The Gilmo Report

December 11, 2019

December 11, 2019 3:25 pm ET

The suspense over whether the December 15th tariff deadline will be delayed was overshadowed today by the Fed policy announcement. But after all the dust had settled, the indexes didn’t move all that much, even on an intraday basis. The NASDAQ Composite Index, along with the S&P and the Dow, held along its 10-dma today with volume declining slightly.

 

 

Despite all the contradictory news flow, precious metals have hung in there. Today, they gave us an idea of what they and the dollar think of the Fed’s latest non-move as the dollar sunk and precious metals rallied. I remain in the camp that the Fed’s next move will be to lower rates again.

The SPDR Gold Shares (GLD) has regained its prior 137.80 low of October 1st, triggering yet another undercut & rally (U&R) attempt. It closed today at 138.95, so the new U&R long entry signal remains in force, using the 137.80 price level as a tight selling guide.

 

 

Meanwhile the iShares Silver Trust (SLV) is now working on a new U&R trigger low at 15.55, the low posted on November 12th. That becomes a new long entry signal using the 15.55 price level as a reasonably tight selling guide.

 

 

This remains a very difficult and mixed market, despite the new highs seen in the major market indexes. 360-degree trades are mostly what I feed on these days, and Workday (WDAY) serves as an example of a stock I’ve been working for the past few days in both directions.

I blogged about the initial U&R to look out for coming up through the prior 161.38 low last Thursday, and the stock rallied right up into its 50-dma from there, making for a nice, concrete long swing-trade. As I wrote over the weekend, however, the move into the 50-dma could now simply be bringing the stock into a shortable position.

That turned out to be the case earlier this week as WDAY reversed at its 50-dma and has headed lower from there since. For now, I will continue to view weak rallies into the 50-dma as potential short-sale entry opportunities. My main point with this example is to illustrate the clear 360-degree nature of this market, and most of the trading opportunities I find, and which tend to result from the market’s inherent volatility.

 

 

An obscure clause in the IPO-filing documents for DataDog (DDOG) was triggered on Friday when the stock closed at 35.91, precisely 33% above its IPO offering price of $27. According to this obscure clause, if the stock closed at least 33% above $27 by December 6th, last Friday, then 20% of the company’s shares would be unlocked and be subject to sale on the open market.

I was not aware of this clause, but I did not see it as a reason to panic, necessarily. In fact, DDOG opened Monday down slightly but then rallied back to the upside, and then it did it again early in the day yesterday, which was the actual day on which the shares were unlocked. Thus, anyone owning the stock when that news hit could have exited with little or no damage Monday or yesterday if they did not panic.

What was obviously insider selling came into play about mid-morning yesterday, and after a couple of failed attempts to regain its 50-dma, DDOG broke lower early this morning before finding its feet within the prior area of price congestion that forms the base from mid-September to early November.

DDOG then closed six cents below its 50-dma. The only concrete way to handle this is to look for a move above the 50-dma as a MAU&R long set-up, and then use the line as a tight selling guide. This could be tricky since it’s not clear whether any additional inside selling is lurking out there. It could create some volatility around the 50-dma, so be willing to “dance” with this.

 

 

Both DDOG and Ping Identity (PING) have been nascent IPO leaders lately, but now that characteristic is starting to fade as they become like the other hot IPOs of 2019 in the near-term. However, despite the sharp pullbacks, one must always look to be opportunistic in 360-degree fashion.

PING looked like it was in trouble this morning as it busted its 20-dema. But that set up an undercut & rally move back up through the 20-dema, which could have been used as a MAU&R long entry. The stock closed above the 20-dema on above-average volume, indicating supporting action at the line.

Therefore, one can view PING as being in a lower-risk entry here while using the 20-dema as a tight selling guide. However, I wouldn’t necessarily expect a move back up to the highs since it could spend a little time settling down here along the 20-dema as volume dries up. Simply obey your selling guides and let it play out from there.

 

 

CloudFlare (NET) is also fading fast as it fails to hold support at its 20-dema and is now set to test its 50-dma. Selling volume picked up slightly as the stock came within 27 cents of the 50-dma. Anyone who bought at the 20-dema should be stopped out by now.

Now we can watch to see how this pullback plays out. If NET can hold support at the 50-dma, then that would present a potentially and highly opportunistic entry. That would also take the stock right into the top of the prior area of price congestion that formed between early October and late November.

In a strong market, new merchandise in the form of dynamic new companies with dynamic products and services is the lifeblood of a sustainable rally, in my view. Again, we see this area of the market flounder as these stocks flame out in the near-term. At this point, it is a matter of watching for opportunistic entries in DDOG, PING, and NET as they come in, so know your Ugly Duckling set-ups.

 

 

In cases where strong action fails rather quickly, we can see stocks quickly morph into short-sale targets. This is the essence of 360-degree trading, and it’s what turned Slack Technologies (WORK) from a potential long following last week’s pocket pivot at the 50-dma into a short once it reversed back below the 50-dma yesterday.

 

 

Apple (AAPL) has maintained its steady upside trend, last week’s gap-down pullback below the 20dema notwithstanding, and posted another all-time closing high today. AAPL is a proverbial market stock, and its future direction will likely correlate closely with that of the general market. Thus, it almost serves as an index ETF. Thus, I believe it will eventually reach $300 if this market rally persists but will also play a big role in any potential market decline.

Today’s new highs came on very light volume. Since AAPL appears to be the alt-currency stock of choice, only a sustained breach of its 10-dma and then the 20-dema would break the trend, and so far that hasn’t happened.

 

 

Of course, the story has not been all bullish when it comes to big-stock NASDAQ names. In fact, the action in these names as a group has been decidedly of a 360-degree nature. I wrote over the weekend that with Netflix (NFLX) wobbling along its 20-dema, “A clean breach of the 20-dema would, however, trigger this as a short-sale at that point.”

That occurred on Monday, and NFLX then gapped lower yesterday on a run for the 50-dma. It found support today and rallied back up toward the 20-dema on light volume. This may bring it back into shortable range on any weak-volume continuation move up to the 20-dema, using the line as a tight covering guide.

 

 

Things are also not looking so bullish for Amazon.com (AMZN) either. The stock has been in a steady decline since reversing at its 200-dma on the last trading day of November and closing back below the 50-dma last week. I wrote over the weekend that “Now that we’re under the 50-dma, we might look at rallies up into the line as secondary short-sale entries.”

That approach worked on Monday as AMZN reversed at the 50-dma and headed lower. It’s now in no-man’s land, but I’m interested in seeing how it acts on any test/undercut of the 1722.71 low of November 18th. Meanwhile, weak rallies into the 50-dema would remain potential short-sale entry opportunities until the price/volume evidence proves otherwise.

 

 

Nvidia (NVDA) has recovered well from the U&R long entry signal it flashed two Tuesdays ago when it undercut and then rallied back above the 200.64 low of November 15th. In this position, however, it is looking a little bit double-toppy, so to speak, and I would continue to operate in a 360-degree manner with the stock.

If it can hold tight and track along the 10-dma/20-dema confluence for a few days, it might set up as a long entry again along the two shorter moving averages. If it breaches the 20-dema, however, that would trigger it as a short-sale target at that point.

Keep in mind that a 360-degree approach means understanding how charts might play out depending on the overall market context, so I would guess that NVDA would come down in synch with a market decline.

 

 

Pivoting 180 degrees (which is half of 360-degrees!) to a more bullish situation, we can see that Tesla’s (TSLA) has moved higher from the moving-average undercut & rally (MAU&R) move it posted last Friday. As I wrote, the action was a clear MAU&R, and “For that reason, I have to treat this as a long entry right here on top of the 20-dema while using the line as a tight selling guide.”

TSLA gave buyers acting on the basis of the MAU&R another shot to buy shares on Monday, and it has pushed back up to its mid-November highs since. The true test will be whether it simply descends back down to its 10-dma/20-dema confluence or whether it holds tight and lets those moving averages catch up.

 

 

Facebook (FB) is holding tight along its 10-dma, which theoretically puts it in a lower-risk entry position here using the 10-dma or 20-dema as your selling guides.

 

 

Semiconductors were on fire today, after going cold for a while over the past week or so. Advanced Micro Devices (AMD) is the most coherent-looking of most of these. It is currently sitting along its 10-dma within a three-week flag formation as volume dries up. This puts it in a lower-risk entry position here using the 20-dema as a tight selling guide, while any pullbacks closer to the 20-dema would of course constitute more opportunistic entries if you can get ‘em.

 

 

The lovers are starting to win the love-hate relationship investors have been having with Micron Technology (MU) over the past month or so. The stock has finally broken out through the declining tops trendline of its previously descending trend channel.

Today’s move constituted a trendline breakout on a pocket pivot signature. While this is buyable using the 10-dma as a maximum selling guide, any low-volume test of the trendline around 48 would offer a lower-risk entry. Keep in mind that MU is expected to report earnings next Wednesday, December 18th.

 

 

Applied Materials (AMAT) also joined in on the fun, coming out of its stupor along the 10-dma and posting a LUie-style move higher on heavy volume. As most of you know, a LUie formation is an L-shaped formation that resolves as a U-shaped formation, hence the LUie designation.

This is slightly extended in this position, but watch for low-volume pullbacks toward the 10-dma as perhaps lower-risk entries. If we get any news regarding a delay of the upcoming China tariffs deadline, then semis may move higher, and we have to wonder whether today’s move in the group. was presaging any of this.

 

 

As AMAT moves so moves KLA-Tencor (KLAC) which has rallied back above its 50-dma. It closed today above the line, which is something of a slow-motion MAU&R move at the 50-dma. Thus, one could view this as a long entry signal while using the 50-dma as a tight selling guide.

In 360-degree fashion, any reversal back below the 50-dma would of course trigger this as a short-sale target again. The weak volume move today contrasted with many other semis that were trading up on strong volume today, so we’ll see how meaningful this is for KLAC, if at all.

 

 

Overall, it was a strong day for semiconductors, including names I’ve discussed in recent video reports such as Inphi (IPHI) and Qorvo (QRVO), not shown. In my video reports I try to add value by covering additional ideas within the groups discussed in the written reports, and semiconductors have been an area of interest.

Sometimes, when I’m sitting on the beach here in my hometown along the Santa Monica Bay watching the sunset, I ponder whether Disney (DIS) is the next NFLX, or whether NFLX is the next DIS. Ultimately, it all comes down to price/volume action, and DIS is now working on a MAU&R long entry signal that it posted yesterday.

It followed that up with a gap-up move today on higher buying volume. From here, I’d watch for any lower-volume or otherwise constructive retest of the 20-dema as the lower-risk entry option. Otherwise, this MAU&R is actionable using the 20-dema as a tight selling guide.

 

 

Keysight Technologies (KEYS) remains in a 360-degree position here as it is wedged between the 20-dema and the 50-dma. A breach of the 50-dma triggers this as a short-sale, and within the context of a weakening market, low-volume rallies into the 20-dema can also be viewed as potential lower-risk, short-sale entry spots using the line as a covering guide.

Otherwise, the long theory here is that it is buyable since there are two key support areas right underneath it, the 50-dma and the top of the prior base. Thus, a long entry here is feasible using the 50-dma as a tight selling guide. 360-degrees, please.

 

 

RingCentral (RNG) triggered as a short-sale today once it breached the 50-dma. This was something to watch for per my comments on the stock last week. From here, weak rallies into the 50-dma can be viewed as potential short-sale opportunities. Note, however, the U&R move that RNG posted today through the prior 160.75 low of last week.

So, there is certainly a 360-degree aspect to this chart. The U&R long entry is in force here using the prior 160.75 low as a selling guide. Meanwhile any weak rallies into the 50-dma that don’t hold up would offer lower-risk short-sale entry opportunities. Another 360-degree situation in a market that is full of them.

 

 

Chasing breakouts remains a fool’s game in this market as DocuSign (DOCU) illustrates. Friday’s breakout was also a trend channel breakout, which can sometimes be a sell signal. That ‘s how Friday’s breakout worked out.

DOCU has since pulled into its 10-dma and 20-dema as volume declines. This puts it in a lower-risk entry position using the 20-dema as a maximum selling guide. As with most strong upside moves, it generally pays to wait for the pullbacks and to act accordingly when they are constructive as DOCU’s pullback was today.

 

 

Coupa Software (COUP) breached its 20-dema this morning, triggering the stock as a short-sale at that point. This was something to watch for per my comments on the stock over the weekend, when I advised “…a breach of the 20-dema would trigger this as a short-sale at that point, so play it as it lies.”

That move was good for a short-sale scalp down to the 50-dma before COUP found intraday support and bounced off the line. If it breaches the 50-dma, a new short-sale entry trigger would come into play, but if it can hold support at the 50-dma then this could easily represent a lower-risk entry using the line as a tight selling guide.

 

 

If you like breakouts here’s one for you in retailer Zumiez (ZUMZ). The stock gapped up after reporting earnings last week and posted a buyable gap-up (BGU) on heavy volume last Friday. The intraday low on Friday was 32.50 and ZUMZ hit a low of 33.20 today. This BGU remains in force using the 32.50 price level as a tight selling guide.

 

 

In the same retail vein, Crocs (CROX) has pulled right into its 10-dma and 20-dema as volume dries up sharply to -59.7% below average. This comes after a strong three-day move off the 50-dma in a series of five-day pocket pivot signatures. This pullback now puts CROX in a lower-risk entry position right here using the lows of today at 35.07 or the 20-dema as tight selling guides.

 

 

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.

Not much has changed with respect to handling individual stocks. Most of the action remains quite choppy, so it is still a matter of being opportunistic on both sides of the market, depending on the precise set-ups that show up in real-time.

The deciding factor regarding whether we get a rally into year-end from here or a sell-off may be whether the upcoming December 15th China tariff deadline is delayed or not. Chinese names in general appear undecided, but Alibaba (BABA), not shown, has been the exception as it continues to forge higher highs.

So, it may be useful to have a couple of Chinese names in your back pocket in case something positive develops. I find the charts of JD.com (JD) and Momo (MOMO) interesting here as they pull back. JD pulled into its 10-dma today as volume dried up, and MOMO is sitting right at its 50-dema, which would serve as “last stand” support.

 

 

This is the essence of a 360-degree approach in a difficult and volatile market. Some might even call it sloppy, but there are strong swing-trading set-ups to be had, especially when volatility sets in. Having some ideas in your back pocket and reviewing how they might play out under various conditions can prepare one to act when the time is right, and that would go for Chinese stocks as much as anything else.

That remains the story of this market as we push toward the second half of the final month of trading in 2019. I feel that we have enough tools and methods (do I sound like the Fed?) to handle the volatility and in a manner that is to our advantage. If we can get a clean trend into year-end, one way or the other, the set-ups should position us properly. Play ‘em as they lie.

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 AMD and SLV, 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. ©2008-2020 Gil Morales & Company, LLC. All rights reserved.