The Gilmo Report

December 24, 2013

December 24, 2013

As I wrote over the weekend, there is very little that can get in the way of the market as we moved into the Wednesday Christmas holiday. And one full day of trading on Monday combined with a half-day on Tuesday, Christmas Eve, did nothing to change that equation. The NASDAQ Composite’s daily chart, below, shows that Santa’s sleigh made a “soft landing” at the NYSE and NASDAQ buildings in New York as the market pushed to a narrow but still higher-high. While you might see some tax-loss selling in laggard stocks going into the end of the year, my guess is that the market will press higher into New Year’s Eve, next Tuesday. Thus you can figure out what institutions want to own going into the next year and then deduce which stocks are likely to participate into a positive move for the market in the final trading days of 2013. You might have thought that today, being Christmas Eve, would be relatively quiet. But there were some upside fireworks in a few stocks, so as Gordon Gecko once said in the movie Wall Street, “Now let me show you some of my charts.”




I wrote over the weekend that I would not be surprised to see Facebook (FB) simply move higher after completing a 70 million share secondary offering that was priced at 55.05. I thought Friday’s action was buyable as a cup breakout using a standard 6-7% downside stop, and that remains in force for now as the stock makes new highs.




LinkedIn (LNKD) is still stalling around the 222-223 price area which is essentially the top of the “falling window” gap-down day of five days ago on the chart. I don’t think we’ll get to see exactly what LNKD is all about here until we see more trading volume once we get past Christmas.




Netflix (NFLX) continues to track along the 10-day moving average as nothing too decisive occurs here. Still buyable on the basis of last week’s pocket pivot using the 10-day line as your quick selling guide based on the Seven-Week Rule.




Tesla Motors (TSLA) got a boost on two fronts today as it pushed back over the 50-day moving average, as we can see on the daily chart below. The National Highway Transportation Safety Association reaffirmed the five-star safety rating for 2014 Tesla Model S vehicles while the appearance of an article urging Apple (AAPL) to buy TSLA and produce an “iCar” also got the speculative juice flowing in the stock. One could extrapolate the volume to what it might have been on a full trading day by checking the relative volume increase at the close for the same time, 10:00 a.m. Pacific, and figure that the stock traded 51% above-average for that time of the day. Thus Tuesday’s move would qualify as a pocket pivot on that basis. Of course, this is a bit tricky, but if one expected TSLA to get some year-end support then one could test the stock out here using the 50-day line at 148.16 as a quick downside stop.




In the last paragraph of my December 8th report I closed by writing, “…all I want for Christmas is another GOGO…Maybe TWTR is the answer.” I didn’t realize at the time just how prophetic that would turn out to be as Twitter (TWTR) has gone absolutely nutzo to the upside, as we can see on its daily chart, below. Every time I come into the stock I get a nice trade on the upside, bag a profit that is equivalent to what other stocks take 3 months to achieve, and then watch it go higher. If one bought a reasonable position on the IPO U-Turn breakout and is still holding it, you can expect a sharp pullback at some point, but whether that happens here or at 80 is anyone’s guess as far as I’m concerned. Of course the higher it goes, the higher the probability of a correction. The other issue is whether TWTR’s action represents some sort of irrational, speculative “fever” that has overcome the market.




SolarCity (SCTY) is tracking nicely sideways here after Friday’s pocket pivot move, and Monday’s pullback into the 54-55 price area, which I thought was buyable per my report of this past weekend, provided an entry point for anyone who missed the Friday pocket pivot. I would be looking for the stock to push higher from here as long as it holds the 53-54 level on any pullback from here.




Gogo (GOGO) finally got going today on an above-average volume bounce off the 50-day moving average. As is typical of the action in many stocks that I’ve followed, GOGO actually undercut the 50-day moving average at 24.16 and bounced off of the 65-day exponential moving average at 23.51, roughly, as we can see on the daily chart below. As I have been discussing in recent reports, one could start taking a position on this pullback to the 50-day/10-week moving average confluence while also invoking a bit of the Ugly Duckling Theory. When the stock began to dip below the 50-day line, it was possible to use the 65-day line plus another couple of percent given GOGO’s inherent intra-day volatility to figure out that this was the spot to lay into it. Today’s volume also came in above average, which I thought was pretty impressive for a half day of trading.




Workday (WDAY) moved back up to its highs yesterday following Friday’s pocket pivot move, as we can see on the daily chart below. WDAY had a little opening spinout as it shook out down to the 20-day moving average but recovered by the close to close down only 30 cents and at the peak of its daily trading range. Somebody seemed to be in an awful hurry to unload somewhere north of 60,000 shares of the stock not too far off the opening bell, and I’m not sure if it someone actually needed to dump that many shares in a hurry or whether someone on some trading desk somewhere had a bit of the ol’ “fat thumb” on the order. In any case, I like this shakeout as I think it can set up a move to all-time highs for WDAY going into year-end.


GR122413-WDAY (AMZN) is engaging in a little backing-and-filling here around the $400 price level as we seek to invoke Livermore’s “Century Mark” rule here. While the stock dipped below the $400 level today, I don’t consider this much of a problem as sometimes stocks initially move above such a century mark but take a little time to finally get through it. My guess is that a big stock institutional staple like AMZN will get supported into year-end, so I’m still looking for a more pronounced move above the $400 level going into year-end. The small pullback here on light volume given that the stock was tracking at 20% below average at the close for that time of day is constructive, and if the stock pulls back a little more on Thursday I consider it eminently buyable.




Yelp (YELP) is quieting down as it tracks just above the 50-day moving average following two pocket pivot moves last week, as we can see on the daily chart below. YELP has been a big winner in 2013, and my guess is it will be supported into year-end. Thus one could take a position here with that in mind and the idea that it will continue to hold above the 50-day moving average, currently at 65.65.




As we move into year-end the “Three Caballeros,” will also likely be supported into year-end. In addition to being big-stock NASDAQ and bio-tech names that are also institutional staples, Biogen Idec (BIIB), Celgene (CELG), and Gilead Sciences (GILD), all shown below in a “Three Caballeros” chart triptych, are also in buyable positions. BIIB and CELG have both tucked into their 10-day moving averages after recent and strong upside moves, and GILD is holding tight near the top of a base as it looks poised to breakout.








Finisar (FNSR) is another one of these “roundabouts” that is working following the big-volume bottom-fishing pocket pivot off the lows not quite a month ago, as we can see on the daily chart. After pulling back into its 10-day and 20-day moving averages over a week ago, FNSR is now pushing well above the 50-day moving average on volume that has been below-average. FNSR is now pushing up against possible overhead in the pattern at around the 24 price level, but the fact that it is now up 12 out of 15 days in a row or better, as indicated by the triangular “ant” on the chart, is very constructive for the stock. There is also some confirmation coming from the other big-stock fiber-optic name, Ciena (CIEN), not shown, as it attempts to clear its own near-term resistance at the 24 price level. From here I would use any pullback to the 23 price level or better to buy FNSR, which I consider the leader between the two.




Taser International (TASR) is currently making a poor showing of itself as it continues to pull back within what looks like a nearly two-month base on the daily chart, below. Notice also that TASR has “violated” its 50-day moving average by closing below the line last Tuesday and then moving below the intra-day low of that day on Thursday and yesterday to complete the moving average violation. But in this market, as we should know by now, a violation of the 50-day line that finds support at the 65-day exponential moving average, the black moving average on the chart, can easily invoke the Ugly Duckling Theory as a possible buy. FB worked out this way, and I’m going to stick my neck out here and venture a guess that TASR might work out the same way. Thus I am quite okay with buying the stock here on this pullback to the 65-day line with the idea that it will hold and finally try and move up and out of this current base.




Acadia Pharmaceuticals (ACAD) finally got off of its duff and cleared resistance at the 25 level, something I discussed in this past weekend’s report, following Friday’s pocket pivot buy point off the 10-day moving average, as we can see on the daily chart below. If one bought the stock Monday morning on the basis of Friday’s pocket pivot then one is sitting pretty, and my guess is that the stock should continue to hold this low range breakout through the 24-25 price level from here.




Splunk (SPLK) is holding tight along its 10-day moving average following last Friday’s pocket pivot buy point, which I discussed in my report of this past weekend. SPLK has been a strong performer in 2013, and has not really come under any heavy-volume selling since its buyable gap-up of late November, which we can see on the daily chart below. While it has drifted sideways to slightly downward over the past month, this has only served to form a decent 4½-week base so far, and I might look for the stock to come up and out of here with the idea that it should hold the 10-day and 20-day moving average confluence on any pullback from here.




My essential theme here is that with nothing really in the way of this market outside of the unforeseen, random event that could cause a pullback, most leading stocks have a good shot at moving higher into year-end as institutions seek to finish out the year on a positive note and will thereby support their favored names. Thus I’ve discussed a number of ideas in this report that I believe are in potentially buyable positions and thus actionable on this basis. In all cases I am using a tight downside stop, usually the 10-day, 50-day, or 65-day moving averages, so I think most of the ideas that I’ve discussed as being in a decently buyable position here are worth a shot. Merry Christmas!

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 BIIB, GOGO,SCTY, TASR, TWTR, and WDAY, though positions are subject to change at any time and without notice.

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