The Gilmo Report

December 27, 2020

December 26, 2020 5:09 pm ET

The NASDAQ Composite Index spent the last two days before Christmas churning around near its highs. On Wednesday, volume ballooned as the index sold off from an initial gap-up open, and then on Christmas Eve’s short trading session it churned around on lighter volume that was still decent for a half-day of trading.

 

 

The NASDAQ has outperformed the S&P 500 and Dow Indexes over the past month as both of those NYSE-based indexes have tracked mostly sideways throughout December. While Dow 30,000 was a big media milestone a few weeks ago, the Dow hasn’t been able to make much progress beyond that. The stage is now set for the final trading week of the year.

 

 

Precious metals gave us a bit of a head fake on Tuesday as the Vaneck Merk Gold Trust (OUNZ) broke below its 50-dma on heavy selling that day. But that move turned out to be a shakeout as the OUNZ gapped right back above the line. Technically we can look at this as a moving average undercut & rally (MAU&R) move through the 50-day line.

This puts OUNZ in a buyable position with the idea of giving it more room down to the 10-dma/20-dema. As I noted on Tuesday, despite the high-volume break below the 50-dma, the pullback into the 10-dma/20-dema confluence was a lower-risk entry since one generally has to take a contrarian view of the metals and look to buy them opportunistically.

 

 

Silver has acted similarly, with the iShares Silver Trust (SLV) coming in sharply on Tuesday for a test of the 10-day moving average. But the white metal shrugged that off on Wednesday and rallied back up near Monday’s highs as it holds support along the highs of a low-base price range. This can be viewed as being in a buyable position here or as close to the 10-dma as possible while using the line as a tight selling guide.

 

 

Precious metals stocks in have mimicked the action of the metals themselves near-term with downside moves on Tuesday followed by quick stabilization over the next two days. Of the three silver miners that I like, First Majestic (AG), Coeur Mining (CDE), and Gatos Silver (GATO), it’s clear that CDE looks to be in the most coherent lower-risk long entry position along the 10-day moving average as volume declines sharply.

AG is holding very tight but is extended from any moving averages, while GATO is way extended from a recent breakout but holding very, very tight just above its 10-dma. In either case, I’d perhaps be more comfortable finding a long entry along the 10-dma, but if these keep holding up well and CDE holds at its own 100-dma, then it could very well turn out that the 10-dmas in AG and GATO end up rising to meet up with the stocks.

 

 

One might keep an eye on another silver miner that is further down in its pattern but showing some signs of life, Pan-American Silver (PAAS). Last week the stock put in a big-volume bottom-fishing pocket pivot as it streaked above the 50-day line and the next day posted a bottom-fishing buyable gap-up (BFBGU) that failed. That, however, isn’t surprising given how extended PAAS got in just two days, and we know that miners, like the metals, can be volatile once they get extended.

It never pays to chase that much strength, and such is also the case with PAAS as it now comes in to test the 50-dma. Note that the 10-dma is now crossing above the 50-day line, so it serves as a reference for near-term support. Therefore, pullbacks closer to the 10-dma can serve as lower-risk entries or one can simply buy here and use the 10-day line as a selling guide.

 

 

While I’m not in the prediction business, my expectation is that we will likely see more government debt and more money-printing in 2021. This could create a continued catalyst for higher precious metals prices, and higher precious metal stock prices. Ultimately, we let the charts tell us what to do, but lately it is evident that we’re seeing things percolate again in this area, and so we want to be aware of where the go-to vehicles might be.

While the Chinese EV stocks were certainly well-behaved back in November as they streaked higher, it appears that they got put on Santa’s naughty list this past week. All four, Li Auto (LI), Nio (NIO), Niu Technologies (NIU) and Xpeng (XPEV) traded lower on Christmas Eve. It may be that Chinese stocks in general are under some pressure now that the Chinese government is coming down hard on one of the biggest of the big-stock Chinese names, Alibaba (BABA).

That news may be getting old however, so it’s possible that some of these Chinese EV names are coming into lower-risk entry opportunity zones. LI is sitting at its 50-dma, while XPEV is heading for its own 50-dma.  Both are in areas where U&Rs through prior lows in the pattern could come into play, so you want to be alert to this possibility.

NIO is the strongest of the group as it tucks into its 10-dma and 20-dema with volume drying up (partly thanks to Thursday’s short trading session). This puts it in a lower-risk entry spot using the two lines as selling guides. NIU is the dog in the group after busting lower below the 50-dma with no set-ups in sight, and so can be ignored for now.

 

 

EV battery/charging names continued their winning ways, but the moves this week were mostly helped along by a declaration from President-elect Biden that he wants to install 500,000 EV charging stations across the country. Thus, Ballard Power (BLDP), Blink Charging (BLNK), FuelCell Energy (FCEL) and Plug Power (PLUG) remain in extended positions as we await to see how and when they eventually meet up with their rapidly rising 10-day moving averages.

 

 

Lithium stocks, which were boosted by reports that Apple (AAPL) was looking to start production of an electric vehicle by 2024, lost some of their momentum by week’s end. I still consider Livent (LTHM) to be the best-acting name as it remains in an uptrend following a recent flag breakout. It remains buyable on pullbacks to the 10-dma. The others I find less thrilling, and as I’ve discussed in previous reports, I’m still leery of any one of these lithium names announcing a secondary stock offering.

As I’ve noted, all of these companies are looking to expand production with new lithium mining projects, and it would be very expedient for them to raise the money necessary for such projects through secondary stock offerings. Given how much their stocks prices have improved over the past few months from single-digit levels, this would make good business sense.

Barring that, all we have to go on are the current technicals. Lithium Americas (LAC) would need to pull into the 50-dma to offer a lower-risk entry while Piedmont Lithium (PLL) is coming right back down into its 10-dma and 20-dema where it could potentially be treated as a lower-risk entry using the two lines as selling guides.

Chinese lithium producer CBAK Energy Technology (CBAT) can perhaps be tested as a long entry at the 20-dema as it pulls in following a sharp rally earlier in the week with the rest of the lithium group.

 

 

If Apple (AAPL) were to confirm its intended foray into the electric-vehicle business, perhaps the stock would go nuts on the upside. But with the only discussion of such a foray emanating from third-parties, the stock simply edges higher. The proper buy point here occurred on Monday as it bounced off the 20-dema following the prior pocket pivot eight days ago on the chart.

AAPL is now stalling a bit around its prior highs of early September. This may imply that a pullback is imminent, and we can watch for any constructive pullbacks to the 10-dma as lower-risk entries from here.

 

 

Lumentum (LITE), which broke out on Tuesday, continued to edge ever so slightly higher over the final two days of the shortened trading week. The stock took off on the AAPL iCar news, which could potentially benefit LITE, except that such production would allegedly not occur until 2024, four years from now. So, is this a temporary news-driven move?

There are two ways to look at it. While the proper buy point was the shakeout at the 20-dema on Tuesday, basically an MAU&R type of long entry trigger, LITE now remains just out of buying range of Tuesday’s re-breakout move coming on the heels of a prior buyable gap-up breakout move eight days ago on the chart. At the same time, it is edging up to the $100 Century Mark on declining volume.

Thus, if it can hold a pullback to, say, the 10-dma, then it could offer a lower-risk long entry. If it fails on this approach toward the Century Mark it could also trigger as a short-sale at that point. As I wrote in Tuesday’s report, this sets up some interesting dynamics that have to be monitored and acted upon in real-time based on incoming evidence. Play it as it lies.

 

 

Some pundits say that an AAPL iCar would alter the landscape significantly for Tesla (TSLA) and could set the stock up for a big decline. So far, TSLA doesn’t’ seem to be buying that argument as it remains within a well-defined rising trend channel. Buyable support has been found at the 20-dema, and that remains the case for now as the line rises above the $600 Century Mark.

 

 

Fisker (FSR) was last buyable along the 50-day line in opportunistic style earlier in the week but is again back above its 10-dma and 20-dema. It held tight at the 20-dema on Friday as holiday volume dried up sharply, so I would look at this as a lower-risk entry using the 20-dema as a tight selling guide. If it can’t hold the 20-dema, then of course the 50-dma comes into play as support once again.

 

 

Microsoft (MSFT) is consolidating Monday’s upside move in constructive fashion as it moves sideways over the past three days with volume remaining very low. I would like this most on a pullback to the 10-dma, although it is sitting only 2% above the line. Thus, if one doesn’t mind, one could theoretically buy shares here and then use the 10-dma as a reasonably tight selling guide.

 

 

The big FOMO move in cyber-security names following the news of the U.S. Government getting hacked in the extreme have lost momentum over the past couple of days. I discussed the oddity of this as a massive pile-in that is likely driven by mindless retail investors buying. Cyber-security has been an issue for many years now, and certainly a well-worn thematic driver for these stocks over that time.

I’ve discussed several of these names in my video reports over the past few months as they’ve attempted to round out the lows of potential new bases, like Fortinet (FTNT) and Palo Alto Networks (PANW), for example. Now these names look like they’re going into near-term climactic tops after some nice runs up the right sides of new bases.

The one that puzzles me the most, however, is FireEye (FEYE), which was itself hacked two weeks ago and didn’t even know it until the company conducted an internal audit. Yet the way this thing has traded, basically having the biggest move by far of any of the stocks, about 75% in a week, seems to indicate that they will be the primary beneficiary of a flood of new cyber-security business resulting from the U.S. Government hack.

That doesn’t seem to make a lot of sense, so, as I discussed in my Wednesday video report, I was looking to probe FEYE on the short side after a four-day rocket ride. This is tricky business, however, and I will use my 620-chart to probe a move like this if I have a good reason to believe it may be short-lived.

It’s not clear, however, how much of this move is due to news that Blackstone Group (BX) revealed a “fresh” position in FEYE stock amounting to 21,449,275 shares, including 340,000 shares underlying a 4.5% convertible preferred series offered through a private placement that closed on December 11th in a recent 13D filing. All of BX’s shares in FEYE underlie ownership of preferred convertible securities issued by FEYE.

With the price up this much on volume that exceeded well over 200 million shares over the past five trading days, the question is whether BX’s 13D filing sparked additional FOMO on top of the U.S. Government hack news. Through convertible securities, BX now has an 8.5% interest in FEYE, and with the share price up as much as it is it is not clear if this represents potential supply or whether BX “knows something.”

 

 

Being somewhat intrepid myself, I picked my first short-sale entry off on Wednesday as FEYE flashed a MACD downside cross on the five-minute 620-chart, circled below. That entry occurred just above the $25 price level and led to a nice breakdown from there. I decided ahead of time that I would simply use my entry price as a stop, so it either worked or it didn’t. It worked, however, and I covered that at the close for a nice short scalp and decided to see how things were lining up the next morning, on Thursday.

 

 

Thursday morning, I was happy to see FEYE trading up just above $24 a share in the pre-market session, at which time it flashed a MACD cross to the downside. Since my plan is to campaign the stock on the downside as a short-sale target over several days if I can, I took this as an opportunity to re-enter the short side of the stock at that time.

Once the opening bell rang, it plunged lower, and I had a 10% profit on my hands relatively quickly. On the way down, as the fast orange MACD line began to stretch away from the slow blue MACD line I considered covering but decided not to since FEYE was unable to regain the 6-period exponential moving average.

Finally, once the MACD had convincingly turned back to the upside and the stock was able to clear the 6-period line, it was time to cover and wait for a potential new entry to show up. I didn’t see anything to act on going into the close and besides, I wasn’t interested in holding a position over the long weekend. I’ll take a look at this again on Monday morning and see what sorts of possibilities and opportunities might arise at that time

 

 

The FEYE “case study” illustrates how I use the 620-chart as a tool, not a trading system. I use all the information on the chart within the context of what is going on with the stock on other time-frames as well as the news flow which was the catalyst for a crazy upside move. My judgment and ability to synthesize all the information coming at me in real time is what makes it work, not trying to use it as a mindless, rote buy/sell signaling system.

Solar stocks have remained strong, and I will limit my discussions to names in my favored group of solars when they are in what I consider to be potentially actionable chart positions. Among those that I’ve discussed in recent reports, including Canadian Solar (CSIQ), DAQO New Energy (DQ), Enphase (ENPH), SolarEdge (SEDG), Array Technologies (ARRY), First Solar (FSLR), Sunrun (RUN), and SunPower (SPWR), I again find FSLR to be in the most concrete potential entry position among the group.

FSLR triggered a long entry on Tuesday when it cleared the $100 Century Mark for the first time in its history and shot up to a high of 109.09 on Wednesday before reversing to close down on the day. That led to a test of the $100 level on Thursday which held and offered a second lower-risk entry at the Century Mark. FSLR remains within buying range of the $100 Century Mark while using it as a tight selling guide.

 

 

A new name in the solar space that also combines EVs and EV batteries is VivoPower International (VVPR) which I discussed in my Wednesday evening video report. The company bills itself as an “international battery technology, electric vehicle, solar, and critical power services company” (Talk about pushing all of the market’s hot buttons!) based in the United Kingdom with offices all around the globe.

The company finally posted its first profit in the last reported quarter with a 290% increase in earnings at 19 cents a share and a 74% sales increase at $17.8 million. On Wednesday VVPR posted a bottom-fishing buyable gap-up (BFBGU) with an 8.74 intraday low. As I discussed in my video report that day, it was buyable near that intraday low, and the stock pushed back above the $10 level on Thursday.

Ideally, one would look for an entry as close to the 8.74 BGU intraday low as possible.  The intrepid among you, however, could elect to take a smaller position here using the 8.74 level as a tight selling guide and seeing how things proceed from there. This certainly has high FOMO potential, and we’ll see whether Wednesday’s BFBGU is the technical catalyst for more upside from here.

 

 

Netflix (NFLX) has now pulled right into its 20-dema as volume dries up sharply. While the 10-day line didn’t hold up as near-term support, we can look for this pullback to the 20-dema to hold as a lower-risk entry spot while using the 20-dema as a tight selling guide. As long-time members know, the 20-dema is my favorite near-term moving average for buyable pullbacks in uptrending leaders.

 

 

The “new NFLX,” Walt Disney Company (DIS) skipped up and off its 10-dma on Wednesday after pulling into the line Tuesday on some nice voodoo action. It gapped up slightly on Thursday, but the 10-day line kept up the pace as it moved higher and met up again with the stock as volume dried up.

This keeps DIS in a lower-risk entry position using the 10-day line as a tight selling guide. However, I would likely be more inclined to look for pullbacks that are closer to the BGU intraday low at 165.33 if I can get ‘em. Otherwise, it wouldn’t take much for the stock to drop below the 10-dma given how steep its angle of inclination is.

 

 

Social-networking leaders have been slumping as of late, some worse than others. The big-stock, big brother in the group, Facebook (FB) is now living below its 50-dma as it tests the lows of its pattern. Meanwhile, Snap (SNAP) and Twitter (TWTR) are pulling into near-term support on light holiday volume.

SNAP plopped right into its 20-dema on Thursday where it offers a potential lower-risk entry using the 20-dema as a selling guide. TWTR closed 11 cents above its 10-dma on Thursday, which brings it into a lower-risk entry spot using the 10-day line as a selling guide. With FB coming undone to some extent, let’s see if its two smaller cousins are able to hold near-term support because if they can’t then they could easily transpose into short-sale targets.

 

 

My favorite four semiconductors present a mixed bag, although in some cases actionable entry points are evident. Advanced Micro Devices (AMD) closed the week just below its 20-dema and should be watched for any move back above the line as a possible moving average undercut & rally (MAU&R) long entry trigger. If it busts the 20-dema, then it could become a short-sale target at that point, so be aware of this potential dynamic

Marvell Technology Group (MRVL) is tracking tight sideways as it now meets up with its 10-dma. This puts it in a lower-risk entry position using the 10-day line as a tight selling guide. While Qorvo (QRVO) is extended, Qualcomm (QCOM) held tight along its 20-dema on Thursday after holding up on the Wyckoffian Retest I discussed on Tuesday. It is in a buyable position here using the 20-dema as a tight selling guide.

 

 

JFrog (FROG) was again pushing up through its 50-dma on Thursday as it looked quite strong early in the day. By the close, however, it had dropped back below the 50-day line but still closed above both the 10-dma and 20-dema on a pocket pivot volume signature. Thus, it remains in a lower-risk long entry position, using the two moving averages as selling guides.

Recall that FROG announced that on November 26th its IPO lock-up ended, clearing 25% of the total available stock for sale by insiders who wished to cash in some or all of their shares. Some of that may still be in play as insiders elect to take some money off the table at tax rates that may be less favorable next year under a new Biden Administration.

 

 

Appian (AAPN) found support at its 10-dma on Wednesday and then rallied slightly on Thursday. Lower-risk entries on pullbacks to the 10-dma are possible with the idea that APPN should hold the line as near-term support. If it can’t, then the 20-dema comes into play as your next reference for a possible lower-risk entry.

 

 

Snowflake (SNOW) dipped below its 20-dema on Thursday, which I indicated in my Tuesday mid-week report could trigger the stock as a short-sale if it occurred. That’s certainly the case now, but there is an additional dynamic here that one should be aware of, which is the potential for a Wyckoffian Retest

Last week, SNOW came down to the top of its prior base where it found support on heavy volume. So that is a big low on heavy volume, which then led to a rally back above the 20-dema. Now, as the stock rolls over, volume is light, which has the look of a typical Wyckoffian Retest.

This therefore has to be watched carefully as it could work out in either direction from here. If it can regain the 20-dema very quickly, then we would have an MAU&R type of long entry at the line that is bolstered by a successful Wyckoffian Retest as it comes in to test that prior big low with volume drying up. This will gain some clarity this coming week as volume levels pick up again, so be prepared to play this one in either direction as it reaches a critical point in its overall chart.

 

 

After a near-term climactic run into mid-December, Yalla Group (YALA) is bouncing along its 20-dema as it tries to settle into a basing groove. Holiday volume was light as the stock successfully tested the 20-dema on Thursday, where one could have come in for a long position at the line while using it as a selling guide.

That remains the case for now as the 20-dema serves as a coherent reference for near-term support. However, the stock may still need to spend some time consolidating that huge move into mid-December and perhaps tightening up a bit more. Watch for this to occur along the 20-dema as the stock works on what is so far a three-week base.

 

 

Notes on Terminology

Note #1 – Moving Averages: 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 – U&R Set-ups: 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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Last week started out with some impressive fireworks, and with no stimulus bill reaching fruition and the potential for some tax-selling early in the week this week, I wouldn’t be surprised if we started out to the downside come Monday morning. But that’s just to say I wouldn’t be surprised, not that it’s guaranteed to happen.

That said, there are some things to do in this market currently, and I’ll add to the mix of ideas in my weekend video report. Meanwhile, please note that I will be publishing the mid-week report on Tuesday instead of the usual Wednesday, as I did last week, due to another shortened trading week, this time courtesy of the New Year’s holiday.

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 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.