The Gilmo Report

May 13, 2018

May 12, 2018

Friday was an uneventful day for the indexes after they posted higher highs on Thursday. The NASDAQ Composite Index held in a tight range as volume declined, which looks constructive as an orderly one-day consolidation after five-straight days of upside since clearing its 50-dma. The index is now extended from the 50-dma and looking, at least for now, like it has its eyes set on testing the all-time highs it set in March.

 

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The S&P 500 Index, by contrast, looks a little wedgy as it posted higher highs on Friday, but on declining volume. This was also the case on Thursday as the index pushed higher to clear the mid-April highs. This makes the index look vulnerable to a pullback.

 

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However, the only thing that really matters is what individual stocks are doing, and most leading names have gotten somewhat extended over the past few days. We’ve seen some strong moves in the names I’ve discussed in the past two reports and the past three video reports. In this sense, it has been a target-rich environment, particularly if one is open to buying alternative “Ugly Duckling” or OWL-style set-ups.

My observation is that the undercut & rally set-up was particularly effective this week. This is usually the case when the market hits an inflection point as it did two Thursdays ago when the S&P reversed back up through its 200-dma. Meanwhile, the NASDAQ Composite remains the leading index as big-stock names and smaller-cap techs have come to life over the past week.

Apple (AAPL), which got this whole rally started last week when it reported earnings has continued to drift higher, but finally pulled back Friday slightly. Technically, this remains within buying range of the base breakout of two Fridays ago. Better entries from here might be found on pullbacks to the rapidly rising 10-dma at 180.88 and the top of the prior base..

 

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Amazon.com (AMZN) posted a nice “voodoo” pullback on Friday, dipping down toward its 10-dma on volume that was -61% below average. That’s a constructive pullback, and the closer one can buy this to the 10-dma at 1588.36, the better. There is always the outside chance that it pulls back further to test the 20-dema, assuming it can’t hold the 10-dma, so I’d remain flexible here as needed.

 

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Netflix (NFLX) also pulled in on Friday on an even greater volume decrease than AMZN, although by only 1%. The stock came in slightly on Friday as volume shriveled up to -62% below average. I’d look for a dip down closer to the 10-dma at 321.04 as the lower-risk option if I can get it.

 

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Nvidia (NVDA) reported earnings on Thursday after the close and gapped down on Friday. Selling volume was heavy, but the stock still held above or roughly at its prior base breakout point. It is also still well above its rising 10-dma, so it’s possible we could see a test of the line this week.

As I wrote on Wednesday, the two better buy points occurred down in the base on the prior undercut & rally move nearly three weeks ago, and then on the recovery back up through the 50-dma. Even after Friday’s sell-off, NVDA still remains well above those two OWL-style buy points. Now it’s a matter of seeing if and how the stock is able to settle down into another potential lower-risk entry position from here.

 

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Intel (INTC) has drifted back up near the highs of its ugly reversal day following earnings over two weeks ago, but volume has been lacking. The odd thing here is that Friday’s pullback after five straight upside days came on even lighter volume. Pullbacks to the 10-dma at 53.33 look like the most reasonable lower-risk entries from here, however, so I see no need to chase the stock up here.

 

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I wrote on Wednesday that many of these big-stock tech names were rallying on light volume, which was a bit of a conundrum. But, in the absence of any sellers whatsoever, buyers will rule the roost, driving prices higher even if there aren’t that many of them. More buying than selling is always the driving force behind higher prices, even when they aren’t many of them.

That seems to be the case with Facebook (FB), which just keeps pushing higher on very light volume. It appears that anyone and everyone who might have been interested in selling the stock was scared out back in late March when news of user data abuses hit the stock. Since then we had one bottom-fishing buyable gap-up move after earnings followed by a consolidation along the 200-dma.

On Friday, FB pushed to a higher high, clearing the short price range it formed in the latter half of February and into mid-March. It is now approaching its prior all-time highs above the 190 price level. As I’ve written in the past two reports, FB will move with the market, and with the NASDAQ Composite rallying to higher highs, FB has followed right along, hence has served as a reasonable vehicle for playing the market rally.

With the current rally coming on light volume, I’d like to see how the stock handles a pullback down closer to the 10-dma. The 10-dma is rising rapidly, and is currently at 178.46. I would also tend to think that as the stock approaches its prior highs, the potential for some resistance at that point might come into play, so an opportunistic approach is advised at this point in the stock’s move off the March lows.

 

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Twitter (TWTR) has followed in the steps of its big sister FB by pushing higher seven days in a row and clearing its 50-dma before a small pullback on Friday, all on very light volume. But volume dried up even more on Friday, to levels that were lower than the already low levels seen on the rally back up through the 50-dma. Perplexing perhaps, but merely indicative of the lack of sellers in this market.

TWTR may need to spend a little time consolidating this low-volume move back up through the 50-dma. For that reason, I’d look for any retest of the 50-dma as a reasonable lower-risk entry point. As with FB, I tend to think that as long as the general market keeps rallying, these stocks will rally along with it. The question is whether the light buying volume runs into any heavier selling volume any time soon as these stocks drift higher. So far, they haven’t.

 

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Tesla (TSLA) rolled back below its 50-dma on Friday, triggering a short-sale at that point on a price basis. The other side of the equation was lacking, however, as volume came in very light. We can see that, for the most part, the stock is range-bound, with the last buy point at the bottom of the range occurring on an undercut & rally move following a post-earnings gap-down.

On Friday, after the close, the company announced that its Senior Vice-President of Engineering was leaving the company for several weeks on sabbatical. I’m not sure if this will send the stock lower on Friday, but if it doesn’t, and the general market keeps rallying, I would still not rule this out as a possible short-squeezing long idea.

The reason for this two-side view is the fact that the breach of the 50-dma on Friday came on light volume as the stock held its 10-dma and 20-dema. Volume came in at -43% below-average, which qualifies as “voodoo” volume levels. So, if the news of TSLA’s chief engineer leaving the company for a few weeks doesn’t cream the stock on Monday, it could easily turn it into a long idea, with the idea of looking for a subsequent move back up through the 50-dma as confirmation.

 

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One thing about TSLA I find interesting is the sometimes-irrational emotionalism that accompanies varying opinions of the company and the stock, whether bullish or bearish. On Friday, I tweeted that I was wondering what had happened to the Tesla semi-truck, which last year was unveiled to much fanfare and hype, as is typical of the Elon Musk business model. Immediately, someone replied with a personal attack on me, asking me “how many jobs” I’ve created.

Admittedly, I’ve created a few in my career, but certainly not as many as the many CEOs that populated the business landscape both in the U.S. and abroad. But that is entirely NOT the issue. While some may take a perma-bull or perma-bear, emotionalist view of the stock, I simply view it as a trading vehicle, when the set-ups are there to be had, long or short. Therefore, I again urge members to never get caught in a rigidly bullish or bearish orientation, and keep your mind open to the real-time evidence at all times!

CSX Corp. (CSX) was last buyable along the 20-dema over a week ago, and has since broken out to new highs, albeit on light volume. It is currently extended, and the nearest reference for a buyable pullback would be the 10-dma at 60.69.

Norfolk Southern (NSC) is also extended after becoming buyable along its 20-dema and 50-dma over a week ago. The 10-dma at 145.99 would serve as a reference point for a lower-risk entry on any pullback from current, extended price levels.

Intuitive Surgical (ISRG) is stalling as it attempts to move to new highs. The 10-dma at 457.30 would be your nearest reference for support on any pullback from current price levels.

Twilio (TWLO) had one more day of strong upside on Thursday following Wednesday’s buyable gap-up (BGU) but is extended after pulling back on Friday. Watch for retests of the 48.15 BGU intraday low as potentially lower-risk entry opportunities.

Square (SQ) has been a monster over the past few days, and was once again buyable when it crossed the 50-dma on Monday early in the day. Since then it has continued to move higher as it approaches its prior highs. Note that investors had an opportunity to buy shares near the 50-dma yesterday on the successful retest and supporting action at the line.

Now it’s extended, such that pullbacks to the 50-dma would be your next references for lower-risk entry opportunities from here. It also seems like a pullback here might be likely since the stock is actually wedging ever so slightly as it approaches the prior highs. Thus, I would not be chasing it up here based on the tight closes. The actual buy points occurred down below and at the 50-dma as I’ve discussed in previous reports and video reports.

 

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In my favored cyber-security space, CyberArk Software (CYBR) and Fortinet (FTNT) are extended after recent moves to new highs. CYBR probably needs to spend a few days consolidating around its 10-dma, which is currently at 57.16. FTNT would need to retest its 10-dma, currently way down at 57.01 in order to present a new, lower-risk entry point.

Palo Alto Networks (PANW) demonstrates why chasing stocks isn’t always a smart thing to do. Certainly, it was buyable on Tuesday as it pushed up through the $200 Century Mark based on Jesse Livermore’s Century Mark buy rule. On Friday, however, the stock pulled back on light volume closer to the 200 price level, such that I would be interested in buying it as close to the 200 price level as possible on this pullback.

There is also the possibility that the stock undercuts the 200 price level and meets up with its 10-dma, which is less than 1% lower at 198.73. The bottom line when it comes to PANW is that it was still best bought along the 20-dema per my prior reports and video reports, as I discussed repeatedly.

 

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FireEye (FEYE) remains the weak little brother among the cyber-security names as it dipped back below its 50-dma on Friday. Volume was still light at -47% below-average. This could set up a Wyckoffian Retest if we see it come back down toward the prior post-earning slow of six days ago on the chart with volume drying up. That would be a textbook Wyckoffian Retest or test for supply, which should be watched for.

 

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Sailpoint Technologies (SAIL) reported earnings Wednesday after the close and had the wind taken out of its sails by breaking sharply to the downside on heavy volume. The move carried down to the 50-dma, where the stock held support. It continued to hold above the 50-dma on Friday on above-average volume.

Technically, however, we can see that the stock did trigger an undercut & rally move on Thursday when it undercut the prior 22.51 low of April 25th and rallied to close at 23.07. On Friday SAIL got as low as 22.78, but closed higher on the day at 23.27. Therefore, one can view this as an actionable U&R long set-up, using the 22.51 price level as a tight selling guide.

 

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Meanwhile, SAIL’s IPO cousin Okta (OKTA), has gone slightly parabolic on a rally consisting of ten, count ‘em, ten straight days on the upside. It is, quite obviously, extended and out of buying range.

I like the way Lumentum Holdings (LITE) has lit up again following a bottom-fishing buyable gap-up (BFBGU) move after reporting strong earnings last week. It is now holding tight along the 50-dma with volume drying up to -53% below average. This puts the stock in a lower-risk entry position here, using the 50-dma as your selling guide.

 

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Planet Fitness (PLNT) proves the persistence of the U&R long set-up in this market, despite my having given it up for dead after a big post-earnings break on Wednesday. On Thursday, the stock defied my view by posting an undercut & rally move when it pushed up through the prior 39.50 low of April 25th.

That was good for about another point of upside by Friday, so is nothing to get excited about, But, technically, if one is still interested in the story, this U&R is buyable using the 39.50 price level as a tight selling guide.

 

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My special Sunday video report on Chinese names turned out to be prophetic, as we saw several names in the space rally this week. Baozun (BZUN) is expected to report earnings next Thursday before the open.

Alibaba (BABA) is also extended and should be watched for pullbacks to the 10-dma at 188.82 as lower-risk entry opportunities.

Autohome (ATHM) has cleared the $100 Century Mark for the first time in its history, triggering Livermore’s Century Mark buy rule. The stock pulled in on Friday early in the day to retest the 100 price level and held, closing nearly flat on the day. One could take a position here and use the 100 price level, 4% lower, as a selling guide, or the more opportunistic approach of looking for another retest of the 100 price level.

 

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TAL Education Group (TAL) broke out on Thursday on average volume, but I would not be looking to buy the stock up here. The proper entry occurred at the confluence of the 10-dma, 20-dema, and 50-dma as I discussed in my reports at that time. It has since moved sharply higher, such that I consider it extended and would wait for pullbacks to the 10-dma at 38.47 as lower-risk entries from here.

 

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Notes on other long ideas:

Carbonite (CARB) is holding tight after reporting earnings earlier in the week and jacking sharply to the upside. Look for pullbacks to the 10-dma at 33.07 as lower-risk entries from here.

Nutanix’s (NTNX) continues to drift higher and posted another new high on Thursday before pulling back slightly on Friday. Volume has been light on this recent breakout, so isn’t buyable in my view. I would prefer to take the opportunistic approach of waiting for any possible pullback to the 10-dma at 5513 as a lower-risk entry.

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 (the magenta line), 20-day exponential (the green line), 50-day simple (the blue line) and 200-day simple moving average (the red line). On rare occasions, I will also employ a 65-day exponential moving average (thin black line). In all cases I will mostly use the shorthand version of “10-dma,” “50-dma,” etc.

Things are starting to look pretty good here, as certain sources start citing the number of base breakouts that have shown up in recent days. For my money, however, I prefer the lower buy points I identified in my video report of two Thursdays ago, last weekend’s report, and this past Monday’s video report.

Names I discussed in those various written and video reports have done well over the past week, even before they broke out later in the week. With most names extended, there are few names in lower-risk buyable positions, but still a few actionable names have been discussed in this report.

In addition, we want to be on the lookout for any volatile price action after earnings that nimble traders with an opportunistic bent can seize upon. I still believe strongly that this market requires an opportunistic, sometimes fearless approach. Objectively, the indexes remain in a big, wide-ranging consolidation extending back to late January. Perhaps a significant breakout and uptrend is coming, but that remains to be seen.

The reality on the ground, so to speak, is that this market has still provided many swing-trading opportunities, and that has certainly again been the case over the past 6-7 trading days. And there may be more such action brewing. If time allows, I hope to put out a short video before the weekend is out discussing my Monday morning trading plan, so be on the lookout for it.

The video reports have become an integral part of my market commentary and idea flow to members, and so far, I’m pleased with the results (in terms of ideas that members have acted on and profited from) and feedback. Meanwhile, play ‘em as they lie!

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 TWTR, 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. ©2008-2018 Gil Morales & Company, LLC. All rights reserved.