The Gilmo Report

December 15, 2019

December 14, 2019 3:54 pm ET

Once the Fed meeting was over and done with on Wednesday, the news flow became all China all the time. On Thursday, an alleged trade deal was announced by the Trump Administration, but the terms were vague, and the Chinese did not rush to confirm anything until they held a press conference Friday morning.

Nevertheless, that sent the major market indexes to new highs on heavy volume. The NASDAQ Composite Index was the laggard among the Big-Three market indexes, throwing up a 0.73% gain against the S&P’s 0.86% and the Dow’s 0.79%. When all the news was out on Friday, however, the market hesitated on slightly lighter, but still above-average volume.

With so many pundits calling for rallies of 5-10% in the S&P following a Phase One deal before it all came down on Friday, the markets didn’t do much to make them look smart. Instead, we got a big churning day on above-average volume, and the underlying market action is still very mixed, as we shall see.

 

 

Frankly, it would not surprise me to see the market pull back from here in a sell-the-news type of move.

Precious metals initially sold off on the trade news Thursday, but the SPDR Gold Shares (GLD) found support near the prior 137.80 of October 1st. This came after a logical reversal at resistance along the 50-dma on Thursday.

The bottom line is that the metals don’t seem all that impressed with the trade deal and are holding above their current undercut & rally (U&R) long entry trigger points. With the GLD holding above 137.80 October 1st low its current U&R remains actionable using the 137.80 price level as a selling guide.

 

 

The iShares Silver Trust (SLV) held its ground much more robustly on Thursday, closing up on the day and right at its 20-dema. Its most recent U&R long trigger through the 15.55 low of November 12th remains in force as an actionable long set-up using the 15.55 price level as a tight selling guide.

 

 

Precious metals miners also don’t seem to be fazed by the Phase One trade deal. Here we see Agnico-Eagle Mines (AEM) posting a pocket pivot at its 10-dma and 20-dema. This puts it in a buyable position using the 20-dema as a selling guide.

 

 

When it comes to individual stocks, I found a variety of set-ups and situations, both long and short, that worked well. From a visceral standpoint, this confirms to me that this remains a 360-degree market, where trends are far and few between, but the volatility creates a lot of swing-trading opportunities if one takes an opportunistic approach.

The trade deal announcements this past week lit a fire under semiconductors. Micron Technology (MU) followed through on Wednesday’s trendline breakout, taking the stock right back up to its prior September highs. That’s where it ran into resistance on Friday, stalling and closing well off the intraday highs.

For now, there isn’t much to do with MU since the company is expected to report earnings next Wednesday, December 18th. At best I think one might be able to catch a quick short scalp before earnings in anticipation of a pullback from such an extended position, but that’s about it.

 

 

I liked Advanced Micro Devices (AMD) as a long entry in my Wednesday report given the tight action along the 10-dma and 20-dema, and the stock took off with the rest of the semis on Thursday. That was a big-volume flag breakout, but it also served to illustrate why proper entries occur before strong upside moves, not after.

The correct entry was as I discussed in my Wednesday report when AMD was sitting tight along the 10-dma and 20-dema and volume was drying up sharply. From there, one would have participated in Thursday’s move, which is something I sold into myself.  Friday’s pullback confirmed this approach as the stock came down off the highs on very heavy volume, nearly as much as the prior day.

Now I would only be interested in buying the stock if it settles down and volume declines sharply as it comes back into the 10-dma. Otherwise, I would not be averse to shorting AMD if and only if it busted the 10-dma on heavy volume. 360-degrees please!

 

 

Applied Materials (AMAT) pushed higher on Thursday before running into resistance near the lows of its prior buyable, but now failed, gap-up move of mid-November. Depending on what the market does this coming week, this could be shortable here using the high of Friday or the prior BGU day low at 60.22 as a covering guide.

AMAT certainly isn’t buyable here given its extended state, that’s for certain. But if there’s a market pullback on a sell-the-trade-news moves, it may easily come back down and present a reasonable swing-trading short-sale target. This is because it was the semis that were moving in reaction to the trade news, and so could easily come back down on a sell-the-news type of pullback.

 

 

KLA-Tencor (KLAC) also ran with the other semis on Thursday, following through on Wednesday’s slow-motion moving-average undercut & rally (MAU&R) move at the 50-dma. Friday’s early rally ran into resistance and reversed at the highs of the gap-down falling window of November 21st.

This becomes an interesting proposition on the short side, since one can view the gap-fill as a potential short-term top. A short-sale could be entered here or slightly closer to the highs of the gap-down rising window at 172.86, using that as a covering guide.

 

 

I’m giving my Stock of the Week Award to DataDog (DDOG) which had its own drama this past week. Some members were concerned about the company’s 20% IPO share lock-up expiration that went into effect Tuesday morning, but in the end the stock shrugged off the insider selling and turned back to the upside.

As I discussed in my Wednesday report and my Tuesday video report, the simple way to handle the stock was to look for a moving-average undercut & rally (MAU&R) long set-up to materialize at the 50-dma. That occurred on Thursday as DDOG spun around but closed just above its 50-dma.

From there, the dog, as I call it, streaked 8.56% higher on Friday. Those brave enough to buy the MAU&R either on Thursday or even Friday morning were rewarded nicely. Now the stock is extended, and I want to see how it handles any pullback to the 20-dema, which is your nearest reference for support now that DDOG is extended on the upside.

 

 

Ping Identity (PING) also found its land legs on Thursday as it closed above its 20-dema for two days in a row. From there, it rallied back up near the prior highs on Friday but stalled. It is now extended, and I would still take the opportunistic approach of looking to buy this on pullbacks to the 20-dema.

Note that PING is also spinning around its prior new-high breakout point, which in my view is not a reliable buy point.  Given the lack of price congestion on the left side of the cup, one cannot expect that to serve as solid support. Instead, PING found support along the 20-dema and the top of the short four-day handle it formed in mid-November.

 

 

CloudFlare (NET) found support at its 50-dma on Thursday, which looked logical since it was coming down on top of a prior area of price congestion along the lows of the overall base. I discussed this concept in my Wednesday report. In this position NET is extended off the 50-dma.

Therefore, we want to watch to see how it acts in here as it likely tries to set up again along the 10-dma and 20-dema. The actionable buy point occurred Thursday at the 50-dma, as I discussed in my Wednesday report, and we can now only wait for the next lower-risk entry to show up.

 

 

Apple (AAPL) is seen as a big beneficiary of any U.S.-China trade rapprochement, and so it responded strongly on Thursday by posting a strong-volume continuation pocket pivot at the 10-dma. It then moved higher on Friday, logging another all-time high on strong volume.

AAPL has shrugged off bouts of heavy selling along the way, and it remains the big-stock alt-currency leader in this market with whopping earnings and sales growth of 4% and 2%, respectively, in the latest quarter.

 

 

Per my comments on Wednesday, Netflix (NFLX) became shortable once again as it rallied up into its 20-dema on Friday while at the same time filling the gap from Tuesday when it broke to the downside on heavy selling volume. The stock reversed at the 20-dema to close near its intraday lows as buyers didn’t seem interested in taking shares.

I would still view rallies into the 20-dema as your lower-risk short-sale entries from here. Otherwise, a clean breach of the 50-dma would trigger a new short-sale entry at that point, should it occur.

 

 

Amazon.com (AMZN) also ran into resistance right at its 50-dma on Friday. Volume was below average as buyers didn’t show much enthusiasm for the stock at the line. This puts it in a lower-risk short-sale entry position using the 50-dma as a covering guide.

 

 

Nvidia (NVDA) took an enthusiastic role in Thursday’s rally by streaking to higher highs on heavy volume. But a sell-the-news mentality among NVDA shareholders took over and the stock reversed off its Friday intraday highs on heavy selling volume.

In this position, NVDA is extended on the upside, and not necessarily in a textbook short-sale entry position. It is notable, however, in the way that sellers took advantage of the trade news-related rally to unload shares on Friday.

 

 

Tesla’s (TSLA) remains in an extended position as it holds up near its mid-November highs. The 10-dma and 20-dma have now turned up more sharply in an attempt to catch up to the stock price. So, for now, we can only watch and wait to see whether a pullback to, or meet-up with, the moving averages presents another long entry point on the chart.

 

 

Facebook (FB) was smacked off its perch Thursday on news that the Federal Trade Commission (FTC) is considering a preliminary injunction on the company over antitrust concerns. That sent the stock slashing through its 20-dema on a move toward its 50-dma. Volume was heavy.

FB moved closer to its 50-dma on Friday as volume declined but was still heavy. In this case we might have a situation where negative news creates a long entry opportunity at the 50-dma, but for now we have to wait and see how this plays out as it descends into the line. Stay tuned.

 

 

Disney (DIS) is sitting right on top of its 20-dema which might normally bring it into a lower-risk entry position using the 20-dema as a tight selling guide. However, instead of drying up on Friday, selling volume expanded slightly, bringing into play a potential breach of the 20-dema.

If DIS can hold the 20-dema as volume dries up this coming week, then it would become more actionable as a long. If it breaches the 20-dema on volume, then that could quickly bring the stock into play as a short-sale target depending on how it plays out. Play it as it lies.

 

 

Keysight Technologies (KEYS) took off with the market on Thursday to post a pocket pivot at its 10-dma as the long theory in what was a 360-degree situation won out. As I wrote on Wednesday, “…the long theory here is that it is buyable here since there are two key support areas right underneath it, the 50-dma and the top of the prior base.”

One can also see how the way KEYS resolved along the 50-dma was at least in part due to the general action on Thursday. That move was a strong one, and KEYS is now extended. From here we would want to see how it acts on any pullbacks into the now-rising 20-dema.

 

 

RingCentral (RNG) rallied feebly back up into its 10-dma, which has now crossed below both the 20-dema and the 50-dma. Technically, the U&R through the 160.75 low of last week, which I discussed in my last report, is still in force. However, I might also be alert to the idea of RNG becoming shortable somewhere in here around the 10-dma, 20-dema, and 50-dma IF we see the market pull back this week.

 

 

DocuSign (DOCU) illustrates the virtues of taking a more opportunistic approach by looking to enter on constructive weakness rather than mindlessly chasing big-volume strength. The big-volume channel breakout of last week failed in short order but created an opportunistic long entry when the stock pulled right into the 10-dma with volume drying up sharply on Thursday.

This was the pullback to look for per my comments in Wednesday’s report, and the stock responded with a move to the upside on Friday as volume picked up. It is now slightly extended from the 10-dma, so I’d be interested in seeing how DOCU acts on any constructive retests of the 10-dma from here.

 

 

Coupa Software (COUP) triggered another short-sale entry point on Thursday when it breached the 50-dma.  This came after Wednesday’s slashing move below the 20-dema that triggered an initial short-sale entry. The stock then went on to undercut the prior 136 low of last week and rally on Friday.

As I discussed on Wednesday, COUP was a 360-degree situation where it could find support at the 50-dma or not. In this case, the bearish scenario played out as the stock blew through the 50-dma. Friday’s U&R is now bringing it back up into its 50-dma, where it may become shortable again, using the 50-dma as a tight covering guide.

 

 

I must admit that I do not ever feel good about discussing breakouts, even when the breakout looks so textbook and beautiful, like that of Zumiez (ZUMZ). Of course, my discussion did make note of the fact that the 32.50 intraday low of the prior week’s BGU breakout move offered a tight selling guide.

ZUMZ, like most breakouts in this market, then promptly failed on both the BGU and the breakout Friday as it sold off on heavy volume. It is now streaking down toward its 50-dma as it attempts to fill the prior gap-up rising window. This is where a potentially opportunistic entry comes into play, since if it can hold the lows of the gap-fill at 31.33 and the 50-dma, it presents a lower-risk long entry possibility.

Otherwise, if it just keeps slicing through the 50-dma, you’ve got a full-blown, late-stage, failed-base, short-sale set-up on your hands. For now, we can take the 360-degree approach and handle it based on the real-time evidence as it plays out this coming week but suffice it to say that I hate breakouts in this market, and ZUMZ only reinforces my view.

 

 

Crocs (CROX) remains in a buyable position as it tracks tight sideways along its 10-dma and 20-dema. Volume dried up even more to -63% below average on Friday. This is therefore buyable right here using the 20-dema as a maximum selling guide – a simple set-up, not unlike how AMD looked on Wednesday, but will it work as well?

 

 

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.

With the consensus looking for a big rally into year-end as a result of the Phase One trade deal, the tepid response from the market on Friday was not encouraging for the bulls. Fortunately, we aren’t bulls, nor are we bears. We remain 360-degree traders seeking to capitalize on the trendless volatility that is this current market environment.

While I wouldn’t be surprised to see a market pullback this week, I’m not going to prejudge. Let the set-ups lead the way, and if you are a nimble swing-trader you will likely be pushed to the right side of the market as a result. Therefore, my message remains the same: those seeking longer-term trends can focus on enjoying the holidays, while those seeking to play the set-ups as they come can simply play it as it lies in 360-degree style.

Attention Members: Due to my holiday travel schedule, we will publish the mid-week Gilmo Report this coming week on Tuesday, December 17th instead of the usual Wednesday.

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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