The Gilmo Report

December 19, 2020

December 19, 2020 9:49 pm ET

The market is now making the turn into the final home stretch of 2020, posting a series of new highs this week before running into a wall of volatility on Friday’s year-end quadruple-witching options expiration. The NASDAQ Composite, S&P 500, Dow Jones Industrials, and Russell 2000 Indexes all posted new highs this past week in a willful display of what can be “achieved” in the face of severe economic and social distress if the Fed simply prints enough money.

With 25% of all the dollars ever created in history having been printed in 2020, QE is a force that simply cannot be resisted. While the term Shock and Awe has lost its popularity lately, 2020 has clearly been the year of plenty of shock and plenty of awe when it comes to the Fed and all that the virus has wrought. At the tail end of a year like this, there is only one seasons greeting that applies: “May the Froth be with you.”

Wild high-volume volatility characterized Friday’s action as quadruple-witching options expiration took its toll. A late-day sell-off turned sharply to the upside in the last half-hour as the indexes veered back up toward the flat line, producing a big churning day on extremely heavy volume, but with support off the intraday lows.

 

 

Precious metals retained some of their luster heading into the week’s end. For a change of pace, I show the daily chart of the Vaneck Merk Gold Trust (OUNZ), a gold ETF that is directly convertible to physical gold and which serves as an accurate proxy for all other gold ETFs. As with any precious metals ETF, you should read the prospectus carefully to understand exactly how the metal is owned and whether shares can be converted directly into physical metal.

Here we can see that the OUNZ cleared its 50-day moving average on Thursday and held tight at the line on a slight pullback Friday. This keeps it in a buyable position using the 50-day line as a tight selling guide. Gold is making a move towards the top if its four-month declining trend channel off the early August peak and if it can hold the 50-day it may set up for a trendline type of break out.

 

 

The white metal is looking much stronger as it thrusts further above its 50-day line. The iShares Silver Trust (SLV) shows a trendline breakout on a pocket pivot volume signature on Wednesday followed by a move up to an axis-line of resistance along the $24 price level and is near-term extended. Any pullbacks to the 10-dma from here could be considered lower-risk entries for now.

 

 

We can see that the metals took flight after the Fed meeting on Wednesday, which confirmed that QE is indeed forever. Fed Chairman Powell also made a comment for the first time that “climate change” may need to be addressed by Fed policy at some point in the future. I read this to mean that the Fed is perhaps now laying the groundwork for the next excuse it will need to continue printing fiat dollars.

Silver miners, riding the strength in the white metal, including First Majestic (AG), Coeur Mining (CDE), and Gatos Silver (GATO), are pulling back after some sharp upside moves over the past week. The weekly charts below show breakouts in CDE and GATO (a recent IPO breakout) while AG is showing a trendline breakout this past week on higher weekly volume. In each case I’m watching for pullbacks from current levels, perhaps into their 10-day lines as potential lower-risk entries from here.

 

 

The winners in the EV-Mania comeback kid contest are the battery/charging names, some of which looked to be in buyable positions on Wednesday as I discussed in my report that day. Those were Ballard Power (BLDP) along the 20-dema and FuelCell Energy (FCEL) along its 10-dma. Plug Power (PLUG) was looking “healthy” as I noted on Wednesday and could have been bought near the 10-dma. All three are now extended.

Blink Charging (BLNK) was already extended off the 10-day line by Wednesday and is now even more extended following a new-high breakout on Thursday. I would not look to buy this breakout, however, since the proper entry was along the 10-dma on Tuesday at the latest, and the 10-dma would remain where buyable support would lie for now.

 

 

In the U.S.-based EV space, the only name aside from Tesla (TSLA) that looks even halfway appetizing is Fisker (FSR). One might argue, however, that this was best bought on the pullback to the 50-day line earlier in the week where one “could take a shot here using the line as a tight selling guide,” as I discussed on Wednesday. FSR then launched back above its 10-dma and 20-dema on Thursday in a successful undercut & rally (U&R) long entry signal through the prior 15.33 low of November 23rd.

It pulled back into the two moving averages on Friday. One could attempt to buy shares here using the 10-dma/20-dema confluence as a tight selling guide, but the best entry would occur on a retest of the 15.33 U&R low where risk can be kept tight by using the low as your selling guide per the standard rules for handling a U&R.

 

 

There’s no question about which U.S.-based EV-name remains large and in charge. Tesla (TSLA) blasted higher on Friday on very heavy volume as it gets ready to become part of the S&P 500 Index on Monday. This, and quadruple-witching options expiration, accounted for the heavy volume. Technically, the move is a continuation pocket pivot off the 10-day line, but TSLA is now well extended at this point.

 

 

Chinese EV-related stocks remain stuck in neutral along near-term support. Li Auto (LI), Nio (NIO, and Xpeng (XPEV) are bouncing around along their 10-day moving averages and 20-day exponential moving averages without any decisive upside resolution. If you squint long enough you may start to see some potential U&R type of action along these recent lows, but so far, the action remains tentative. Keep these on your watch list, however, as they bounce along recent lows.

Chinese E-scooter maker Niu Technologies (NIU) is faring a bit worse than the others. It sits below its 50-dma as the still-rising moving average pushes above the stock price as it indecisively continues to move sideways. Are all these names forming the lows of potential new bases? At this stage more evidence is needed, so for now I’m willing to keep watching.

 

 

Livent (LTHM) remains the strongest of the lithium names I’ve discussed in recent reports based on the fact that it remains in an uptrend and continues to base. It attempted to post a big-volume pocket pivot on Friday, but instead posted a big-volume stalling pocket pivot that ended the day right back where it started the day, near the 10-day line. This keeps it in a potentially lower-risk long entry position, using the line as a tight selling guide.

 

 

Solar names remain on our watch list as they continue to move higher. In the first group chart we see that Canadian Solar (CSIQ), DAQO New Energy (DQ), Enphase (ENPH) and SolarEdge (SEDG) have all continue to rally since Wednesday. The only one in this group that was in a buyable position on Thursday morning was SEDG as it tested the $300 Century Mark. The stock is making its second attempt at decisively clearing the mark since the first attempt in early October.

SEDG closed Friday at 314.50, so is now extended from the $300 level, but it came close enough on Thursday to be buyable at an intraday low of 302.10, less than 1% away from the Century Mark, as I noted in the blog comments section that morning.

 

 

Array Technologies (ARRY), First Solar (FSLR), Sunrun (RUN), and SunPower (SPWR) have continued to move higher into week’s end and are all extended. RUN was the only one in a buyable position Thursday morning as it tested its 10-dma, 20-dema and 50-dma and then turned higher from there. Like the other three, it stalled on Friday on very heavy options expiration, and we’re now left to waiting for the next potential set-ups to appear in all four charts, most likely on pullbacks from current levels.

 

 

News that numerous U.S. government agencies, including the U.S. Treasury and U.S. Commerce Departments, have been getting hacked since March sent cyber-security names streaking higher on Friday. I show a representative group below that includes CrowdStrike (CRWD), CyberArk Software (CYBR), Fortinet (FTNT) and Palo Alto Networks (PANW). Many other names in the group were rallying on Friday as well in a highly correlated group-think type of move.

The moves strike me more as FOMO type moves since it’s not clear to me how this news represents an impending gold mine of business for these companies. The question in my mind then becomes whether these moves become shortable as they get extended, but that is unclear at this precise moment in trading time. Otherwise, they’re certainly far too extended to be buyable, but altogether a good group to keep an eye on for opportunistic action given the current news-push dynamics.

 

 

The reality of this massive security breach is that the company directly helping to respond to it is Microsoft (MSFT). Surprisingly, it did not streak higher in a similar FOMO-driven move on Friday as it closed slightly down on the day. It did, however, successfully test its 10-dma and then rallied smartly off the intraday lows. As I noted in Wednesday’s report, the stock had posted a pocket pivot at the 50-dma that day.

Friday’s pullback was buyable on that basis as the stock came down close to the 10-dma and 50-dma, which lies just below. MSFT remains less than 2% away from its 10-dma and 50-dma and is therefore still in a buyable position using the 50-dma as a selling guide.

 

 

Apple (AAPL) appears to suffer from a lack of follow-through after Tuesday’s pocket pivot at the 10-dma on news that it was allegedly looking to increase iPhone production by 30%. That report has not been confirmed by the company, so it’s not surprise that it is headed right back toward the 10-dma on heavy options-expiration volume Friday. Watch for support to hold at the 10-dma or 20-dema, otherwise this could be a short-lived pocket pivot.

 

 

Meanwhile the other three members of the S&P Five, Amazon.com (AMZN), Facebook (FB), and Alphabet (GOOG), don’t offer much inspiration as AMZN and GOOG slumped to the downside on Friday. FB technically posted a pocket pivot on Friday by edging back above its 50-dma into the close. While the move doesn’t strike me as all that convincingly, it is still technically possible to treat this as a long entry for FB using the 50-day line as a tight selling guide.

 

 

Netflix (NFLX), Snap (SNAP) and Twitter (TWTR), none of which I show here on charts but wanted to comment on briefly are all extended to the upside and out of buying range. NFLX remains well above its 50-dma while SNAP and TWTR are extended from their 10-day lines. Pullbacks to those moving averages in any of them can be watched for as possible lower-risk entries from current levels.

Advanced Micro Devices (AMD) found support at its 10-dma on Friday where it offered a lower-risk entry at that point. That would remain the case on any further pullbacks to the 10-dma from here.

Marvell Technology Group (MRVL) continued its week-long rally up off its 50-dma and broke out to new highs on Friday. It stalled off the intraday peak, however, to close near it’s the lows of the day. This is obviously extended at this point pending any tests of the 10-dma down at 44.56.

 

 

Qualcomm (QCOM) and Qorvo (QRV) went in different directions on Friday with QCOM rolling below its 20-dema on heavy selling volume while QRVO posted a pocket pivot at its 10-dma on heavy volume. As I noted on Wednesday, “Of the two, QRVO looks more attractive to me…” That turned out to be an accurate assessment.

QCOM is now a short-sale as close to the 20-dema as possible while using the line as a covering guide. QRVO, on the other hand remains within buyable range of the 10-dma based on Friday’s pocket pivot using the 10-dma as a tight selling guide, but I would have preferred an entry along the 20-dema earlier in the week. Play it as it lies.

 

 

News that MSFT was going to start making its own chips for its Microsoft Surface laptops sent Intel (INTC) slashing through its 20-dema and 50-dma on Friday as volume ballooned. This trend of software and device companies looking to make their own chips is having its impact on INTC, among others semiconductor names, as we’ve seen. This now looks like a short on any weak rallies back up into the 50-day line.

Nvidia (NVDA) still can’t clear its 50-day line as it ran into resistance at the line on Friday as it spent the week holding tight just below the line. This remains in an unresolved position where rallies into the 50-day line can be tested as possible short-sale entries. A convincing move back up through the line could trigger this as a long however, but the stock could also simply continue to track sideways in what is so far a five-week bear flag type of formation after a breakout failure in early November.

 

 

A certain loud, balding market pundit on CNBC proclaimed Snowflake (SNOW) to be undervalued Friday before the open, sending the stock launching higher early in the day. As I discussed on Wednesday, I was looking for a possible tradeable move off the 20-day line, but I did not expect to get a holiday helping hand from a CNBC talking head to provide such a wonderful move early in the day on Friday.

The move turned out to be one to sell into, however, as SNOW reversed off the intraday highs and closed back down near the 20-dema on very heavy options expiration volume. Resistance came into play just shy of the 10-dma, and in this position SNOW might again be buyable at the 20-dema which would also serve as a tight selling guide.

 

 

In Wednesday’s report I focused on cloud names that I felt were in potentially buyable positions at that time. As it turned out, all four, Appian (APPN), Fastly (FSLY), Shopify (SHOP) and ZScaler (ZS) moved higher into the end of the week. APPN regained its 10-dma on Thursday, gapping above the line early in the day where it could have been bought using the 10-dma as a selling guide.

Now it’s a matter of seeing whether it can continue to set up along the 10-dma or whether it continues moving higher from here. FSLY offered a very nice entry opportunity at the 10-dma on Thursday and then cleared axis-line resistance at the $100 level (refer to Wednesday’s report for an illustration of axis-line resistance on the FSLY chart). It is now extended.

SHOP is also now out of buying range of Wednesday’s base breakout. ZS rallied Friday as part of the overall cyber-security group move on news of the big U.S. government hack attack and is also now extended.

 

 

Most opportunities in this market must be acted upon in real-time as the market’s intraday twists and turns create actionable set-ups out of otherwise dire-looking price action. That was the case on Thursday as JFrog (FROG) was looking like it was headed for a test of its October lows. The stock offers a good example of how an opportunity materializes in real-time which one must be alert to as it develops.

Early in the day on Thursday I provided some assistance by blogging a chart of FROG as it approached the prior 65.07 low in the pattern. It eventually moved above that low in decisive fashion, triggering a clear U&R long entry at that point. FROG then moved higher on Friday as it again looks to test resistance along the 50-day moving average. In the meantime, constructive pullbacks to the 20-dema again come into play as possible lower-risk entries on the heels of Thursday’s U&R long entry set-up.

 

 

Sonos (SONO) moved into all-time high price ground on Friday as it followed through on Tuesday’s pocket pivot off the 20-dema and through the 10-dma. It is now extended but serves as an interesting example of how the stock put everyone to sleep after a big-volume buyable gap-up (BGU) in November went nowhere before finally turning sharply off its 20-dema.

 

 

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Note #1 for newer members: 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 (black line). In all cases I will mostly use the shorthand version of “10-dma,” “50-dma,” etc.

Note #2 for newer members: A U&R, or undercut & rally, is a long entry signal that occurs when a stock undercuts (moves below) a prior meaningful low in its chart pattern and rallies back above that low. The precise entry occurs at the prior low, which then becomes your selling guide. There are no other special requirements for a U&R other than the price action. It is similar to Wyckoff’s Spring. A MAU&R, or a moving average undercut & rally, is essentially a shakeout at a moving average where your entry point occurs at the moving average as the stock is coming up through the line. This then becomes your selling guide. You can run things tight by using the actual price levels as stops or allow for 1-3% of further downside (otherwise known as downside porosity) before being stopped out.

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As we approach Christmas Day, I’m not seeing a lot in the way of actionable set-ups. Most of the stronger names are extended, while we are seeing some breakdowns in other areas. Perhaps things continue to melt-up into Christmas Eve, but I would not necessarily assume that it will be a quiet week.

I would, however, continue to assume that this market remains a matter of simply operating off the set-ups we see in real-time. As I’ve been fond of saying lately, regardless of what the indexes are doing there is always something going on in terms of actionable price movement. Often, however, this occurs on the spur of the moment, and is not necessarily clear until it triggers in real-time.

Sticking with a reasonably manageable daily action watch list of 10-15 names helps one keep track of things sufficiently enough to identify changing intraday conditions that produce potentially actionable entries, long or short. Anything more than that, at least from my perspective, makes it difficult to keep track of changes in a market where things can change quickly. That is all.

Administrative Note: Due to the short holiday trading week, the mid-week report will be published on Tuesday 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

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 no positions, 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.