The Gilmo Report

May 9, 2018

May 9, 2018

The 50-day moving average has been the parallel bar around which the major indexes are spinning, but today we saw oil stocks help to power the S&P 500 Index through its 50-dma. As I indicated in last night’s video report, this would be constructive as the S&P now joins the NASDAQ Composite Index, which regained its 50-dma last week.

 

GR050918-$SPX

 

NASDAQ Composite Index pushed further above its own 50-dma on higher volume today in a strong move. It also cleared the April highs, which in my view isn’t necessarily all that meaningful since I pay closer attention to the stocks. With things looking as good as they are, we must be open to the possibility of a pullback. But the good news is that the 50-dmas on all the major market indexes serve as very convenient references for near-term support.

 

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Apple (AAPL) continues to hold its recent base breakout, but the best buy points occurred down in the base. In fact, there are two, the first one being the undercut & rally (U&R) move back up through the 164.47 low of April 2nd. That led to a short but playable move ahead of earnings, but it’s not likely one would have wanted to hold through last Tuesday’s earnings report.

That didn’t present a problem, since as I discussed in last Thursday night’s video report, the stock was still actionable on the long side based on the post-earnings buyable gap-up (BGU) move that was still intact. AAPL tested the intraday low of the BGU day on Thursday and held as volume declined sharply. That led to last Friday’s base breakout, which, for those who buy such set-ups, is still within buying range.

The stock is now pushing to higher highs on light volume. This makes it vulnerable to a pullback and at least a retest of the base breakout point, in my view. We also have to consider the fact that the stock has come straight up off the bottom of its base in a very vertical move of eight straight days on the upside.

 

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While the action in big-stock NASDAQ names I have discussed in recent reports has been positive on the upside, it has come on light volume. As with AAPL, Amazon.com (AMZN) is also posting new closing highs on light, albeit increasing volume. This is, of course, out of buying position, and only a pullback to the 10-dma would bring it back into buying range.

 

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Netflix (NFLX) is also showing a low-volume drift back up toward its highs. This was last buyable along the 50-dma, and is now lightly extended on the upside. The low-volume rally makes me think that I’d prefer to wait for some kind of buyable pullback to the 10-dma instead of chasing the stock here.

 

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Nvidia (NVDA) is expected to report earnings tomorrow after the close, but this hasn’t kept the stock from rallying right back up to its prior highs. The stock is also a classic example of an undercut & rally move materializing just when things looked rather bleak. That’s when it undercut the prior 213.07 low in the pattern and rallied without looking back.

But at this stage, with the stock right at its prior highs ahead of tomorrow’s earnings report, there’s not much to do. If one did buy the stock on the U&R set-up two weeks ago, one has enough profit cushion to sit through the report, if they so choose.

 

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Intel (INTC) posted a new closing high as it attempts to re-breakout following the failed breakout attempt after earnings two Fridays ago. My only issue is the lack of volume here as the stock drifts to higher closing highs.  This appears to be symptomatic of much of the action we saw today, hence I’m not going to chase these stocks here, but would rather just wait for a pullback into the 10-dma or better to pick up shares.

 

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Facebook (FB) is another low-volume rally situation as it continues to push higher. Volume picked up today, but was well below-average. The stock is now filling the gap on its prior gap-down “falling window.” This was last buyable along the 200-dma. As I’ve discussed in recent reports, FB is likely to move with the market, such that a general market rally will carry the stock higher as it did today.

As such, the stock is not in a buyable position up at these levels. A low-volume retest of the 10-dma at 175.99 would bring it into a preferred lower-risk entry position from here. Otherwise, we shall see whether it runs into resistance at the top of the gap-down falling window.

 

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Twitter (TWTR) is also suffering from “low-volume-itis,” but that hasn’t kept it from clearing its 50-dma and rallying back up to its prior April highs. However, the stock churned and stalled near those highs today on light, albeit higher volume. This is only buyable on constructive pullbacks to the 50-dma.

 

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Tesla (TSLA) has rallied up to its 50-dma, as I surmised it might in my weekend report. Volume was light today, as it was with most everything else, which of course brings up the question as to whether the stock is a short here. It is also right back up to the range highs and so could be vulnerable to resistance. The flip-side is that it did close above the 50-dma today, thanks to news that the State of California was looking at legislation mandating that all new homes be built with solar panels as standard equipment.

So, there are two ways to play this. The first is as a long, using the 50-dma as a tight selling guide. The second would occur on a breach of the 50-dma, which would then trigger a short-sale entry at that point. My guess is that the stock will likely move in sync with the market, so keep that in mind.

 

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CSX Corp. (CSX) is another name I’m not going to chase on strength, although it did break out today on about average volume. Note, however, that the stock was best bought on the pullback to the 20-dema late last week. As always, I prefer to buy my favored long ideas in opportunistic fashion, seeking to move in and take shares on pullbacks to logical areas of support.

CSX is another example of how this works to one’s advantage. Buying the pullback to the 20-dema was more concrete than trying to buy this flag base breakout since it occurred on only average volume. Textbook breakout buyers would only do so on a strong volume increase at least 25% above average.

 

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Norfolk Southern (NSC), not shown, is another example of looking to buy on weakness as its pullback into the 50-dma and 20-dema last week would have set one up to participate in the move to higher highs over the past few days. NSC is now back to being extended on the upside.

Intuitive Surgical (ISRG) has moved right back up to the prior highs of last month’s buyable gap-up move following earnings. Volume has been light on the move, which comes as no surprise since this seems to afflict most everything else in this market. However, the low volume rallies are still rallies, although they may be vulnerable to pullbacks.

ISRG is now holding tight along those prior BGU highs as volume declines. But it was best bought on the pullbacks to the 20-dema over the past 2-3 weeks, as I suggested in my reports at the time. There were two such retests of the 20-dema, and both would have worked out well as lower-risk entries from here. Now, a pullback to the 10-dma at 452.95 would represent your nearest reference for a lower-risk entry opportunity.

 

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I would have to say that some of my best daily ideas have come from the video reports. Last night I noted that Twilio (TWLO) was rallying in the after-hours after reporting earnings yesterday after the close. I told members to keep a close eye on this one since the buyable gap-up could be actionable, particularly since the stock was not way out of its prior base.

TWLO opened at 48.15 and never looked back, trading straight up from there. It finally peaked on an intraday basis at 53.55 and closed at 52.41. Retests of the 48.15 BGU intraday low would present lower-risk entries from here, and I would certainly look to take advantage of those if I can get ‘em. Up here, TWLO is near-term extended and hence out of buying range.

 

GR050918-TWLO

 

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.

 

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In my favored cyber-security space, CyberArk Software (CYBR), Fortinet (FTNT), and Palo Alto Networks (PANW) have all moved to new highs and are near-term extended. CYBE posted a pocket pivot on Friday after reporting earnings on Thursday after the close, and has moved higher from there.

 

GR050918-CYBR

 

Fortinet (FTNT), which gave us an opportunistic entry on the pullback and undercut & rally it posted on Friday, as I discussed in the weekend report, has also moved higher and is a little extended. Note, how Friday’s U&R move worked very well as the stock broke out today on strong volume from a short two-week flag formation.

This could be considered within buying range, although I’d prefer to look for a low-volume pullback as a more opportunistic approach. After all, the place to buy it was on Monday as it held the prior undercut & rally move at the 50-dma, right? So, I see no reason to be a sheep and chase the strength at this point. I prefer to follow the “Way of the OWL.” 😉

 

GR050918-FTNT

 

Palo Alto Networks (PANW), which has been acting well as it held tight along its 20-dema, finally developed some upside thrust this week. The stock cleared the $200 price level for only the second time in its history. The first time was back in July of 2015, and back then the stock failed at the 200 price level and topped out, heading about 45% lower from there.

This time around, PANW pushed through the 200 price level on a pocket pivot volume signature and held. It then moved higher today. Those alert to the move through the $200 level could have bought the stock based on Jesse Livermore’s Century Mark Rule and then used the 200 price level as a tight selling guide. It is now extended, such that pullbacks to the 200 price level would be your next references for lower-risk entry opportunities from here.

 

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With the rest of the cyber-security names I like hitting on all cylinders, we are seeing FireEye (FEYE) make a nice comeback after getting slammed after earnings last Thursday. That downside break took the stock just below its April 10th low at an even 17, and the stock then rallied back above that low on Friday of last week.

That set up a clear undercut & rally move, and the stock has since regained the 50-dma. Today it held the line as volume dried up sharply. It did test the line early in the day and held, so I’d look for pullbacks closer to the 50-dma at 17.73 as lower-risk entries from here. However, the stock closed at 18.11 so is still within buying range, using the 50-dma as a tight selling guide. With the group acting well, I’d look for FEYE to get back in sync with the group.

 

GR050918-FEYE

 

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) popped off its 20-dema and is now extended ahead of next week’s expected earnings report. Alibaba (BABA) is also extended and should be watched for pullbacks below the 190 price level on any downside retracement from current levels.

Autohome (ATHM) reported earnings yesterday morning and initially sold off down to a point near its 50-dma. It then rallied to close up on the day and near the highs of its current base formation. Yesterday’s action also qualified as a pocket pivot. Today, the stock dropped at the open, likely in sympathy to Weibo (WB), which cratered badly today after reporting earnings (not everything goes up after earnings!), but managed to recover and rally to a new closing high.This is extended in this current position.

Therefore, I would look to take a more opportunistic approach here and wait for a pullback to the 10-dma at 96.36, if I can get it. Either way, the good news here is that one no longer must play “earnings roulette” with this name, and it’s acting well.

 

GR050918-ATHM

 

Tal Education Group (TAL) was discussed as a buyable Chinese name in my weekend report since it was holding tight in a lower-risk entry position along its 50-dma. It is now extended, such that only pullbacks to the 10-dma down at 37.42 would present lower-risk entry opportunities from here.

Notes on other long ideas:

Carbonite (CARB) reported earnings on Monday and gapped up to new highs. The intraday low of yesterday’s buyable gap-up range is 33.30, so pullbacks closer to that price level would serve as lower-risk entry opportunities, if you can get ‘em.

Nutanix’s (NTNX) continues to drift higher following the prior week’s news

Planet Fitness (PLNT) blew up after earnings and has been removed from my long watch list.

Sailpoint Technologies (SAIL) reported earnings after the close and is trading down slightly in the after-hours. The report looked good, with the company beating estimates by a nickel and raising fiscal 2018 EPS and revenue estimates. Look for a possible entry opportunity tomorrow around the opening, perhaps of the opportunistic kind.

Okta (OKTA) remains extended as it continues to streak higher. It closed today at 49.28 and was last buyable along the 10-dma down near 41 a month ago per my reports at that time.

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.

While big-stock NASDAQ names continue to trundle higher on lighter volume, which I find perhaps slightly troubling, my smaller, favored long ideas are showing good volume as they move higher. This is good to see, and it remains a matter of waiting for your best entries on pullbacks to show up, and then having the courage to act.

We are also seeing that the U&R long set-up is working well in this market. In fact, it has given members a concrete entry on many names over the past few days (such as FTNT, for example), while low-volume pullbacks to the 20-dema or 50-dma has also provided similar entry opportunities. You won’t find these types of long entry points if you’re sitting around waiting for breakouts.

So, by following the “Way of the OWL,” we are looking good here as several of my favored names gather momentum. This includes other names that I’ve discussed in the video reports but which are not discussed in this report. In any case, the trend is still to the upside, but our favored stocks are admittedly somewhat extended in their current chart positions.

Thus, it is a simple matter of laying back and waiting for the next lower-risk entries to show up in extended names, while looking to act on current set-ups such as we saw today in TWLO. Play it as it lies!

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 TWLO, 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.