The Gilmo Report

December 17, 2019

December 17, 2019 3:33 pm ET

Riding the wake of last week’s trade news and weekend “news” regarding Chinese pledges to buy $200 billion worth of stuff from the U.S., the rally has stayed alive. But the action has been less than robust as the indexes have mostly churned around their highs over the past two days.

The NASDAQ Composite Index shows the basic price action here with two narrow price range days where the indexes closed mid-range or lower on above-average volume. Is this churning action indicative of an impending pullback, or tight action indicative of further highs?

From an index point of view, this is tough to call, but as always, I simply defer to and rely on the individual stock set-ups. In most cases, leading stocks are getting further extended and are out of buying position, so the potential for pullbacks, at least in individual stocks is rising.

 

 

It is interesting to note that amid the new market highs, precious metals continue to hold their ground, despite much talk of a bottoming global economy. Both the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) are holding above recent undercut & rally (U&R) long entry points at 137.80 and 15.55, respectively. These remain in force as buy signals using those same lows as tight selling guides.

 

 

Precious metals miners have come under some selling, but for the most part the volume isn’t all that heavy as we see in the chart of Agnico-Eagle Mines (AEM). While selling volume expanded today, it was well below average as the stock looks to test its 50-dma.

AEM illustrates that even mining stocks are not immune to the phenomenon of failing breakouts. Its recent breakout failed, which is typical of most stocks in this market. Note, however, that pullbacks to the 50-dma have repeatedly served as the lowest of the lower-risk entry opportunities, and AEM may be perhaps be setting up for another buyable pullback to the line – watch for this.

 

 

While Apple (AAPL), not shown, keeps chugging higher as the alt-currency big-stock-of-choice becomes ever more extended on the upside, Tesla (TSLA) is busy putting on a show of its own. The bones of short-sellers have endured further crunching as the stock comes within a hair’s breadth of its prior 389.61 all-time high which was posted back in September of 2017.

Since last week’s moving-average undercut & rally (MAU&R) long entry signal at the confluence of the 10-dma and 20-dema, the stock has broken out to higher highs as it begins to sniff out all-time highs. Regardless, the best entries at this point will come when the stock finally pulls into or meets up with its 10-dma, which is again huffing and puffing to catch up to the stock price.

 

 

Netflix (NFLX) is attempting to woo investors by focusing on its international growth numbers in recent press releases. This has helped to bring the stock backup toward its 316.82 high of late November. While I would not be chasing today’s strength, note that NFLX did in fact post a U&R long entry signal yesterday when it came back up through the prior 298.81 low of December 5th.

Now you’d be watching for a retest of that low or the 10-dma/20-dema confluence as a lower-risk entry opportunity. Near-term, however, barring any serious market pullback, NFLX looks like it wants to make a run for its 200-dma.

 

 

Amazon.com (AMZN) is attempting to come back to life amid all the trade news-induced rallying. Interestingly, it has posted four five-day pocket pivots in a row over the past three trading days before rallying back above its 50-dma and in the process is now thrusting above its 50-dma.

Look for pullbacks to the 50-dma as potentially lower-risk long entries from here, with the 360-degree proviso that any reversal back below the 50-dma would trigger it as a short-sale.

 

 

Nvidia (NVDA) has drifted back up toward Friday’s intraday highs, keeping the stock in an extended position. Volume has been light so far this week, so I would not be surprised to see the stock pull back to retest the 10-dma where it might offer a lower-risk entry.

 

 

Facebook (FB) offered an opportunistic entry on its recent test of the 50-dma. That came yesterday on an undercut & rally (U&R) move through the prior 195.08 low of December 3rd. That was actionable yesterday, but today’s action saw the stock rally up into its 10-dma on weak volume.

While the U&R long entry is still in force using the 195.08 price level as a tight selling guide, there is also the 360-degree possibility that FB becomes a short on this wedging rally into the 10-dma. So be prepared to play this long or short depending on how well it holds this recent U&R move.

 

 

Disney (DIS) held support at the 20-dema with a nice bounce off the line yesterday. Volume was light, however, and the stock pulled in slightly today on lighter volume to close just above its 10-dma. The overall set-up here remains the same, however, as DIS can be viewed as buyable here using the 20-dema as a tight selling guide.

A breach of the 20-dema would, however, trigger a short-sale should that occur. So, as the stock trundles along its 20-dema, it remains a 360-degree situation depending on how things play out from here.

 

 

Semiconductors remain perhaps the group most sensitive to U.S.-China trade news in both directions, and so it is no surprise that semis rallied sharply after last week’s news. Micron Technology (MU) picked up what struck me as outlandish analyst recommendations with price targets as high as $85 over the past two days, driving the stock higher.

MU is now approaching its early 2018 highs but is stalling badly off the intraday highs on heavy volume. It’s obviously not in buying range since the last reasonable entry would have been on the trendline breakout last week. At these prices I begin to wonder whether the stock is in a shortable position given how extended it is, and in fact it has worked as a tactical short at the intraday highs.

Thus, it may be tradeable as a tactical short here since I would not be surprised to see a pullback that might bring it closer to its 10-dma. Otherwise it is quite extended on the upside for those having any thoughts of trying to get long this thing at this stage.

 

 

Advanced Micro Devices (AMD) has drifted back up to last Thursday’s flag breakout highs on declining volume. This keeps it in an extended position such that only pullbacks to the rising 10-dma would offer lower-risk entries from here.

 

 

Applied Materials (AMAT) is hovering just above the 60.22 low of its mid-November buyable gap-up (BGU) day. This can be handled as a 360-degree situation by first looking at it as a possible long here using 60.22 as a tight selling guide. If it breaches the 60.22 price level, then it could trigger as a tactical short looking for a move back toward the 10-dma.

 

 

The strength in semis as a result of the U.S.-China trade news has worked its magic with most semiconductor names. This includes KLA-Tencor (KLAC) which has cleared the highs of the gap-down falling window on average volume so far this week. It’s now approaching the November highs and is neither in a short or long entry position.

On the short side, a move back below the highs of the gap-down falling window at 172.86 could trigger this as a tactical short. Otherwise, it is extended on the upside pending any retest of the 50-dma.

 

 

Here comes DataDog (DDOG) back to the downside as insiders who didn’t sell this week most certainly see an opportunity to take some shares off the table at higher prices. The 8.56% move on Friday was a “piggy” move that was best sold into, and today’s yank-back into the 50-dma offered a lower-risk entry opportunity at the line.

That would have offered a nice entry today since DDOG came within 11 cents of the 50-dma before bouncing to close in the upper half of its daily trading range on heavy volume. While more insiders may elect to sell shares following last Tuesday’s 20% IPO share lock-up expiration, it looks like that may be drying up.

At the very least, we have some evidence that the selling is being met by buyers. Therefore, I would be comfortable buying DDOG as close to the 50-dma as possible while using that as a tight selling guide.

 

 

Ping Identity (PING) is at a near-term double-top peak as it posted a new closing high today on light volume, so is obviously out of buying range. The last lower-risk entries occurred on the stock’s pullbacks into the 20-dema as discussed in recent reports. Such pullbacks would remain something to watch for as potentially lower-risk entry opportunities given the stock’s near-term extended state.

 

 

CloudFlare (NET) rallied far enough to test its late-November highs near 19.80 after bouncing off the 50-dma last week, but reversed badly today on a big-volume outside-reversal. Now the 50-dma once again comes into play as a potentially lower-risk entry spot where risk can be controlled tightly by using the 50-dma as a tight selling guide.

 

 

Keysight Technologies (KEYS) can’t figure out whether it wants to be a long or a short. It was a long last week at the 50-dma, but the move up into the prior November highs at 110 on Friday just brought it into a double-top position from which it has since declined.

KEYS is again testing the 50-dma, where a breach of the line triggers it as a potential late-stage failed-base (LSFB) short-sale target. But, as before, if it can hold support at the 50-dma, then this erratic pullback could again serve as a lower-risk entry if the stock is in the mood to bounce off the line one more time, using the 50-dma as a tight selling guide.

 

 

RingCentral (RNG) is holding tight in and around the confluence of its 10-dma, 20-dema, and 50-dma. This is a clear 360-degree situation since the U&R long entry last Friday through the 160.75 low of December 3rd is still in force, but the stock is encountering near-term resistance at the 50-dma.

Resistance at the 50-dma looks bearish, perhaps, but we also cannot ignore the fact that RNG is holding very tight along its 10-dma. One could therefore test this as a long or a short. The long side would use the 10-dma as a selling guide while the short side would use the 50-dma above as a covering guide. This remains fluid, so play it as it lies.

 

 

DocuSign (DOCU) successfully tested the 10-dma today where it came into a lower-risk long entry position. The stock continues to consolidate following the big-volume trend channel breakout nearly two weeks ago. Notice how the huge-volume breakout went nowhere, something that is typical of a market where big strength one day is often unrewarded in the short-term.

I like DOCU on pullbacks to the 10-dma and 20-dema from here. Obviously, today’s pullback was buyable, but my own preference is to be patient and see if I can’t get a more opportunistic entry on a deeper pullback to the 20-dema.

 

 

Coupa Software (COUP) cleared its 50-dma yesterday following Friday’s U&R move through the prior 136 low of December 3rd. It then rolled back below the 50-dma today on light volume as buyers stepped aside. In this position, I would view the stock as a short here using the 50-dma as a covering guide.

 

 

While Zumiez (ZUMZ) dies on a failed breakout attempt from last week and fills its prior gap (see my last report regarding this as a possible long entry point for ZUMZ), Crocs (CROX) has catapulted higher after sitting in a very buyable position along its 10-dma and 20-dema as I discussed in my weekend report. The stock was quite buyable yesterday morning as it sat at the 10-dma.

Getting in at that point would have enabled one to catch the ensuing upside elevator ride on a pocket pivot, trendline breakout. CROX then pushed higher today and is back at its late-October highs. It is now extended and can be watched for buyable pullbacks to the 10-dma.

 

 

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.

While the market celebrates the Phase One trade deal, I find the whole thing somewhat curious. In exchange for U.S. reducing prior tariffs and delaying new ones, China has agreed to ramp up its imports of U.S. goods and services, more than doubling what it has done over the past few years, according to the graphic below.

 

 

This seems like a bit of a stretch, and it remains to be seen whether the Chinese will again renege on such agreements as they have in the past. Meanwhile, there have been plenty of stocks to play on an individual set-up basis, long or short.

The conventional wisdom is that we continue to melt higher into year-end, but I would not make any such assumptions. It is enough to simply go with the set-ups as they appear in real-time, and thereby keep things simple. I have no need to become a rigid bull or a rigid bear because this remains a market where the action among individual stocks remains uneven and volatile.

Despite the continuous new index highs, individual stocks are a mixed bag, and most of the action consists of choppy movement back and forth within price ranges. That is why I find it useful to focus on a specific set of names as I have in these reports and follow the various set-ups as the stocks move around.

In this manner, members can learn from the examples and apply them to their own ideas if they wish to traffic in different stocks. Most of the set-ups among individual stocks remain similar, consisting of anything from U&Rs to double-tops and everything in between. So we just keep doing what we’ve been doing, which is to maintain a 360-degree posture and play them 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 SLV, though positions are subject to change at any time and without notice.

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