The Gilmo Report

August 14, 2016

August 14, 2016

The NASDAQ Composite Index finally managed to close at an all-time high after reaching an all-time intraday high on Tuesday. By the closing bell on Friday the index pegged its price at 5232.89, its highest close since July 20, 2015, when it closed at 5231.94.

Of course, Tuesday’s intraday peak of 5238.54 is the highest print in the NASDAQ’s history. Despite all the noise about all-time highs, however, the index essentially remains within a tight six-day flag formation as it tracks just above its 10-day moving average.

If we begin to see more action like what we saw in new-merchandise names this past week, the odds of the index making a clean break out to all-time highs will certainly improve. From an index point of view, the NASDAQ’s tight action as volume dries up may be setting that up. The bottom line is that if you were in the right stocks you had a very nice time this past week.

 

GR081416-$COMPQ

 

The S&P 500 Index is also holding in a tight range here after breaking out of its prior July range six trading days ago. With volume drying up nicely here, the index looks poised for a breakout to new highs as well. We have also seen the small-cap Russell 2000 and the broad NYSE Composite Indexes play catch up as they now look exactly like the S&P 500. Both are forming tight ranges after breaking out to higher highs last week.

 

GR081416-$SPX

 

As stocks start to rev up a bit more, precious metals are losing their luster as both the iShares Silver Trust (SLV), not shown, and the SPDR Gold Shares ETF (GLD), shown below, have come under additional selling pressure. The GLD, in particular, got hit with two above-average volume selling days this past week as it drops below its 20-day moving average.

The drop occurred despite a weak Producer Price Index which came in at a deflationary -0.3% vs. estimates of +0.2% as well as poor retail sales. This would appear to give the Fed additional arrows to add to their quiver of excuses for standing pat on interest rates. Thus we have to look at this as a potentially buyable pullback in the metals and their associated stocks.

The GLD is now looking at a possible test of its 50-day moving average at 125.87. The SLV has also moved back below its 20-day moving average on increased selling volume, albeit below average on Friday. It is looking at a possible test of its own 50-day line at 18.03. In either case, these could present lower-risk entry opportunities, so this should be watched for if you are a fan of the precious metals.

 

GR081416-GLD

 

The drop in gold and silver did not bring on any heavy selling in my favored precious metals stocks, Silver Wheaton (SLW), First Majestic Silver (AG), and Agnico Eagle Mines (AEM). Among the three, SLW is holding up the best as it remains above its 10-day moving average. Both AG and AEM, not shown here on charts, have dipped just below their 10-day moving averages but still remain above recent range breakout levels.

In my view, the most opportunistic pullbacks for lower-risk entries would occur if SLW, AG or AEM came down to their 20-day moving averages at 28.18, 57.06, and 17.24, respectively. I have to admit, however, that I would prefer to own strong growth stocks in this current market rather than news-oriented beasts like precious metals and precious metals stocks.

 

GR081416-SLW

 

And when it comes to growth stocks, new-merchandise plays have dominated the upside excitement category in this market over the past few days. In light of this, it is quite interesting to read my blog post of July 3rd titled, “New Merchandise.” In that blog post, you can see that I essentially covered the stocks that have been hot over the past two weeks.

The names I highlighted in that discussion were Acacia Communications (ACIA), Atlassian Corp. (TEAM), Gigamon (GIMIO), Match.com (MTCH), Mobileye (MBLY), Twilio (TWLO), Weibo (WB), and Yirendai Ltd. (YRD). While all have or did move to higher highs following July 3rd, it has really been the newest of the new-merchandise names discussed in that blog post that have stolen the show, so to speak.

It all began on Monday with Twilio (TWLO), which announced strong revenue gains when it reported earnings after the bell. This sent the stock gapping higher on Tuesday as it attempted to break out from a short flag formation. That breakout failed to hold.

However, as I blogged on Tuesday morning, the pullback into the 10-day line was where you would look to buy the stock once it was unable to hold the gap-up breakout move. As is generally the case, the opportunistic entry is usually the one that looks least appetizing but tends to work. Certainly, TWLO wasn’t looking too great on a failed flag breakout attempt.

But the move into the 10-day line provided a lower-risk entry point. And even if it didn’t work at that point, risk could easily be kept to a minimum. In any case, TWLO took off on a big upside romp on Thursday and Friday as volume expanded sharply. At this point the stock is quite extended, and it is now a matter of seeing how this eventually consolidates such rapid and heady gains before another entry point can be determined.

 

GR081416-TWLO

 

I’m pretty sure everyone will want to start calling TWLO a “high, tight flag,” but I would caution members from getting overly wrapped up in the illusion of applying labels. Way back in the 1960’s, Bill O’Neil owned Syntex Corp. and it formed a tight flag formation after running to the upside. It then launched much higher.

In my view, that is where the entire concept came from in the first place, and a sample size of one is not sufficient to draw any special conclusions about the pattern itself. In addition, there were numerous contextual factors involved in that particular price move way back then that helped make such a pattern work spectacularly.

It is much better to keep things at a granular level, focusing on the precise price/volume action that characterizes any breakout, whether from a high, tight flag, a low, loose flag, or anything in-between. Some seem to think that just because one can slap a label on something as a so-called high, tight flag it means the stock is invincible. That is simply not true.

What is more meaningful to me is the three weeks of tight weekly price closes on the chart as volume dried up during the last week, highly constructive action that preceded the breakout. In addition, it was more a matter of catching the post-earnings pullback to the 10-day line on the daily chart to determine the proper entry point. Trying to label the chart this or that is irrelevant to the process, as I see it. In the meantime, I’m quite happy to pick up a 20%-plus gain in three days in the stock!

 

GR081416-TWLO Weekly

 

Weibo (WB) also released their earnings report on Monday after the close and then gapped and ran to all-time highs on Tuesday. The stock had already broken out last week, as I discussed in last weekend’s report, and it simply built upon that pre-earnings strength for the rest of the week.

Here we see the stock holding very tight over the past two trading days as volume comes in below average. This could indicate that the stock is simply going to move higher from here. However, I would prefer to look for a pullback to the 10-day moving average, now at 37.73, as a much lower-risk potential entry opportunity, should it occur.

 

GR081416-WB

 

Yirendai (YRD) handily beat its earnings estimates on Tuesday after the close, and gapped to a new high on Wednesday on huge volume. Theoretically, that could have been treated as a buyable gap-up using the intraday low of 28.31 as a selling guide. However, the stalling action seen on Tuesday was perhaps not optimal. That led to a move back below that 28.31 low and down toward the 10-day moving average at 26.44. I would like to see the stock pull into and hold the 10-day line on volume that declines further as a potential lower-risk entry point from here.

 

GR081416-YRD

 

Acacia Communications (ACIA) capped off a week of “new-merchandise madness” with an incredibly strong earnings report Thursday in the after-hours that set up a massive, blistering upside gap on Friday. The company reported earnings of 77 cents a share, literally smoking analysts’ estimates of 47 cents a share. Overall, the report gave investors a glimpse of how strong ACIA’s business is, and everybody wanted in at that point.

For those who were alert, the stock set an intraday low at 83 right off the opening, and then trundled higher before slowing down as it approached the $100 Century Mark. Clearly, the move was a buyable gap-up (BGU), and anyone who caught that got a nice 15% move into the close even with the big 15-point opening gap.

From here, I would watch for any retracement of Friday’s price bar, perhaps a 50% retracement down toward the 90 price level. Of course, the stock could just keep going from here, although I might look for the $100 Century Mark to perhaps serve as some sort of near-term psychological resistance. This is clearly a situation where if you didn’t get in near the open on the basis of the buyable gap-up, you are now looking to see what sort of secondary entry point might develop. That may take a day, or a few days, so all you can do is wait and watch.

 

GR081416-ACIA

 

Line Corp. (LN) is another new-merchandise play that is a recent hot IPO out of Japan. The company is something of a Japanese version of a more advanced WhatsApp, basically a social-networking platform that includes mobile messaging, gaming, and videos, among other thing. This, combined with the fact that it serves Japan and other Asian-Pacific countries is what gives it its sizzle.

LN came public about five weeks ago at $32.80 a share and opened up at 42 on its first day of trading. It reached an intraday high of 44.49, and then proceeded to tank. It finally bottomed at 36.45, rallied for a week, and then headed back down to a low of 36.01 where it undercut the prior low. That led to a classic undercut-and-rally move from there, and could have been played as such for anyone alert to the set-up in real-time. On Friday the stock emerged from an IPO U-Turn pattern on a pocket pivot trendline breakout move. Buying volume picked up sharply.

While it looks extended, it has the potential to continue moving higher given the way this type of pattern can work out. At worst, I would look for the stock to pull back into the 42-43 price area as a lower-risk entry point. At best, one could enter here using the 42 price level, about 5% lower, as a selling guide.

 

GR081416-LN

 

The IPO U-Turn pattern is generally a powerful set-up. For example, we can look at the old Google (GOOG) (now Alphabet (GOOGL)) IPO U-Turn formation back in September of 2004. I bought that U-Turn breakout, and I recall at the time thinking it might be a little extended, but the stock just kept going higher. I also recall that at that point I was down 12% for the year, but after purchasing GOOG shares in September I eventually ended up loading into Apple (AAPL) as well in mid-October 2004 and then riding both stocks higher for a 168% gain in my personal account by year-end.

It was a nice example of the IPO U-Turn formation, which was first discussed in the book I wrote with my colleague Dr. Chris Kacher, Trade Like an O’Neil Disciple: How We Made 18,000% in the Stock Market” in 2010. eBay (EBAY) in 1998 was actually the first such IPO U-Turn formation I ever saw, and since then I’ve seen the pattern appear fairly often.

 

GR081416-GOOGL 2004 Daily

 

For example, some of you may recall the IPO U-Turn pattern formed by Mobileye (MBLY) only a few weeks after it came public in August of 2014, exactly ten years after GOOGL. Here we can see that MBLY’s price/volume action is more similar to LN’s in that it came up the right side of the short “U” formation and paused for a couple of days to form a short two-day handle.

MBLY then posted a pocket pivot trendline breakout as it moved to new highs, very much like what LN has done over the past three days. MBLY then proceeded to go higher from there on a very profitable post-IPO U-Turn price romp.

 

GR081416-MBLY 2014 Daily

 

An IPO U-Turn pattern is not significant as a mere label for a chart pattern. In fact, the pattern doesn’t really fit any of the other labels that are part of the O’Neil-style catalog of base formations. It is not a flat base, and it certainly isn’t a cup-with-handle or a double-bottom. When I first showed Bill O’Neil the U-shaped pattern that GOOG was forming back in August 2004, he simply waved it off as a “nothing.” As he put it, “What is this? It’s not a flat base, a cup-with-handle, or a double-bottom, so it’s a nothing!” I replied, “No, it’s not a nothing, It’s a U-Turn pattern!”

Once I convinced him that it was similar to a flag pattern where you don’t see the flag “pole” because the IPO opens up way above its offering price, he became less skeptical. Obviously, if a stock is priced at, say, $25 a share but opens up at $40 on the first day of trading, there is a big, invisible “flag pole” that extends from 25 to 40. Voila! And so, the IPO U-Turn pattern found its place among O’Neil-style chart patterns, at least in my mind. More important, this sort of pattern is seen often, and is one I pay attention to, particularly when it occurs in a hot IPO.

 

GR081416-MBLY 2014 Weekly

 

LN’s IPO U-Turn breakout may have the same potential, but we’ll have to let the stock tell its own story. However, I do know that if I saw the stock dip back in toward the 42 price level in constructive fashion I would probably be all over it on the buy side.

It may be meaningful for the general state of the market to note that all this upside excitement was not limited to the new-merchandise names this past week. We also saw some gap-up action among existing older merchandise names like Alibaba (BABA) and Nvidia (NVDA) this past week. At least in the case of BABA, the BGU (buyable gap-up) had some teeth, although these were not evident right away.

BABA gapped up on Thursday after beating on earnings after the close on Wednesday, and essentially churned around on heavy volume. However, that was a clear buyable gap-up using the intraday low at 91.26 as a selling guide. That would have worked out well as an actionable buy point as the stock launched another 6.48 points higher on Friday as it approaches the $100 Century Mark.

BABA might also be considered a new-merchandise play since it came public less than two years ago. After a brief post-IPO move higher to 120 in late 2014, the stock declined more than 50%. It finally bottomed out at 57.20 in October of last year.

More recently, I have discussed the stock as buyable back in mid-July when it regained its 50-day moving average following an undercut & rally move that occurred during the brief Brexit sell-off. (see my July 6th and July 10th reports). If one bought the buyable gap-up on Thursday, one is now sitting pretty, and it is now a matter of watching to see how and when this presents another lower-risk entry point.

 

GR081416-BABA

 

Nvidia (NVDA) has been a big leader in this market ever since I first discussed the stock in my March 20th report. In particular, the stock has trended steadily higher since early July when it emerged into new-high price ground following the Brexit sell-off.

On Friday the stock posted a buyable gap-up move after beating handily on earnings the night before. This was actionable as a BGU using the 60.63 intraday low as a selling guide. NVDA closed Friday at 63.04, which puts it within 4% of the intraday low. Hence this remains within buyable range, although I would view any pullback closer to the 60.63 level as a more opportunistic entry.

 

GR081416-NVDA

 

While these names rocket to the upside, the big-stock NASDAQ names are acting much like the NASDAQ Composite itself as they mostly track sideways. This includes names like Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL), Microsoft (MSFT), Priceline Group (PCLN), and, of course, Facebook (FB).

The first five are all tracking sideways with GOOGL and MSFT sitting right at their 10-day moving averages with volume drying up sharply. This would put them in lower-risk entry positions right here. AMZN is about 1% above its own 10-day line which is at 765.69, so that too is within buying range as volume dries up sharply. Meanwhile, AAPL is also about 1% above its 10-day moving average, now at 107.10, which would put it into a possible entry position here.

Priceline Group (PCLN) is holding up very tightly after posting a buyable gap-up move on a base breakout following earnings. The stock has held tight sideways over the past five days as volume has dried up to extreme voodoo levels. On Friday PCLN traded volume that was -59% below average. Now that five trading days have passed since the BGU of two Fridays ago, I would expect the stock to start moving higher from here if in fact this BGU breakout is for real. In this case the 10-day line at 1387 would serve as a reasonable selling guide.

 

GR081416-PCLN

 

Facebook (FB) also remains in a tight consolidation along its 10-day moving average as volume remains very light. Volume declined to -43% below average on Friday, which keeps the stock in voodoo land. Some might argue that the stock’s sluggish behavior might be due to it being over-owned given that institutions own about 58.6% of the stock’s total shares.

However, I note that in the latest June report, Fidelity Contrafund, one of the largest owners of the stock, added to their position. Also, for a company selling at 32 times forward earnings estimates, FB offers high double-digit earnings growth. Therefore, it’s hard for me to see how the stock would be dumped in wholesale fashion.

I can see some selling occurring as some institutions might need to pare their position if their charters don’t allow them to own more than a certain percentage of any single stock relative to total assets. That sort of thing, however, is often temporary. What might be holding the stock back is the currently unresolved notice the company received from the Internal Revenue Service.

One can speculate about all of this, but ultimately the “market mind” will come to some conclusion. That conclusion shows up first in the price/volume action of the stock. For now, we can see that the stock is holding tight along its 10-day moving average as volume dries up in constructive fashion. Therefore, it is currently in a lower-risk buy position, end of story.

 

GR081416-FB

 

If all of these big-stock names can push out of these current consolidations, then they will most certainly drive the NASDAQ Composite up and out of its current six-day consolidation and price range. Note also that ALL of these names are consolidating as volume declines to voodoo levels. This, in my view, is perhaps a major clue that this market is likely headed higher. If we start to see these names all push out of their current consolidations and to the upside, we could easily see the major market indexes gain some significant upside momentum.

Netflix (NFLX) might also participate in such a move. The stock has recently been bought in significant size by an entity known as Orange Investors, L.P., of which NFLX Director Jay Gould is also a director. He does not own the shares individually, but the purchase is significant nevertheless.

That initial purchase of 600,000 shares took place right after NFLX tanked following its earnings report last month. That led to a gap-up move in late July. An additional 300,000 shares were purchased on August 8-9 by the same entity, leading to a smaller move higher on Thursday. Again, here we have some significant news causing a stir in a particular big-stock name, but the precise consequences of that news are difficult to ascertain. All we can know for sure is what we see in the price/volume action.

NFLX posted a pocket pivot two Fridays ago as it came up through the 50-day moving average and has consolidated that move in constructive fashion, pulling into the 20-day line earlier this past week. That has led to a move back up to the pocket pivot highs as sellers fail to materialize.

In my view, NFLX remains in a buyable position using the 20-day line at 93.70, about 3% lower, as a selling guide. If the stock is able to gain any significant upside thrust from here, it too could help propel the major market indexes higher along with these other big-stock names I’ve discussed here.

 

GR081416-NFLX

 

Mobileye (MBLY) looks to be losing traction as it retests its prior August lows en route to what looks like a potential test of the 50-day moving average. This is essentially what I’m waiting for with the stock. A successful and constructive retest of the 50-day line, which would also undercut the prior August lows might set up an opportunistic, lower-risk entry in the stock.

Note that volume has remained extremely light over the past eight trading days as it drifts lower. Thus it is now a matter of seeing where the buying volume kicks in, if at all. Overall I think it’s important to keep in mind that MBLY has had a big price run off of the mid-June lows, a rally of 47.9%. It may be that the current action is necessary to consolidate that move, so we want to watch this closely as it approaches the 50-day line.

 

GR081416-MBLY

 

Most of the cloud names that I’ve liked in recent reports look to be setting up for moves higher. For example, ServiceNow (NOW) is holding tight along its 10-day moving average as it forms a handle to its cup base extending back to early June. You might also notice that the handle is itself a little 11-day cup-with-handle.

The stock appears to pick up some minor volume support on pullbacks over the past couple of trading days. Meanwhile, Wednesday’s small pullback came on the lowest selling volume in the entire pattern as the stock logged a voodoo volume day that was -47% below average. The actual volume level was the lowest since before the lows of early February. Based on the extreme dry-up in selling volume this might be ready to go, so I consider it buyable here using the 20-day line at 73.89, 3% lower, as a selling guide.

 

GR081416-NOW

 

Workday (WDAY) is also showing some extreme voodoo volume signatures in its pattern. Friday’s volume came in at -79.9%, the lowest volume since its February lows. Thus this looks quite buyable here as it sits along the 10-day moving average and the top of the prior June-July base, using the 20-day line at 81.50 as a tight selling guide.

 

GR081416-WDAY

 

Adobe Systems (ADBE) held the $100 Century Mark level on Friday as it pulled in to test that price level and the top of the prior base. This remains in a buyable positon on the basis of Jesse Livermore’s Century Mark Rule using the 100 price level as a tight selling guide or the 10-day moving average at 98.73, less than 3% lower, as a wider selling guide.

 

GR081416-ADBE

 

Splunk (SPLK), not shown here on a chart, meanwhile continued to cruise higher on Friday as it posted its highest close since the February 2016 lows. Volume was below average, but pullbacks into the 10-day moving average at 61.59 would represent lower-risk entry opportunities.

Meanwhile, Salesforce.com (CRM), also not shown here on a chart, has been able to regain its 50-day moving average, and doesn’t appear to be all that intent on going anywhere ahead of earnings, which are expected on August 29th. Of course, it is an older merchandise cloud name and may need a strong earnings report to finally give it some upside impetus.

Square (SQ), a decidedly new-merchandise cloud name, has found support after pulling back toward its 10-day moving average in what looks like a nice, tight little flag formation it has built following last week’s buyable gap-up move. On a closing basis, the stock has never moved more than 3% below the 11.29 intraday low of the BGU day, keeping it in play as a bottom-fishing BGU, or a BFBGU for short.

Note that after pulling in to test the 10-day line without ever actually reaching it, SQ has now posted two strong days of upside volume as it moves to its highest closing high since early May. Note that Wednesday’s action constituted a constructive retest of the low that occurred the day after the BGU as volume dried up sharply on a relative basis. The ensuing above-average volume moves over the past two trading days have confirmed the prior BFBGU’s viability. This remains in a buyable position using the 10-day line at 10.96 as a selling guide.

 

GR081416-SQ

 

Yet another cloud-related name, and one that was featured in my “New Merchandise” blog post of July 3rd, is Atlassian Corp. PLC (TEAM). The stock has acted very well since early July, pushing up over 20% since my initial discussion of the stock. TEAM announced earnings two Thursday’s ago and then jacked higher the next on a big-volume continuation pocket pivot move. On Monday of this past week, however, the stock was hit was even higher selling volume and got knocked right back to its 10-day line.

Overall, that level of selling isn’t necessarily the end of the world given that the stock was able to hold the 10-day line. It also closed just above the line where it found intraday support. On Wednesday, TEAM got hit again after analyst firm BTIG Research downgraded the stock to “neutral.” That sent the stock careening through its 20-day moving average on an intraday basis but in fact set up a buying opportunity as the stock recovered to close near the top of its intraday range.

On Thursday and Friday, TEAM held steady as it retested the 20-day line and found support as volume picked up slightly. This could be setting up for a recovery in Ugly Duckling fashion. This theory can be tested by taking a position here with the idea of using the 20-day line as a tight selling guide. TEAM appears to have a pattern of getting hit with one or two days of heavy selling volume, holding steady, and then moving higher as it did in late June. The tight action here along the 30 price level could be setting the stock up for a similar recovery.

 

GR081416-TEAM

 

Fitbit (FIT) has retraced about half of its post-buyable gap-up move that occurred in the early part of August after announcing earnings. We can see that as the stock reached the 16 price level, buying volume began to decline although it was still coming in at above average. But by that point the stock was up over 20% from where it closed the day before the BFBGU.

A natural pullback from the 16 price level has brought the stock back into its 10-day moving average as volume dried up to -57% below average on Friday. This puts the stock in a lower-risk entry position at the 10-day line with the idea that it should continue to hold along the line from here.

 

GR081416-FIT

 

Video game stocks have been losing some of their momentum lately as Electronic Arts (EA), not shown, has dipped below its 10-day and 20-day moving averages but is still holding above the 50-day line at 76.45. The stock really has gone nowhere over the past three months as it has not been able to build on its post-earnings buyable gap-up move back in May.

While EA is perhaps buyable here using the 50-day line as a tight selling guide, its cousin, Activision Blizzard (ATVI) is busy trying to stabilize after reversing hard on heavy selling volume after an initial post-earnings gap-up two Fridays ago. Volume came in at -38% below average on Friday as the stock tested the 20-day moving average and held.

This perhaps brings the stock into a lower-risk entry position using the 20-day line at 40.82 as a tight selling guide. However, in general, both of these names seem to lack the type of dynamism we are seeing in other areas of the market that we like. Play them as you see fit, but it’s not clear if these have the potential for big upside moves from here.

 

GR081416-ATVI

 

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 they should be watched for anything actionable that might develop following their respective earnings reports:

Ambarella (AMBA) – even more extended as the stock blasted another 2.29 points in what is now an eight-day uptrend off of the 20-day moving average, its last lower-risk entry point.

Barracuda Networks (CUDA) – finally got hit with some selling after an analyst’s downgrade on Friday. Stock closed just below the 20-day moving average on heavy selling volume, so we want to see how and whether this is able to stabilize around the 20-day line.

CyberArk Software (CYBR) – after pulling a quick undercut and rally move off of the Wednesday lows, the stock ran into resistance at the 20-day moving average. With the cyber-security group remaining weak, this is not in a buyable position as far as I’m concerned, and may even be morphing into a short right here. In a continued market rally, however, I would rather be focusing on long ideas.

Energy Recovery (ERII) – starting to pull in a bit, but would like to see it pull further down to the 10-day moving average at 11.97 as the most opportunistic entry point.

Gigamon (GIMO) – holding tight along the 10-day line as it continues to work on what is now a two-week flag formation. This looks constructive, and can be viewed as buyable here with the idea of using the 20-day line at 43.66 as a downside selling guide. Of course, a pullback to the 20-day moving average would represent a more opportunistic entry, should that occur.

GrubHub (GRUB) – holding tight just under the 10-day moving average, but would still like to see a pullback to the 20-day moving average at 36.23 as the most opportunistic entry.

Imperva (IMPV) – stock regained its 10-day and 20-day moving averages on Thursday and then pulled back slightly on volume that was -65.6% below average. While I remain skeptical of the cyber-security group in general, this is technically back in a lower-risk buy position using the 20-day line at 45.72 as a tight selling guide.

Silicon Motion (SIMO) – holding along the 10-day moving average as volume remains light. This is in a buyable position using either the 10-day line at 53.57 or the 20-day line at 52.88 as nearby selling guides.

Zayo Group Holdings (ZAYO) – retesting the 10-day and 20-day moving averages over the past two days on very light volume. This may be a Wyckoffian Retest of the prior early August lows and hence buyable using the 10-day line at 28.35 as a tight selling guide

Zendesk (ZEN) – found support at its 10-day moving average on Wednesday and then bounced on Thursday. However, it did not clear to new highs and on Friday edged back toward its 10-day moving average. Technically, in a buy position using the 10-day line at 29.88 or the 20-day line at 29.40 as nearby selling guides.

From an index point of view, all we have seen this past week has been tight sideways action, albeit constructive action. Meanwhile, the quiet action of the indexes masks the excellent profit opportunities that have emerged in a number of new-merchandise names, including a stock like BABA.

This of course proves the notion that the stock market is less a stock market than it is a market of stocks. Therefore, focusing on the individual set-ups at hand while paying less attention to the activity or, more accurately, inactivity of the general market indexes is the preferred approach. I’ve often pointed out that strong opportunities can occur when you least expect them, and I have to admit that on Wednesday I had no idea we would see such profitable set-ups emerge over the next two days.  Meanwhile, I am seeing more set-ups quietly winding themselves up.

A lot of these are occurring in big-stock names, as well as not-so-big-stock names as I’ve discussed in this report. The quiet, constructive action in these big-stock names might be giving us a strong clue that this market is about to gain some momentum on the upside if they can start to break out to higher highs.

The best way to be positioned for this is to take positions at the prescribed lower-risk entry points, period. Trying to determine the market’s profit potential based on the action of the indexes is not necessary and has been proven to be misleading over this past week. Just watch the stocks. Take it from there.

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 ACIA, FIT, LN, NFLX, SQ, and 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. ©2008-2017 Gil Morales & Company, LLC. All rights reserved.