The Gilmo Report

December 18, 2013

December 18, 2013


Once again the market fools the crowd, since the worry warts saw their worst fear come to pass, mainly that the Fed announced its first QE taper in the four-year history of its ongoing experiment in creative finance. This had the initial effect of sending the markets sharply to the downside before investors read the fine print on the Fed’s statement and interpreted it as still quite dovish, sparking a rally into the close that sent the indexes back to their highs for the day. The NASDAQ Composite Index, shown below on a daily chart, illustrates the crazy action with the wide daily price bar that headed for the 50-day moving average before turning back to the upside and sending the NASDAQ to a new closing high. The action was so wild today that I would not be surprised if a lot of investors found themselves shaken out when the market streaked to the downside right after the Fed announced the $10 billion taper move. This is what everybody was afraid of, and the popular wisdom was that if the Fed tapered, the market would tank. I have to admit that there was so much dust flying around that it was difficult to see what to do, but ultimately some concrete buy points did show up by the close.




Facebook (FB) has continued to run up since being added to the S&P 500 and 100 Indexes, but with the stock coming right up to the left side peak of its current cup formation it looked like resistance at the former highs would come into play, as we can see on the daily chart below. Instead, the stock broke out to a new all-time high on a pocket pivot volume signature that was roughly about average volume for the day.




LinkedIn (LNKD) failed yesterday at the 50-day moving average before gapping down today on what I considered this morning to be a shortable gap-down move. The stock found support at the 200-day moving average as it dropped to the downside right after the open, then spent the rest of the day rallying back with the market, as we can see on the daily chart below. Based on the close, it isn’t clear to me that this is some sort of shakeout, as the stock would have had to close up on the day for that to happen. I would keep an eye on this, however, as I believe it could be shortable if it rallies back up to fill the gap, assuming we get a continued upside move in the market that extends into next Tuesday,  Christmas Eve.




Netflix (NFLX) continues to trek higher as it made another all-time closing high today, but just barely, as we can see on the daily chart below. What is constructive is that the stock has managed to post two pocket pivot buy signals over the past couple of days from a position that I don’t consider too extended from the 10-day moving average. As we can see on the chart, the distance from the intra-day lows of yesterday and today are close enough to the 10-day moving average, in my judgment, to make the buy signals actionable, with the idea that the stock will hold the 10-day moving average or, at least, the 20-day line, a basic selling guide for NFLX that I’ve discussed in prior reports.




Tesla Motors (TSLA) has run up into its 50-day moving average, something I noted in my discussion of the stock over this past weekend, and today, despite the big market turnaround, the stock closed back below the 50-day moving average as it ran into increased selling-volume and reversed to close near the lows of the day. Notice that the pullback held above the 65-day exponential moving average, the black line on the chart, so it’s possible that this could turn into a buyable pullback with the idea that the stock will hold the 65-day line and rally with the market, assuming today’s strong action in the general market continues into year-end. Thus one could use that as a quick selling guide.




Gogo (GOGO) was a nice day-trade yesterday after it jacked over 10% to the upside, but today’s IPO lock-up expiration hit the stock on heavy selling, as we can see on the daily chart below. GOGO shows why a profit in hand in this market is worth two in the bush. In any case, the stock did not qualify for a pocket pivot yesterday since it failed to close above the 10-day moving average, and with today’s IPO lock-up expiration looming, it made sense to take the one-day trade on the stock given the strong 10%-plus move on the day yesterday. I would watch GOGO, however, as it approaches its 50-day moving average, perhaps tomorrow, as this might be an area to look for a bounce. Once the initial IPO lock-up expiration sellers bail out and complete whatever sales they have in mind, a strong reaction rally might be seen at a logical area of support, which at this point would be the 50-day moving average. Thus picking off shares close to the 50-day line could be a viable strategy if one uses a tight stop based on the idea that the stock should hold the line. Notice also that GOGO’s 50-day moving average is currently moving through the 23.52 price point which just undercuts the 24.24 low in the prior flag formation from mid-November.




Yelp (YELP) flashed a bottom-fishing type of pocket pivot yesterday as it rose above the 50-day moving average on the requisite volume signature, as we can see on the daily chart below. In this market, however, pocket pivots have not always led to immediate further upside. That was the case with YELP today as it rolled over to retest its 65-day moving average, the black moving average on the chart, and things were looking grim for the stock until the market began to recover from its initial sell-off following the Fed announcement. By the close, YELP actually put in action that could be interpreted as pocket pivot-like since it was able to close back above the 50-day moving average on volume that, while down volume given the negative close on the day, was also enough for a pocket pivot volume signature. If the market is going to run into the end of the year, then YELP probably qualifies as a buyable situation here with the idea that this time it will hold the 50-day moving average and continue higher from here.




Biogen Idec (BIIB) finally showed some muscle today as it rebounded off of its 20-day moving average and just barely cleared its 10-day moving average for a pocket pivot buy point. BIIB has been flirting with the intra-day low of its buyable gap-up day of November 22nd, but has never actually gone more than 2% below that 274.98 low, as we can see on the daily chart below. Today’s action offers a potentially good entry point on this pullback using the 270.74 low of today as a quick selling guide.




BIIB might end up doing something similar to what (AMZN) did after its big buyable gap-up move in late October, when it failed after several days but found support at the 20-day moving average, as we can see on the daily chart below. AMZN then recovered to move to new highs, and throughout December has gone tight sideways along its 10-day moving average. Today AMZN popped out of this range on a pocket pivot buy point, which looks buyable with the idea that the stock will hold the 10-day moving average on any pullback from here. In my view, however, today’s action should produce further upside in AMZN, possibly taking it through the $400 price level for the first time and invoking the “Livermore Century-Mark Rule.” While I do not show its chart here, I also noticed that another big-stock NASDAQ name, (PCLN), also flashed a big pocket pivot move today as well, and I consider this action to bode well for further highs in the NASDAQ as we move into year-end.




Over the weekend I discussed Finisar (FNSR) at length, and the stock has held up over the past two days as it moves up and off of its 10-day moving average on increased buying volume that is still below average, as we can see on the daily chart below. I think this is primed for a move above the 50-day moving average, but the stock would need to show volume that exceeds that tall, red down-volume bar of seven days ago. Volume on that day came in at 5,297,500, so optimally I’d like to see FNSR push up through the 50-day moving average on greater volume than that for a bottom-fishing pocket pivot move. The other possibility is that since that big down-volume day was seven trading days ago, FNSR might go sideways for at least four more days, making that down-volume bar of seven days ago irrelevant. From here I would also consider a pullback to the 22 price area, near the 10-day moving average, as a potential entry on weakness. Either way, keep an eye on FNSR.




I still very much like the action in Workday (WDAY), which I discussed at length in my report of this past weekend. The stock isn’t really going anywhere, as we can see on the daily chart, below, but it has held tight along the 20-day exponential moving average, the green moving average on the chart. What I would watch for here is a pocket pivot type of move coming up through the 10-day moving average, which could happen any day. Volume would need to exceed 1,264,151 shares, the largest down-volume in the pattern over the prior 10 days. After tomorrow, however, that drops down to 1,213,596 shares as the prior day drops off of the 10-day count.




Taser International (TASR) was looking like death on Friday as it blew through its 50-day moving average on the downside, but an analyst upgrade on Monday sent the stock back above the line on what was a pocket pivot buy point. However, this pocket pivot came from within a V-shaped position as the stock broke down through the 50-day line and it immediately jacked back above the line, as we can see on the daily chart below. But with TASR backing and filling over the past couple of days, this serves to help correct the V-shaped aspects of the Monday pocket pivot, and makes the stock potentially buyable here with the idea that it will continue to hold the 50-day moving average from here. TASR is basically building a base-on-flag type of formation as it continues to hold the top of its prior flag formation that it formed throughout most of October.




Despite the fact that all the big names in the solar energy group have been in corrections/base-building mode for the past several weeks, the group still ranks #1 among all industry groups. To me this seems to argue for the fact that the stocks are just basing here, and so I’m watching all four of these stocks: Canadian Solar (CSIQ), First Solar (FSLR), Sunpower (SPWR), and SolarCity (SCTY). CSIQ, not shown, is trying to  round out the lows of what is so far a five-week base, while FSLR and SPWR, both not shown, are still living within the lower reaches of their corrections/basing patterns. Obviously, I need to see actionable buy points to convince me that any of these is starting to turn back to the upside in earnest. So far, believe it or not, the only one that has done so is SCTY, which I show below on a daily chart. Yesterday SCTY flashed a stalling pocket pivot buy point along its 50-day moving average, not exactly the type of action you want to see on a pocket pivot move. But I have to say I like the way the stock is holding tight along the moving average confluence that includes the 10-day, 20-day, and 50-day moving averages. Selling volume has also dried up here, so I’m looking for the stock to move up from here if the general market continues to rally into Christmas Eve. In any case, I would use the intra-day low of today at 51.02 as my quick stop-loss point.




Twitter (TWTR) is pulling back constructively following its sharp five-day move to the upside last week, as we can see on the daily chart below. I think TWTR is a big stock, and it will resume its move higher once it has finished digesting last week’s price move. What we see going on with TWTR right now is a three-day pullback as selling volume recedes, and this is giving the 10-day moving average a chance to catch up to the stock. My view is that given the upside velocity in the stock. TWTR should definitely be bought if it pulls anywhere close to the 10-day moving average, currently moving through the 52.69 price point. If the market continues moving higher from here given today’s strong action, then TWTR may not get there, so the other option is to take a partial position with the idea of adding in the event the stock does meet up with its 10-day moving average at some point over the next few days. The good news for active traders like me who like to move big positions is that TWTR is now marginable, which is a good sign.




Way back in my report of November 8th I first discussed Morgan Stanley (MS) and Charles Schwab (SCHW) as buyable situations based on their pocket pivot moves of that day. Below we see MS on a daily chart, and we can see that initial pocket pivot back in early November. Since then MS has held well above that initial pocket pivot as it has ranged about over the past four weeks, roughly. Today the stock came back with a second pocket pivot buy point which one could use to add to any initial MS position taken back in early November.




SCHW, shown below on a daily chart, actually had a clean flag breakout back on November 8th, and like MS it has simply edged up quietly in more or less sideways fashion. Today SCHW popped out of its one-month range on what I view as a pocket pivot buy point. Notice that five days ago the chart shows a large red down-volume bar, but on that day the stock held in a very tight range without moving very much. Thus one could allow for this as being an “accumulation day” for the stock, and thus overlook the red down-volume bar of that day in order to determine that today was in fact an actionable pocket pivot buy point. In my view, it was, and one could add to any initial position taken on November 8th on the basis of today’s action. MS and SCHW are not likely to become upside rip-snorters, but they have been steady names in an otherwise volatile market for those who like that kind of dull but stable action.




Today’s action was accompanied by a number of actionable buy signals in a broad range of leading stocks, and in my view this bodes well for a continued rally into year-end. Thus I think you want to be long here without chasing anything, and this report has a number of long ideas that are well within reach of current buy points without being extended to the upside. As well, I think investors should be opportunistic with respect to the pullback in GOGO, as once the initial sellers are done I think the stock could rebound sharply. It remains one of my “hot desirables,” along with TWTR. If you are long, right now the trend is your friend, and nothing more needs to be said pending the appearance of any evidence to the contrary.


On an administrative note, Ron Brown of HGS Investor software, which I use religiously, put together a nice video that explains the chart view I use on HGS Investor which I find useful in a QE environment: HGS Investor recently made this chart view available to their users. In any case, for those of you who might find those daily charts I use with the colored bars along the top somewhat confusing, this video should help.


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 SCTY, TASR, TSLA, TWTR, and YELP, though positions are subject to change at any time and without notice.


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