Not a lot has changed since my last report over the weekend, other than the indexes getting in a nice holiday mood by moving to higher highs, as the daily chart of the NASDAQ Composite Index shows below. Volume picked up today but the index churned, which could be seen as a form of distribution. Meanwhile, the S&P 500 Index, not shown, closed slightly down on the day on slightly lighter volume.
So far this week looks like normal pre-holiday action with a slightly upside bias. But the story on the ground, as it were, is that individual stocks still present a mixed bag. And it is still quite possible to make decent progress on the short side despite the continued general market rally. Thus I remain focused on the action of individual stocks and their long or short set-ups, while continuing to pay less attention to the indexes.
After all, a profitable trade is a profitable trade, regardless of what side of the market it’s on. The next two trading days on either side of Thanksgiving might be slow, but then they might not. In 2009 the “slow” Friday after Thanksgiving turned out to be a tumultuous affair with the NASDAQ dropping 1.73% on light volume. And in the current market environment, one must always expect the unexpected!
For now the crowd appears to have been lulled into a sense of optimistic expectations of a continued rally right into New Year’s Eve. It remains to be seen whether that has any material implications for the market as we move through the Thanksgiving holiday weekend.
Alibaba (BABA) continues to meander about after successfully testing its 20-day moving average last week, as we can see on the daily chart, below. While the move down to the 20-day moving average could have been bought into, the stock is now just in the middle of a short base formation and needs time to set up again.
As I’ve written in recent reports, BABA has had a sharp move up from the original pocket pivot within the base down around the 91-92 price level, and likely needs more time to digest those gains. As well, if the general market starts to pull back here at any point, BABA could pull in with the market and test the top of the prior IPO base at around 99.80. Depending on how one is handling their position, one can simply continue to hold the stock here and let it play out, using the top of the prior base as a last-stand downside stop.
As I’ve discussed many times, my preference is to trade the thing, selling into sharp upside moves and looking to buy back on pullbacks, sometimes even shorting the stock to grab some quick profits on the downside. I did this on the move from the peak around 119 down to the 20-day moving average last week. That is simply a matter of style, and there is nothing wrong with sitting tight and trying to be right until proven wrong.
CyberArk Software (CYBR) rocketed to new highs yesterday on heavy volume before succumbing to an analyst’s downgrade today, selling off on higher volume, as we can see on the daily chart, below. CYBR has remained the only stock I’ve been interested in on the long side. While I know there have been other stocks moving higher as well, I prefer these “new merchandise” situations like CYBR that have the potential to romp higher faster.
As I wrote in my report of November 12th, CYBR looks a lot like FireEye (FEYE), not shown, did just as it started its own upside price romp at the beginning of January. These sorts of analyst downgrades are something that more or less comes with the territory when you are dealing with new-merchandise situations.
When CYBR gapped up a couple of weeks ago after earnings, the highest “upgraded” analyst price target on the stock was 42. Thus when the stock streaks more than 10% past that particular target, it might get hit with a “downgrade.” That’s what happened today as three brokerage firms downgraded the stock to “neutral” with a $36 price target, “underperform” with a $40 price target, and “market perform” with no price target, respectively.
CYBR held at the 10-day moving average today, but I would not be surprised to see it test the 20-day line and the 38.38 intraday low of the November 13th buyable gap-up day. Hopefully, most if not all members who own this have profits in the stock from playing off the 29 price level based on my discussion in late October.
One can, if they so choose, continue to hold the stock using the 38.38 BGU low as their last-stand stop. If selling volume dries up here on this pullback, then buying it off, say, the 20-day line might be quite possible. But we won’t know for sure until it gets there and selling volume, as a result of the trio of downgrades that hit the stock today, has simmered down.
CYBR’s move yesterday appeared to be a sympathy move in synchrony with Palo Alto Networks (PANW) which was also pushing to new highs yesterday in anticipation of last night’s post-market earnings announcement. As we can see on the daily chart, below. PANW gapped up this morning to an all-time high on very heavy volume. One could theoretically treat this as a sort of buyable gap-up, using the 114.28 intraday low as a stop, but it is somewhat extended at this point and I would be looking for a pullback to provide a better entry point.
Over the weekend I discussed my short in Splunk (SPLK) which gapped on Friday after earnings and reversed to close very near the intraday lows on heavy volume, as we can see on the daily chart. Today SPLK settled down further, finding some support at the 20-day moving average on light volume. I would like to see the stock breach the 20-day line as confirmation of the breakout failure from Friday, but in the meantime I would also use any bounce from here as an opportunity to short the stock using a tight 3% stop on the upside, max.
Tesla Motors (TSLA) is wedging back above its 50-day moving average on what is a clear “voodoo” volume signature, as we can see on the daily chart, below. This move looks fairly textbook to me, and appears logical given the area of congestion around the 240 price level that straddles late October and early November. I continue to see this as shortable using the 251-252 area around the last five days’ highs as a quick upside guide for a stop.
Twitter (TWTR) is pushing through the lows of its descending triangle which essentially makes up the second half of its overall bear flag formation that has formed since it gapped down after earnings in October, as we can see on the daily chart, below. Despite the general market rally to new highs, TWTR has remained trapped in this bear flag for all of November, save for the brief one-day wonder rally up into the 20-day moving average that reversed hard on very heavy volume.
One way or another, TWTR is likely going lower from here, and today saw selling volume pick up as the stock traded down on the day. I still consider this shortable, using the 20-day moving average at 41.63 as your maximum upside guide for a stop.
Facebook (FB) is showing signs of “desperate money” type action as it flops around within the bear flag that it has formed since its post-earnings-gap-down move of mid-October, as we can see on the daily chart, below. The crowd knows it has to be in this market, and beaten down big-stock leaders like FB will attract some buying. But so far the bottom line is that FB is merely rallying up to the upper part of the bear flag range on below-average volume.
Volume was high enough for a pocket pivot volume signature. Probably best to keep an eye on this as it approaches the 50-day line.
Netflix (NFLX) moves ever closer to its 331 post-earnings gap-down intraday low of October, as we can see on the daily chart, below. As I tweeted earlier today, I suppose we can thank Dallas Maverick’s owner and internet entrepreneur Mark Cuban for helping to rally the stock up into the 20-day moving average where it became a rather ripe short-sale target last week. NFLX gapped down today to a lower low on heavy selling volume. The 331 short-term downside price target for the stock remains in force.
U.S. Silica Holdings (SLCA) has been shortable every day so far this week on intraday rallies, closing near the lows of the day last Friday, yesterday, and today, as we can see on the daily chart, below. Crude oil made a lower low today after OPEC failed to reach an agreement on production cuts. My view is that SLCA will continue lower as long as the price of oil continues to go higher. For now, this remains shortable using the top of the bear flag at 47.30 as a guide for an upside stop.
Biogen Idec (BIIB) continues to build a short bear flag after busting through its 200-day moving average eight days ago on the daily chart, below. At this point one is looking for rallies to the top of the bear flag as potential short-sale points. Optimally I would like to see a push up into the 20-day line up at 311.38 as a reasonable short-sale point for those who did not short the stock along the 50-day moving average two weeks ago, per my discussion of the stock at that time.
Gilead Sciences (GILD) looked like it was going to break to lower lows this morning but found some decent volume support off of the intraday lows. GILD closed today on the upside but still within the short bear flag that it has been forming since breaking down through the 50-day moving average two weeks ago, as we can see on the daily chart below. This can only be shorted on rallies up into the top of the bear flag along the 65-day exponential moving average at 103.16, although there is always the outside chance of a rally that carries further up into the 50-day line at 105.48.
Thus there are two workable short-sale entry points here, depending on how far the stock is able to rally, if at all. As I wrote over the weekend, I tend to think that the next leg down in broken-down, big-stock bio-techs like GILD and BIIB may likely be associated with breakdowns in two bio-techs that have been holding up, CELG and ALXN. Thus I would look to key off of these stocks and come after GILD and BIIB if I saw CELG and ALXN start to weaken.
Over the weekend I reviewed the weekly chart of SolarCity (SCTY) as it engages on a wedging rally on that particular chart time-frame, and below we can see how this looks on the daily chart. SCTY has slid just past the 50-day moving average and right into the 65-day exponential moving average where it stalled and churned on higher volume.
Notice, however, that the rally up into the 65-day line is occurring on extremely light “voodoo” volume which I believe makes it failure-prone. As well, this rally could be forming the right shoulder of a “fractal” head and shoulders formation where the right side of the fractal “head” is formed by a big-volume breakdown at the beginning of November.
Some notes from my trading diary regarding stocks discussed in recent reports are below. If a stock is not mentioned, then my view is essentially unchanged from the last time it was discussed in the report. I remain somewhat wary of the long side of the market. If one wishes to test a long position in a leading stock that is pulling back, then risk can certainly be mitigated by having a nearby downside stop, and of course the closer, the better.
Amazon.com (AMZN) – the action on this short-sale target stock remains unclear as the stock continues to rally and hold as it builds a short bull flag just above the 200-day line. This needs to show some weakness in the pattern before it can be considered a high-probability trade. For now, all one is doing is standing in the way of a stock that just doesn’t want to go down for now, and sometimes that is quite typical of short-sale target stocks. It is best to accept it and move on to riper situations.
Bitauto Holdings (BITA) – has pulled all the way back to its prior, cup-with-handle breakout point and the 10-day moving average, which presents a low-risk entry. If one tests the stock on the long side here, it absolutely must hold the 83.68 peak in the handle and/or the 20-day moving average at 84.01.
Blackhawk Network Holdings (HAWK) – had a pocket pivot today as it just barely cleared the 10-day moving average after an eight-day pullback off of the highs, as the daily chart below shows. Stock is buyable on this basis using the 20-day line at 35.31 as your downside guide for a stop.
ServiceNow (NOW) – looking very weak as it cannot muster a meaningful bounce off of the 50-day moving average, even as the market goes to higher highs. One could close their eyes and buy shares here, using the 50-day line at 62.28 as a very tight 1% downside stop.
Taser International (TASR) – found support at the 20-day moving average and rallied back up to last week’s highs on the news out of Ferguson, Missouri. Probably a temporary news rally and so I would not chase this here.
Last week’s outside reversal on heavy volume that took the stock down to the 20-day moving average looked ugly. Had one bought shares at that point in opportunistic fashion, the ensuing bounce would have been rewarding. But of course this was a news-dependent move. Still best to remain opportunistic with TASR, as with any other leader in this market, looking to buy on weakness rather than into strength.
Trinet (TNET) – still holding the 10-day moving average after flashing a continuation pocket pivot yesterday, but the stock reversed today after trying to post a new all-time high. Nevertheless, yesterday’s continuation pocket pivot puts the stock in a buyable position using the 10-day line as a tight downside guide for a stop.
With a number of recent leaders getting hit, perhaps the trick on the long side is to look for names that aren’t that obvious and which are in otherwise “boring” groups like aluminum stocks. As an example, take a look at Century Aluminum (CENX), which broke out of a cup-with-handle base today on heavy volume, as we can see on the daily chart, below.
CENX has in fact flashed three pocket pivots within the base over the past month, as I’ve annotated on the chart, so it has been exhibiting strength within the base. Perhaps with central banks around the globe fixated on printing money in as many ways as their creative little minds can come up with, “stuff stocks” will come back into play.
Right now, however, the Metal Processing & Fabrication group, of which CENX is a member, is ranked a sizzling #103 among all industry groups! Perhaps that means it has nowhere to go but up, and CENX might be considered something of a turnaround play as it is expected to turn losses into $1.09 in annual earnings in 2014 and $2.80 in 2015. This might be worth a whirl with the idea that it should hold the breakout level in the mid-28 price level. In the meantime, try not to fall asleep!
My expectation is that the next couple of trading days around Thanksgiving Day will be relatively quiet, but of course there is always potential for the unexpected, as we saw the day after Thanksgiving in. Meanwhile, investors remain all bulled up for a Santa Claus rally as December looms ahead, and to some extent this strikes me as the current crowd mentality.
Of course, as I’ve written many times in recent reports, I gave up trying to figure out what the indexes are doing a while ago and continue to focus on individual stock set-ups, long or short. I am quite willing to test a set-up on either side of the market when I have a nearby reference point for a stop in case the trade doesn’t work out. That really is the bottom line for any investor who is trying to decide what to do in this market. If the set-up is there, find a tight stop for the trade and go for it. Enough said.
CEO and Principal, Gil Morales & Company, LLC
Managing Director and Principal, MoKa Investors, LLC
Managing Director and Principal, Virtue of Selfish Investing, LLC