The Gilmo Report

December 1, 2019

November 30, 2019 4:10 pm ET

The Thanksgiving holiday melt-up came to an end on Friday as the indexes pulled back on light volume in a shortened trading session. The NASDAQ Composite Index and its Big Three brethren, the S&P 500 and the Dow, all pulled back a precise -0.4% on Friday in a market version of a synchronized swimming event. The uptrend off the early-October lows continues but becomes ever more extended as individual stocks present a mixed bag.

 

 

Precious metals are catching a slight bid off the lows, at least enough to propel them just past their prior undercut & rally (U&R) lows. The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) closed Friday’s short trading session at 137.86 and 15.92, respectively. This brings them back above their prior U&R trigger lows at 137.80 and 15.83, respectively.

These are what I would call “slow-motion” U&Rs that don’t have a snappy feel to them where the prior low is undercut and the stock then meaningfully “slingshots” higher. Nevertheless, the GLD and SLV are hanging around in U&R Land, which keeps the current long entries in force for both. I’ve shown the daily charts of the GLD and SLV so many times I’m sure most of you can see them clearly in your mind. But suffice it to say that both are in U&R long entry positions using the prior 137.80 and 15.83 lows as tight selling guides.

Precious metals are interesting in that they are both technically-driven and event-driven. They tend to go through periods where the technicals align perfectly, leading to a sharp trend, and then periods where they are buffeted about by alternating news-flow. Usually, a strong shift in news flow, such as when the Fed reversed their rate-raising campaign and began to lower rates in July, is what leads to a strong and readable technical move.

As that initial news flow creates a period of upside thrust, it eventually becomes stale and some news counter-flow begins to set in. This can all be observed on the weekly chart of the SPDR Gold Shares (GLD). The sharp move over the summer occurred as the market began to anticipate and discount the impending Fed rate cut.

The sharp up leg in June was the anticipation and discounting move, followed by a short flag consolidation in July, and then another thrust higher following the actual Fed rate cut in late July. Since then, a news counter-flow has set in, where news of “optimism” regarding U.S. China trade talks and the Fed’s confident assertions that it has done its job, to paraphrase Fed Chairman Powell, and is now on hold has since kept the metals stuck within choppy corrections.

 

 

Note also that the metals originally bottomed in late summer into early October of last year, as the U.S.-China Trade War began to heat up with the imposition of tariffs and tough talk from both sides. That led to an upside leg that gathered momentum in early December as the stock market went into a sharp correction.

So, while technicals in the GLD and SLV are always something to pay close attention to, one must also stay in tune with the general ebb and flow of news that supports or obfuscates the prior bullish thesis and technical action. So, it is indeed part art, part science, as one evaluates the news flow and puts the news-flow/technical puzzle pieces together.

Aside from the wild action in Kirkland Lake Gold (KL) that resulted from the exogenous force of bolt-from-the-blue (BFTB) news when the company announced a $3.68 billion buyout of another gold miner, gold-related stocks have acted well as they continue to work on their own bases.

The charts of Agnico Eagle Mines (AEM) and Franco-Nevada (FNV), one a goldminer and the other an owner of gold production streams, show stocks holding up well in their bases. My thesis here is that if they do break out, then they will do so in synchrony with the precious metals themselves. This is one reason why my own personal preference is to simply own the metals and not the miners, although one can gain some leverage if one selects the right miner.

 

 

As Kirkland Gold (KL) so bluntly demonstrated this past week, that is sometimes easier said than done, and certainly not without its pitfalls. But amidst the volatility there was some opportunity. As I noted in my weekend video report, the gap-down break in KL could also have been played as a shortable gap-down for an alert trader.

As well, the oversold bounce that led to a moving-average undercut & rally (MAU&R) long entry signal at the 200-dma on Friday could have been played as a long entry. How this plays out, however, will depend on the market shifting its assessment of the buyout. If the price of gold is headed higher, then acquiring what is essentially more gold to mine is perhaps a good thing.

The only question then being the price paid for such an acquisition. Could KL snap back up to the 50-dma? Technically, that is a possibility, if the market revises its original assessment of the buyout. All I know for sure is that you have a live MAU&R going here, and we will now see where it goes from here.

 

 

Both Apple (AAPL) and Microsoft (MSFT), not shown, have continued to trend higher, but the only assessment I feel is worthwhile with either stock is that given the extended rallies, the best course of action if looking for a proper entry is to take the opportunistic approach. As you may have already guessed, this means looking for pullbacks to their respective 20-demas in either stock as opportunistic entries, if you can get them.

Meanwhile, Alphabet (GOOG), also not shown, continues to track along its 20-dema, where it presents lower-risk entries in a stock that hasn’t moved much of the past month. Amazon.com (AMZN) has conversely moved sharply and boldly to the upside over the past week. A sharp three-day run up through and beyond the 50-dma leading into Thanksgiving finally ran into resistance at the 200-dma on Friday.

Is this just a pause before AMZN pushes right through its 200-dma and continues higher, or shortable resistance? Initially, the action argues for a short-side test using the 200-dma as a tight covering guide. If it can clear the 200-dma, however, it may be cleared to take-off, so play it as it lies.

 

 

Nvidia (NVDA) is testing the intraday lows of Tuesday’s gap-up move to higher highs. Volume was not high enough to qualify as a buyable gap-up, but the move was constructive nevertheless. I still think one has to wait for a pullback to the 10-dma from here as a lower-risk entry opportunity, end of story.

 

 

Netflix (NFLX), not shown, remains extended. Following Friday’s 314.66 close, I am watching for pullbacks to the 10-dma at 308.62 as lower-risk entry opportunities.

Tesla’s (TSLA) is in a tight range as it tracks just below its 20-dema since gapping down on Monday following an embarrassing unveiling of its new Cyber-Truck. CEO Elon Musk’s tweets about pre-orders for the truck reaching 250,000 have kept the stock afloat, but this could go either way.

The approach is simple. One can take the short-side argument and hit the stock here, using the 20-dema as a tight covering guide. The long side of the argument only triggers if the stock rallies back above the 20-dema and becomes a moving-average undercut & rally (MAU&R).

 

 

Facebook (FB) regained the $200 price level this week as it continued to trend higher. It is extended, of course, as it reaches the late-July highs. Therefore, I would be more inclined to take the opportunistic and patient approach of waiting for any possible pullback to the 20-dema at 196.02 as an entry opportunity.

 

 

In the “old days” a U&R would lead to a shortable rally once overhead resistance was reached. KLA-Tencor (KLAC) spent the week trying to build on a U&R move that started on Tuesday through the prior 160.40 low of October 31st. It has run into resistance at the 50-dma, which theoretically puts it in a lower-risk, short-sale entry on the basis of a potential, late-stage failure.

That said, a move back up through the 50-dma would potentially trigger this as a MAU&R using the 20-dema as a tight selling guide. Where it goes from here may depend on the general market action, so maintain 360-degree awareness with this one.

 

 

Applied Materials (AMAT) continues to hold above its 20-dema as holiday volume comes in predictably light. It has also filled its prior gap-up rising window, creating the potential for support at the low of the rising window at 57.38 and the 20-dema at 57.30. Thus, this can be played as a long entry here using the 20-dema as a tight selling guide, and a trigger for a short-sale entry, should that occur instead.

 

 

Advanced Micro Devices (AMD) is still consolidating the prior sharp run-up from the 200-dma in early October to the mid-November peak. Therefore, I’m still looking for pullbacks to the 20-dema as the most opportunistic entries from here.

 

 

Micron Technology (MU) is at the highs of a declining trend channel within which it spent the entire month of November moving to and fro. I’m inclined to treat this as a short here while using Wednesday’s high as a covering guide.

 

 

Disney (DIS) has held tight after Tuesday’s gap-up move to new highs. At this point, the move off the early-November lows has been very steep and very rapid, while the new-high breakout of nearly three weeks ago has progressed less than 3%. Tuesday’s gap-up was not large enough to qualify as another buyable gap-up.

For that reason, I’d be on the lookout for deeper pullbacks to the rapidly rising 20-dema at 144.29 as the lowest of the lower-risk, more opportunistic entries from here. It’s hard to think of DIS as a high-momentum stock, but that’s what it’s been since reporting earnings in early November. Holding Tuesday’s small gap move and moving higher would certainly add to its new-found status as a momentum stock, that’s for certain.

 

 

Keysight Technologies (KEYS) posted a pocket pivot on Wednesday after reporting earnings Tuesday after the close. The intraday action was very volatile as indicated by the wide price bar on Wednesday. In the end, it culminated in a pocket pivot, but the upside thrust was missing on Friday.

KEYS pulled in to test the 20-dema where it held and rallied to close back above the 10-dma. This is within 2% of the 20-dema, so is in a buyable position using the 20-dem as a selling guide.

 

 

This will be a busy week on the earnings front for several cloud names I’ve discussed in recent written and video reports. On Monday after the close, we are expecting Coupa Software (COUP) to report, and on Tuesday after the close we are expecting Salesforce.com (CRM), Workday (WDAY), and ZScaler (ZS). Wednesday after the close, we are expecting earnings from Slack Technologies (WORK).

Thursday is the busiest day of them all with Cloudera (CLDR), CrowdStrike (CRWD), DocuSign (DOCU), Guidewire Software (GWRE), Okta (OKTA), and Zoom Video Communications (ZS) all expected to report after the close. This could be a raucous week for the clouds as we await any potential, high-velocity high time-value set-ups that might emerge in any of these. A veritable earnings feast for nimble swing-traders.

Among cloud names that have already reported, RingCentral (RNG) remains in a buyable position along its 10-dma following Tuesday’s pocket pivot at the line. The 10-dma or 20-dema can be used as tight selling guides.

 

 

Both DataDog (DDOG) and Ping Identity Holdings (PING) gapped higher after earnings on consecutive days, but so far PING is winning the race higher. DDOG keeps pulling back into its 10-dma where it has been buyable, and it did it again on Friday. This can be viewed as a lower-risk entry here, but my own preference would be to see a more opportunistic pullback to the 20-dema at 38.52, if I can get it.

 

 

Ping Identity (PING) meanwhile continues to streak higher and is now well-extended on the upside. While the base breakout of four days ago is working, the proper entry was on the BGU down closer to 18 where it held for three days before launching higher. Now, pullbacks to the 10-dma at 20.37 can be watched for as lower-risk entries from here.

 

 

Lyft (LYFT) is holding onto most of the gains it has had over the past two weeks since I first pointed out the constructive action along its 50-dma. It is quite extended in this position so we can still sit back and wait for any constructive pullbacks to the 10-dma from here as lower-risk entry opportunities.

 

 

Uber (UBER) spent the week consolidating the gains of the prior week as it kept bumping its head on resistance at the 50-dma. At the same time, all pullbacks from the 50-dma found support at or around the 20-dema. You can see that there is a fair amount of overhead price congestion on the left side of the chart, so the ping-pong action is not surprising.

It’s not clear to me, however, whether the stock can quickly clear the 50-dma. It may spend more time consolidating or it may break back to the downside. We’ll likely get a better idea of the possibilities this week now that the Thanksgiving holiday is out of the way.

 

 

Propelled by a successful listing of its stock in Hong Kong, Alibaba (BABA) has streaked higher all week and is once again knocking on the door of the $200 Century Mark. The last time it garnered a 2-price handle, it moved another 5% higher and then promptly tanked, dropping to a low of $129.77 in late December of last year.

So, here we are again, and one can play this as a long per Jesse Livermore’s Century Mark Rule. Since the stock closed right at $200 on Friday, the situation is not entirely cut-and-dried, as it needs to clear 200 to trigger the rule. Otherwise, pullbacks to $190 might offer lower-risk entries from here.

 

 

Momo (MOMO) was able to pull off the U&R move I discussed watching for in my last report. The stock gapped above the two prior 36.04 and 36.02 lows in the pattern on Wednesday and then tested the 20-dema on Friday. This is therefore a live U&R long entry trigger using either the 20-dema or the 36.02/36.04 lows as your 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 market where, for the most part, the sharpest price moves tend to come off the lows of patterns rather than right after breakouts. What has me most excited about the coming week is the large number of earnings reports that are expected in several cloud names I’ve been tracking in both the written and video reports in recent weeks.

Some of these names, like Okta (OKTA) and Zendesk (ZEN), which were discussed in the GVR several weeks ago, have moved significantly higher. However, the potential for more high-velocity, high time-value price action after earnings reports is there for several of these, and this will be a major area of focus for me this week, which I will expand upon in this weekend’s GVR.

Otherwise, this also remains a market for opportunistic traders, and it is therefore a matter of being alert to real-time set-ups as they occur. In that sense, nothing has changed, although with the indexes in an extended state it will be interesting to see whether a Santa Claus rally has already occurred, and a market pullback is at hand. We won’t know until we see it, so until then, 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 SLV, though positions are subject to change at any time and without notice.

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