

Ultimately, this market seems to be less about maintaining a strictly bullish or bearish posture and more about remaining highly opportunistic, almost to the point of operating on the basis of strict contrarianism. When things look too good, you go sell and/or go short, and when things start looking too ugly, you cover shorts and look to go long. This takes a bifurcated approach to a new level as far as I’m concerned, and one that is probably more “out there” than I’m typically used to. As well, this is a short-term swing-trader’s market.

But then, anybody who has been reading this report for the last 2-3 years knows that I’ve been advocating a shorter-term, swing-trading approach for at least that long. A swing-trading approach works best when one can also implement buy points that are much lower in the chart patterns. In this manner, BFPPs (bottom-fishing pocket pivots) and RAPPs (round-about pocket pivots), along with BFBGUs (bottom-fishing buyable gap-ups), become potent weapons in the swing-trader’s arsenal. Thinking you’re going to make a lot of money swing-trading breakouts strikes me as far less efficient relative to being able to buy lower in the pattern.

As I see it, what I do is just part of an ever-evolving approach (based on the essential philosophies of the “OWL” – O’Neil, Wyckoff and Livermore) that seeks to discover and implement what truly works in a constantly changing market environment at any given point in time. And while swing-trading has worked well in this market for some time now, my guess is that at some point things will change again.

As we head into the new trading week I do not expect things to get any easier. Short-sellers are probably flush with some profits after names like ALK, DAL, NFLX, AAPL, and GOOGL, among others, have come completely unglued. In the meantime, AMZN and FB may provide something for the long side IF the general market is able to find its footing after its worst week since early February and turn higher.

My conclusion: Continue to maintain a bifurcated approach and just play it as lies. If you remain open and opportunistic to the set-ups that the market shows you without having to be a strict bull or bear, you probably stand a better chance of being in the right place at the right time. In the end, that is mostly what good trading and investing is all about.

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 a position in FB and SLW, though positions are subject to change at any time and without notice.

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