The Gilmo Report

August 28, 2019

August 28, 2019

Extreme, news-driven volatility continues to dominate the action. Tweets from the President claiming the Chinese called and “want a deal,” counter-claims by the Chinese that no such calls took place, and ever-lower Treasury yields keep things swirling in what is essentially a very volatile price range that is now slightly more than three-weeks in duration.

The concrete technical catalyst for today’s bounce off the lows came in the form of the Dow bouncing off its 200-dma. Falling Treasury yields may also provide some impetus to the idea that the Fed will soon lower rates, perhaps even aggressively so. In any case, as things looked to get ugly this morning, it only brought about a visit from the Ugly Duckling.

 

The market’s current leading index, the NASDAQ Composite Index peeled away from its 20-dema and to the downside yesterday before posting a relatively tepid bounce today. Volume was lighter and the index is trapped in no-man’s land near the lows of its current range.

The NASDAQ lagged the other two Big Three market indexes, up only 0.38% vs. the S&P 500’s 0.65% and the Dow’s even 1% gain. To some extent the action had the feel of movement into beaten-down, lower-PE industrials and other names, including oils. If this is merely a defensive type of move to low-beta from high-beta names, we will know soon enough.

 

 

The 30-year Treasury yield reached an all-time closing low of 1.938%. This keeps the ball rolling for precious metals, and both the SPDR Gold Shares (GLD), not shown, and the iShares Silver Trust (SLV) pushed to higher highs. As I discussed over the weekend, the extreme highs in the gold-to-silver ratio set silver up for some near-term outperformance relative to gold.

We saw exactly this yesterday when the SLV rallied 3.09% vs. the GLD’s 0.96% rise. And today the SLV gained 0.82% while the GLD pulled back slightly but held relatively tight. Between the two, the GLD is in a more buyable position using the 10-dma at 143.20

 

 

As the market rallies off today’s lows, I’ve got my eye on the big-stock NASDAQ names for any clues as to when a re-entry into the ProShares UltraPro Short QQQ ETF (SQQQ) might be viable. For now, all we know is that we have a rally off the lows on light volume, and the overall pattern is one of highly volatile but rangebound moves over the past three weeks or so.

Most big-stock NASDAQ names didn’t strike me as having much thrust today as the Dow names led the rally. That could change, however. Apple (AAPL) is hanging along its 50-dma where it could try and bounce. It wasn’t able to do much today, however, closing up barely more than ½% on weak buying interest. A breach of the 50-dma might also occur, triggering the stock as a short at that point.

 

 

Amazon.com (AMZN) is also in a position where it could go either way. It didn’t get much buying interest today either, but is attempting to pull an undercut & rally (U&R) move back up through the prior 1748.78 low of early August and its 200-dma. Technically, this would put AMZN in a buyable position using the 200-dma or the prior low as a selling guide.

Note that AMZN has been attempting to pull a clean U&R move for the past four days as it hangs along the 200-dma. A breach of the 200-dma would trigger the stock as a short-sale. Thus, we could watch AAPL and AMZN for breaches of support coinciding with 620 buy signals in the SQQQ as confirmation for an SQQQ long entry.

 

 

The group chart of six big-stock NASDAQ names I’ve discussed in recent reports show a picture of ugliness. The top three, Facebook (FB), Alphabet (GOOG), and Intel (INTC) are all trying to skip along prior lows where they might be viewed as being in U&R land. That, of course, remains to be seen.

The bottom three all look less enticing. Microsoft (MSFT) is just pushing back up toward its 50-dma, where it might become shortable again. Netflix (NFLX) keeps trending lower as it remains below the 10-dma. Note that it is trying to rally back above the 288 low of August 15th. This could trigger a U&R move back up to, say, the 20-dema, but I would tend to view this as a shortable rally.

Finally, Nvidia (NVDA) is trapped between its 50-dma and 200-dma after breaking to the downside last Friday when the market came apart. In this position it appears that rallies into the 10-dma or 20-dema present lower-risk short-sale entries. That said, selling volume has been light, so there is always the possibility of a sling-shot type of move back up toward last week’s highs around the $170 price level.

I keep a close eye on all these names as well as other big-stock NASDAQ names like BKNG, CSCO, ORCL, QCOM, TSLA, etc. in conjunction with the 620-chart of the SQQQ. This is to determine when I might be looking at a timely entry into the SQQQ. Conversely, if these were to all rally, one might also consider taking a long position in the SQQQ’s inverse brother, the ProShares UltraPro QQQ (TQQQ) ETF. Play them all as they lie.

 

 

With the market bouncing off the lows today, alert swing-traders might have started to look for potential long ideas. Given the uncertainty that remains in this market, I generally view these as short-term trades that might turn out to be nothing more than intraday scalps.

Here we see Twitter (TWTR) pull into its 20-dema and hold support both there and the 10-dma as volume declined to below average. This is technically in a lower-risk long entry position using the 20-dema as a tight selling guide.

 

 

In cloud land, most cloud names were under pressure today as Shopify (SHOP) broke below its $400 price level early in the day. But there were some undercut & rally and pullback set-ups in the group that seemed to offer lower-risk long entry points and some were good for long scalps, at least.

SHOP, on the other hand, became an actionable short-sale target today when it broke below the $400 Century Mark. I discussed this in my weekend video report as something to watch for, and the stock closed at 394.80 today, down 3% on a day when the market was up.

Watch for rallies up into the $400 price level from here as potential short-sale entries based on Jesse Livermore’s Century Mark Rule on the short side. SHOP has had a big run in 2019, pushing through two prior Century Marks, and it may be that the $400 Century Mark finally becomes a point of resistance.

 

 

SHOP’s breakdown also took down its cousin, Wix.com (WIX), which sliced through its 10-dma, 20-dema, and 50-dma in one fell swoop as sellers swarmed the stock. It is now a confirmed late-stage failed-base (LSFB) short-sale set-up, but one had to act on the stock today as it broke support. Now, only weak rallies into the 50-dma would offer lower-risk short entries from here.

 

 

Avalara (AVLR) was one cloud name I blogged about early in the day. It came within a penny of its prior 83.00 low, which in my view was close enough for a U&R type move. It then rallied to a close of 84.65 for a decent long scalp, closing three cents above its 20-dema.

This, then, triggers a moving-average undercut & rally (MAU&R) move using the 20-dema as a tight selling guide. Volume was weak, however, but the MAU&R is in effect and would be more actionable within the context of a continued market bounce from here.

 

 

Manhattan Associates (MANH) was like AVLR but it fully undercut its prior 82.32 low of last week and the 20-dema, and rallied back above both by the close. Thus, this is a clean U&R and MAU&R using either the prior 82.32 low or the 20-dema as selling guides.

Ideally, one saw this earlier today and acted at that time, which by the close would have given one a slight profit cushion. It and AVLR give you an idea of what I look for on days where we see a big index like the Dow bounce off its 200-dma, triggering a general market rebound.

 

 

We also saw CrowdStrike (CRWD) bounce not off its 50-dma on the daily chart, but its 10-week moving average on the weekly chart. Remember that we must always watch both daily and weekly time frames in order to determine whether support is being found at the daily or weekly moving averages. CRWD closed up a healthy 2.91 points, but the real test will come if it keeps rallying up toward its 20-dema.

CRWD had already triggered as a short last week when it failed to clear the $100 Century Mark, invoking Livermore’s Century Mark Rule in Reverse for the short side. A weak rally into the 20-dema could simply bring the stock into shortable range again, but today’s rally off the 10-week line was good for a nice intraday long scalp.

 

 

All three of the long ideas discussed above were mentioned in my blog post early this morning. Also mentioned was Keysight (KEYS) which was plumbing the lows of its current four-day flag formation following last week’s buyable gap-up after earnings. I noted this morning that it was pulling into the $93 price level, a little more than 1% above the prior BGU at 91.60.

As I blogged at the time, it looked buyable at that point since volume was drying up nicely. It then rallied to close at 96.09, up 1.58 on the day. Another long scalp for your belt on a rebound day, but whether there is more left in this remains to be seen. All I know for now is that today’s action offered a lower-risk long entry and a reasonable upside scalp.

 

 

I also blogged about Invitae (NVTA), which had undercut & rallied back above two prior lows in its pattern at 23.68 and 23.88 to close at 23.90. This would trigger a U&R long entry right here, using either low as very tight selling guides. This would, of course, work best in any continued market rally from here.

 

 

Salesforce.com (CRM) sits in an interesting position here as it tucks into its 50-dma and 200-dma with volume drying up. Last week the stock presented a very nice shortable gap-up move as it opened higher and closed lower but held support at the 50-dma and 200-dma. With volume drying up here at support, it could rally, presenting an actionable long entry here using the two moving averages as selling guides.

That said, a breach of the two moving averages would trigger it as a short-sale at that point. We’ll see how this plays out, since it will likely depend heavily on what the general market does from here. This is, however, a typical sling-shot type of set-up where you have a big gap-up move followed by a low-volume pullback into support which can then set up a tradeable move back to the prior highs.

 

 

Atlassian (TEAM) triggered as a short at the 20-dema today, a possibility I discussed in my weekend report. The stock slashed its way through the 50-dma before undercutting the prior 136.89 low of August 15th and rallying to close at 138.27 and above the 50-dma. In this manner, we get two long entry signals.

The first is of course the U&R through the prior 136.89 low, and the second is the MAU&R through the 50-dma. TEAM could certainly break lower, and any reversal back below the 50-dma would trigger it as a new short-sale entry at that point within the context of a market turn back to the downside. Otherwise, if the market keeps rallying, this may turn into an Ugly Duckling long set-up based on today’s specific technical action. Play it as it lies!

 

 

Shake Shack (SHAK) remains in a shortable position based on Livermore’s Century Mark Rule in Reverse given that it has continued to fail at the $100 Century Mark price level. I’m happy to short the stock here while using the $100 price level as a guide for a tight upside stop.

SHAK has failed to clear 100 three times out of the past four trading days, but at the same time has not broken down in wholesale fashion. It remains above the 10-dma, and I would like to see it fail again here just below the $100 level and bust the 10-dma as downside confirmation.

 

 

Advanced Micro Devices (AMD) has been living below its 50-dma for the past four days after attempting to clear the line last Thursday but failing on Friday on heavy selling volume. Today’s action carried the stock back up closer to its 50-dma, where it approaches a lower-risk short-sale entry spot as close to the 50-dma as possible.

AMD ran into resistance a little shy of the 50-dma, running into the 20-dema instead and backing down slightly by the close. The end result was a slightly higher, but still below-average volume move into the 20-dema. If the general market weakens again, I would tend to view AMD as a short as close to the 50-dma as I can get it.

 

 

Applied Materials (AMAT) is identical to AMD as it has spent the past four days living below its 50-dma. A low-volume rally today carried it back a little closer to its 50-dma, and I would view a weak rally into the line as a lower-risk short-sale entry spot.

I would note, however, that with either AMD or AMAT, if they were able to regain their 50-dmas decisively within the context of a continued market bounce, then they could easily shift back to long targets. Therefore, be aware of how these might set-up in real-time and be prepared to play them in 360-degree fashion.

 

 

Pinterest (PINS) has now failed three times on attempted breakouts to new highs, but then this is nothing new. I have viewed breakouts in the stock as shortable affairs, not buyable ones. Taking that view has been profitable each time. Now the stock is pulling into its 20-dema after the latest failed breakout and held support at the line with volume drying up to half of normal.

That would set the stock up in a buyable position here using the 20-dema as a tight selling guide. That said, a breach of the 20-dema would trigger PINS as a short-sale target using the 20-dema as a guide for a tight upside stop. In any continued decline through the 20-dema, I would not be surprised to see it undercut its prior August lows.

 

 

Zoom Video Communications (ZM) has been one I’d prefer to short every time it ran up into its 50-dma, but with the market bouncing today, I blogged early in the day to watch for a possible U&R move through the prior 89.69 low. The stock closed at 90.16, triggering an actionable U&R long set-up using the 89.69 price level as a tight selling guide.

 

 

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.

This remains a 360-degree market. With all the volatility, stocks have the potential to shift from short-sale to long targets at a moment’s notice, sometimes all on the same day. I still tend to think we are headed lower overall, but this market makes it impossible to make such pat judgments.

Instead, it is much better, and certainly more objective given the changing nature of this market, to act on the signals that you see in real-time as they appear. In the end, if we do head lower, I believe the set-ups will naturally push you in the right direction. The same would also be true for the long side.

Thus, as I blogged yesterday, “Assume nothing, and be ready for anything.” That remains the case for now, and for those who do not wish to engage this market on an opportunistic swing-trading or day-trading basis, then cash is a good place to be. This remains a tough market.

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 no positions, though positions are subject to change at any time and without notice.

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