The Gilmo Report

August 10, 2016

August 10, 2016

The NASDAQ Composite Index cleared its all-time high on Tuesday on an intraday basis, but was unable to hold those levels as it trickled back in by the close. The index got as far as 5238.54, exceeding its old all-time high of 5231.94 from last year by a decent margin, before backing down to close down at 5204.58.

Volume came in at about even for the day as the index avoided another distribution day off the peak. The prior distribution day occurred seven trading days ago on the chart but did not prevent the NASDAQ from pushing to a higher high three days later. So far the index remains in a fairly well-defined upside trend channel extending back to the earlier part of July.




The S&P 500 Index is in a somewhat different position as it pulls back into the prior price range that extends back to mid-July. The index dipped back into the range today on slightly higher trading volume. Today’s relatively contained sell-off was blamed on declining oil prices, but oil prices have been in a sustained and concerted downtrend since early June. Meanwhile the market has mostly rallied during that period.




With the NASDAQ failing to break through to all-time highs and hold those highs today, the question as to whether that is a negative development similar to what we saw last August is unclear. As I’ve discussed in recent reports, there are concrete signs we would be looking for in the action of individual stocks. More on that later. Both gold and silver recovered from their lows of this past Monday, but as I wrote over the weekend, “This current pullback in the metals and the metals stocks, if it remains orderly, might simply end up as yet another buying opportunity.”

The iShares Silver Trust (SLV) and the SPDR Gold Shares ETF (GLD) held tight both Monday and yesterday before gapping higher today on mixed volume. The SLV, shown below, logged increased volume but it was still well below average. Meanwhile, the GLD, not shown, was unable to hold above its 10-day moving average on weak volume.

I don’t really consider either to be in a buyable position currently, although the GLD is relatively near to its 20-day moving average. Ultimately, however, I would seek to be most opportunistic on pullbacks in either the SLV or GLD to their 50-day moving averages at 17.88 and 125.40, respectively.

Given that Friday’s jobs number included a 200,000 Birth/Death Model adjustment amounting to about 80% of the total reported number, the Fed likely remains on hold. For that reason, I would remain longer-term bullish on the metals while looking to enter on opportunistic pullbacks.




The lack of buying conviction in the metals ETFs was also evident in the precious metals stocks as well. Silver Wheaton (SLW) and First Majestic Silver (AG), not shown here on charts, both gapped up but closed near the lows of their daily trading ranges on above-average volume. AG actually ended the day to the downside, while SLW held slightly positive.

Agnico Eagle Mines (AEM) held at the top of its prior July price range on Monday and was able to rally both yesterday and today. It also stalled as it approached its prior 52-week highs as buying interest remained fairly weak. The situation with the metals stocks remains as it is with the metals themselves, which is to seek to buy them on pullbacks into areas of potential resistance. I probably sound like a broken record (or as my kids would tell me, a “corrupted mp3 file”), but that has pretty much been the case with this area of the market. I see no reason to alter that approach for now.




The big-stock NASDAQ names have continued to act reasonably well. But after some upside extension, pullbacks might be considered normal. It all depends on how these pullbacks play out. And as I’ve indicated in recent report, if we started to see material, technical breakdowns in any of these then we would have concrete reasons to be on the lookout for a more significant market pullback or correction.

Facebook (FB) is one big-stock name that is certainly not extended, and so far remains in a short consolidation following last week’s failed buyable gap-up move after earnings. In fact, we can see that the stock pulled right into the 10-day moving average today on a voodoo volume signature.

(A voodoo (Gilmo slang for VDU, or volume dry-up) pullback occurs in a leading stock that is pulling into a logical area of support, either at a key moving average like the 10-day, 20-day, or 50-day moving average, or the top of a prior base. Generally, volume on a voodoo day is less than -45% below average, although it can also be measured contextually relatively to the volume seen on preceding days on the chart.)

Volume dried up to -51.3% below average today, which is constructive action as the stock tries to find its feet. This pullback puts the stock in a lower-risk buy position right here on the basis of the voodoo pullback. In this case, the 20-day moving average at 122.43 might serve as a reasonable selling guide. Obviously, any high-volume breakdown through the 20-day line would be cause for concern. It would also serve as a clear signal that the market is running into trouble. So far, we’re not even close to that, so for now this pullback is constructive.




Apple (AAPL), not shown here on a chart, pulled back today after getting slightly extended from its 200-day moving average. It is also extended from its 10-day moving average at 106.34. Selling volume was well below average today, so a low-volume pullback into the 10-day line could present a lower-risk entry/add point. (AMZN), also not shown here on a chart, remains above its 10-day moving average and is holding tight as volume dried up to -52.5% below-average. Pullbacks to the 10-day line at 762.46 on light volume would probably be your best lower-risk entry opportunities.

Alphabet (GOOGL) has been able to hold above the $800 Century Mark and its 10-day moving average. The 10-day line is at 798.39, which I would consider a reasonable selling guide if one is long the stock based on Livermore’s Century Mark Rule for the long side.

Notice, however, that the stock seems to be unable to get any real upside momentum going beyond the 800 level. As I wrote over the weekend, the move up through the $800 level should produce a strong follow-through. Instead, we can see that the stock stalled a bit on higher volume yesterday after an attempt at all-time highs.

Today GOOGL actually posted an all-time closing high, but volume came in at -48.6% below average. Personally, I don’t view GOOGL so much as a long idea as I do a barometer for the general market. As it continues to act well, that is likely positive for the market. But a high-volume breakdown through the $800 Century Mark and the 10-day moving average would be cause for concern, if not causing the stock to morph into a short-sale target outright.




Netflix (NFLX) posted a nice pocket pivot coming up through the 50-day moving average last Friday, but was unable to hold the pullback into the line earlier this week. While it was understandable that the stock might pull back after speculation that Alibaba (BABA) was going to buy them proved to be false, the stock needed to hold the 50-day line on the pullback.

As I wrote over the weekend, the place to buy Friday’s pocket pivot was before the pocket pivot, “…closer to the 20-day moving average on Thursday when the stock tested the line on very light volume that came in at -67% below average.” On the heels of the pocket pivot, only a low-volume retest of the 50-day line would provide a newer, lower-risk entry.

NFLX dipped down as far as the 20-day line today as volume dried up sharply at -47.7% below average. This put the stock into the lowest of its current lower-risk entry positions. By the close, NFLX had regained its 50-day moving average. This action, combined with the volume dry-up, puts the stock in a lower-risk entry position here using the 20-day line at 93.24 as a selling guide.




Other names we’ve done well with recently are also showing some loss of momentum. Mobileye (MBLY), for example, was unable to hold the 20-day moving average today as it broke below the line on increased selling volume. Over the weekend, I discussed the wedging rally up into the 20-day moving average, and that we would look for some sort of action that would serve to correct the wedge. A retest of the 50-day moving average could serve as this corrective action, but we would have to see what the stock looks like if and when it gets there.

Currently, all we know for certain is that the stock has dipped back below the 20-day moving average on increased, but below average, volume, pending a potential test of the 50-day line.




Among the stocks that dwell in the clouds, Twilio (TWLO) has been the hot, new-merchandise play since I first discussed it in early July. TWLO beat fairly handily on earnings after the close on Monday, leading to a gap-up move above the 45 price level yesterday.

Given how far TWLO has come since its IPO, tripling from its original IPO pricing at $15, it was not surprising to see the obvious flag breakout move get sold into. However, despite the failed attempt at a buyable gap-up yesterday, the stock did manage to post a stalling pocket pivot as it found support at the 10-day line early in the day.

So while TWLO wasn’t able to break out from what is basically a 3½ week flag formation, it has posted a pocket pivot here along the 10-day line. For that reason, the stock is in a technically buyable position here, using the 10-day line at 40.98 as a tight selling guide.




While a new-merchandise cloud-related name like TWLO looks quite constructive, older-merchandise cloud name (CRM) is beginning to fall by the wayside. After rallying up to its 50-day moving average over the prior three days, the stock actually morphed into a short-sale target as it failed at the 50-day line today.

Volume picked up on the day, coming in just below average as the stock posted a lower closing low. Earnings are not expected to be announced until August 29th, so this could be considered a potentially actionable short here using the 50-day line at 81.12 as a guide for an upside stop.

Other cloud names that I’ve discussed in recent names remain somewhat mixed. Both ServiceNow (NOW) and Workday (WDAY), not shown here on charts, are pulling in on very light volume. Both closed below their 10-day moving averages today on voodoo volume signatures, which might make them buyable using their 20-day lines at 73.44 and 81.05, respectively, as nearby selling guides.

The other option is to take a more opportunistic approach and look for any continued pullbacks toward the 20-day lines as potentially lower-risk entries. In both cases the stocks simply look to be setting up in consolidations. Only WDAY has yet to announce earnings, and those are expected on August 24th.

Adobe Systems (ADBE) has turned out to be something of a beautiful swan as it posted a pocket pivot trendline breakout to new highs today on slightly above-average volume. Last Wednesday I discussed this as an Ugly Duckling set-up based on the undercut of the prior mid-July low and the potential for a 50-Day Moving Average Violation Fake Out.

Last Friday ADBE pushed above its 50-day moving average as it cleared the July price range, and today it cruised right through the $100 Century Mark. This puts it into a buyable position using the 100 price level as a very tight selling guide. Alternatively, the 10-day line at 98.09 would serve as a somewhat wider selling guide, although the stock is only about 2.5% above the 10-day line based on today’s close.




Splunk (SPLK), not shown here on a chart, was last buyable as it was sitting along its 20-day moving average, as I discussed in my weekend report. The stock tried to post a higher high today but reversed as volume came in well below average. This still looks buyable on pullbacks to the 10-day line, now at 61.29, although the 20-day line at 60.10 would offer a lower-risk entry level should a pullback that far occur. SPLK is expected to announce earnings on August 24th.

Zendesk (ZEN) followed up on last Friday’s strong move off the 28 price level and the top of the prior base with a continued move to new highs Monday and yesterday. Notice how the peak of the move, yesterday, came on very light volume as the stock ran out of gas, so to speak.

That led to a pullback into the 10-day moving average today on volume that was 7.4% above average. This is not necessarily the type of pullback I would want to buy into as I would prefer to see volume dry up. However, if the stock can hold at the 10-day line as we see selling volume dry up, then it would potentially offer another entry point.

The truly opportunistic entry point occurred just above the 28 price level based on my discussion of the stock in last Wednesday’s mid-week report. The thing one has to be careful about is getting prematurely excited about today’s pullback. Psychologically, one might not have wanted to buy the stock near the 28 level. However, after watching the stock rise for three straight days one gets comfortable with it and wants to buy into any subsequent pullback in knee-jerk fashion.

In my view, taking the more opportunistic approach of buying near the 28 price level and then selling into the three-day, 10% upside price move to new highs makes more sense. Now I’d continue looking for a more opportunistic entry, perhaps down to the 20-day moving average at 29.12.




I’ve noticed that most investors won’t take a position at the most opportunistic points, but instead only get excited after seeing the stock rally for 2-3 days. Then they want to buy the first pullback with the idea that the stock will immediately launch higher. In this market that is often not the case, and it is generally best to wait for more opportunistic entries when you can get them.

Electronic Arts (EA), not shown, is pulling into its 10-day moving average as volume dried up to -57.2% below average today. This puts it in a lower-risk entry position using the 10-day line at 77.,92 as a tight selling guide.

Meanwhile, EA’s cousin, Activision Blizzard (ATVI), has been able to hold above its 10-day and 20-day moving averages after going through the washing machine spin cycle last Friday following its earnings report. As I discussed over the weekend, Friday’s action could “…present a possible Ugly Duckling type of entry opportunity, and risk can be kept low by using the 50-day line as a tight selling guide of one decides to take the plunge on ATVI.”

So far that would have worked as the stock lifted off the 10-day line and back up through the 20-day line on a slight increase in volume yesterday. ATVI then pulled in slightly today as volume dried up to -44.9% below average. It’s still difficult, however, to get a precise handle on the stock’s price/volume action right here. Obviously, last Friday’s gap-up open was sold into on heavy selling volume, which comes off as less than constructive action.

This could morph into a short-sale target if it begins to break below the 20-day and 50-day moving averages on a resumption of heavy selling. Thus if one wants to test this on the long side, using the 10-day line at 40.50 as a tight selling guide would make sense.




Cyber-security names have not fared well after announcing earnings. Fortinet (FTNT), FireEye (FEYE), and now CyberArk Software (CYBR) have all been pummeled after earnings. In CYBR’s case, the company came out with what looked like a favorable earnings report but gapped down at the open this morning nevertheless.

The move came on huge selling volume and took the stock down to its 50-day moving average. By the close, CYBR did manage to hold above the line while undercutting a prior low from the latter part of July. CYBR also closed above that low at 50.87 in a minor undercut and rally attempt.

Whether this sets ups a more pronounced rally following the undercut of the 50.87 low from July remains to be seen. I suppose if one wanted to test this out as a possible Ugly Duckling set-up then the trade is fairly simple. You go long here using the 50.87 price level as your tight downside selling guide.




Below are Notes from my Trading Journal regarding other long ideas discussed in recent reports. Most of these have earnings coming up in the next few days so should be watched for anything actionable that might develop following their respective earnings reports:

Acacia Communications (ACIA) – pushed to a new high today on a pocket pivot volume signature, but the stock is extended from its 10-day moving average. Earnings are expected out tomorrow, August 11th, after the close. Nothing to do here ahead of earnings.

Alibaba (BABA) – earnings are expected tomorrow before the open. That didn’t stop the stock from gapping higher today on heavy buying volume ahead of the report. Tune in tomorrow at the open to see where this thing is at after earnings!

Ambarella (AMBA) – had a pocket pivot move to higher highs yesterday and pulled in today on very light volume. 10-day line at 58.46 remains your closest reference point for a lower-risk entry. However, if one was ever interested in AMBA on the long side, there have been numerous entry opportunities along the way over the past month or so.

Atlassian Corp. PLC (TEAM) – has failed to hold up after last Friday’s big-volume continuation pocket pivot move. TEAM sold off hard on Monday as volume came in very heavy and exceeded the volume levels seen on Friday’s pocket pivot. This is currently in a somewhat compromised position, and I would need to see whether it can stabilize and set up again before declaring this to be buyable again.

Barracuda Networks (CUDA) – holding tight along its 10-day moving average as volume dries up to extreme voodoo levels. The daily chart of the stock shows a pullback all the way down to the 20-day moving average, but this looks like a false print. I show today’s intraday low on the five-minute chart to be 21.75, which is little more than very tight price action along the 10-day line. Certainly, if we did see a pullback to the 20-day moving average at 21.02, that would be your most opportunistic entry point, should it actually occur.

Energy Recovery (ERII) – this has gotten quite extended after last Thursday’s big-volume pocket pivot and trendline breakout. From here only a pullback to the rapidly rising 10-day moving average, not at 11.54, would present us with a potential reference point for a lower-risk entry.

Fitbit (FIT) – making a break for the 10-day moving average at 14.62 as selling volume picked up to 18.2% above-average today. This is not the type of action I would consider to be constructive on a pullback, but we will keep a close eye on the stock as it nears the 10-day line as this could present a lower-risk entry opportunity IF selling volume dries up at that point.

Gigamon (GIMO) – holding up well along the 10-day line. Dips into the line, now at 44.92 continue to represent potential lower-risk entry opportunities, although any pullback to the 20-day line at 43.21 would provide an even more opportunistic entry, should that occur.

GrubHub (GRUB) – kissed the 40 price level today but could not hold as it reversed and closed near the lows of the day and right at the 10-day moving average. This may be losing momentum, and I would be looking for a more opportunistic entry down at the 20-day moving average, currently at 35.72, should that occur.

Imperva (IMPV) – limping along just above its 50-day moving average. With the cyber-security group weakening, this does not strike me as something to consider as buyable right here.

Nvidia (NVDA) – earnings expected tomorrow, so there is nothing to do here until then. Stock continues to act well as earnings approach, logging another all-time high on Friday on increased buying volume.

Palo Alto Networks (PANW) – stock busted the 50-day moving average on heavy selling volume today in sympathy to CYBR’s earnings report. We can take this one off the table as a long idea ahead of earnings on August 30th. Aside from CUDA, cyber-security stocks have disappointed on earnings, so there is no reason to expect that PANW will stage any kind of significant upside movement ahead of its own report.

Silicon Motion (SIMO) – holding along the 10-day moving average where it found some support as volume dried up to -57.3% below average.  Would view the stock as buyable here using the 10-day line at 53.13 as a tight selling guide. Alternatively, the 20-day line at 52.64 can be used if one wishes to give the stock more room given its volatile nature.

Square (SQ) – holding tight along the 11 price area as volume continues to dry up. The stock may be setting up for a test of the 10-day moving average at 10.70, which should be watched for as a potential lower-risk entry opportunity.

Weibo (WB) – rocketing higher after beating earnings Monday after the close. Nothing to do here since the stock is way extended from its last breakout point from Friday of last week.

Yirendai Ltd. (YRD) – also blew out earnings and gapped higher to close at an all-time high. The stock closed mid-range on big volume and is not in what I would consider a lower-risk buy position. Watch to see whether this settles into the 10-day line and sets up again. 

Zayo Group Holdings (ZAYO) – wedging back above the 20-day moving average after successfully holding the 50-day moving average and the prior base breakout in the low 28 price area. The 50-day line at 28.06 remains your maximum selling guide for ZAYO.

As the NASDAQ gets extended, so do many leading stocks, in particular the new-merchandise situations like ACIA, YRD, and WB that I’ve discussed in recent reports. In fact, some of you might remember that I discussed WB as reminding me of BIDU back in 2006-2007 (see July 3rd report). This seems to be where the real juice has been in this market.

In that vein, I like the prospects for TWLO as a strong new-merchandise play IF the general market rally is able to continue. As we move into the middle of August, however, things feel like they might be slowing, and so we could be susceptible to some backing-and-filling up here. In the process that of course brings favored long ideas into potentially lower-risk entry points, so that’s what we want to be watching for here.

Otherwise, should the general market start to get into trouble, we know what to look for in terms of concrete price/volume action in leading stocks. So, to quote the great Porky Pig, “Th-th-th-that’s all folks!”

Gil Morales

CEO and Principal, Gil Morales & Company, LLC
Managing Director and Principal, MoKa Investors, LLC
Managing Director and Principal, Virtue of Selfish Investing, LLC

At the time of this writing, of the stocks mentioned in this report, Gil Morales, MoKa Investors, LLC, Virtue of Selfish Investing, LLC, and/or Gil Morales & Company, LLC held positions in FB, NFLX, and TWLO, though positions are subject to change at any time and without notice.

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