The Gilmo Report

December 29, 2020

December 29, 2020 7:13 pm ET

New highs in the major market indexes are not necessarily a one-size-fits-all affair, as certain once-hot areas of the market come under pressure. Currently, as we head into New Year’s Eve, I’m not seeing anything that shines that brightly on my long entry radar, unless I’m looking to buy deep pullbacks. That, however, is good enough, as there has been a multitude of pullbacks, some sharper than others and some perhaps due to year-end tax selling, in names we’ve been watching and working, which of course has opportunistic implications.

The NASDAQ Composite Index pulled back slightly today as it found resistance along the ascending highs trendline that forms the top of an ascending wedge type of formation. Ascending wedges are typically considered cautionary, but in this market assuming that what is typical will hold sway has not necessarily been the thing to do. For now, the indexes remain in uptrends.

 

 

If pressed for relatively fresher long plays, I’m leaning more toward precious metals and certain silver miners, but these are also not showing much in the way of upside fireworks following the initial moves off the lows that began in early December. Silver miners remain somewhat interesting, however, but the trick here is to use opportunistic pullbacks as lower-risk entries.

I show four such names below, First Majestic (AG), Coeur Mining (CDE), Gatos Silver (GATO) and Pan-American Silver (PAAS), all of which are pulling into their 10-day moving averages. This of course brings them into lower-risk entry spots using their respective 10-day lines as tight selling guides. Note that GATO looks the prettiest as it tracks tight sideways along the 10-dma with volume drying up sharply.

 

 

Precious metals also act constructively after bottoming in late November. The Vaneck Merk Gold Trust (OUNZ) continues to hold tight along its 50-dma, where it remains in a buyable position using the 50-day line as a selling guide. Alternatively, one can also use the 20-dema as a slightly wider selling guide.

 

 

Silver is meanwhile slightly extended on the upside as it tracks higher along its 10-day moving average. Pullbacks to the 10-day line might offer lower-risk entries from here. But with so many other long entry triggers showing up in various silver ETFs since late November, it is somewhat extended, as we can see on the daily chart of the iShares Silver Trust (SLV).

I like this best on a pullback to the 20-dema down at 23.36. One could, however, take shares along the 10-day line and look to use it or the 20-dema as a tight or a wider selling guide, respectively.

 

 

Chinese EV have remained in a slump after going parabolic and then topping in late November. Time spent basing since then may eventually resolve back to the upside, and we can now start to think about potential Ugly Duckling set-ups in these as they come way down into their chart patterns. Among the four I have liked, Li Auto (LI), Nio (NIO), Niu Technologies (NIU) and Xpeng (XPEV), we can see that NIO is the clear leader as it found solid support at its 50-day line today on decent volume.

After that, XPEV looks interesting on the shakeout at the 50-day line today, which essentially resulted in a moving average undercut & rally (MAU&R) long entry using the 50-dma as a selling guide. LI and NIU remain below their 50-day lines but can be watched for Ugly Duckling set-ups. This would come either in the form of price U&Rs along the lows of their current patterns or, as in LI’s case, an MAU&R coming up through the 50-day line if it can soon regain the line.

 

 

The EV battery/charging names have finally lost momentum, but the pullbacks don’t strike me as being all that out of the ordinary. Ballard Power (BLDP), Blink Charging (BLNK), FuelCell Energy (FCEL) and Plug Power (PLUG) have all come in over the past two days and are now testing their 10-day lines. BLDP and FCEL are also pulling into the tops of prior bases. In each case this puts them in lower-risk long entry positions with the idea of using the 10-day line as a selling guide.

 

 

Tesla (TSLA) continues to hold up within an ascending trend channel. Today it tucked into its 10-dma as volume dried up to about half of normal. Today’s move brings TSLA into a lower-risk entry position using the 10-dma as a tight selling guide.

 

 

Fisker (FSR) was again unable to hold above the 20-dema, bringing the 50-day line back into play as last-stand support. It never pays to chase this stock on the upside, so this pullback to the 50-day line strikes me as the preferred opportunistic entry spot using the 50-day line as a tight selling guide.

 

 

After attempted pocket pivots last week, lithium names have given up the ghost. As I wrote over the weekend, I consider Livent (LTHM) to be the best-acting name in the group while the others looked less thrilling to my own eye, despite the pocket pivots. LTHM pulled into the 20-dema today which put it in a lower-risk entry using the line as a tight selling guide.

Lithium Americas (LAC) still needs to come in a bit further and closer to the 50-day line where it might offer a lower-risk entry at that point. Piedmont Lithium (PLL) found support along its 50-dma today, keeping it in a potentially lower-risk entry spot using the 50-day line as a selling guide.

The low-quality name in the group, Chinese lithium producer CBAK Energy Technology (CBAT) can also be considered to be at a lower-risk entry spot along its 50-day moving average. In this case, I don’t see a lot of risk in taking a shot here since the 50-day line is relatively close for what is essentially a $5 penny stock.

 

 

Lumentum (LITE) worked out today as a textbook Century Mark short-sale entry after it attempted to clear the $100 Century Mark yesterday and failed, triggering a short-sale entry along the $100 level at that point. It again rallied up toward the Century Mark this morning, reaching an intraday high of 100.12 before turning tail and streaking down to the 10-dma.

For me, that was a near-term short-sale cover point, taking the quick 5% on the downside. Now it’s a matter of seeing whether LUMI bounces off the 10-day line and retests the $100 Century Mark, or simply busts the line whereupon it would trigger a fresh short-sale entry at the 10-dma. Short entries at the 10-dma on any continued downside movement would, of course, then use the line as a tight covering guide.

 

 

Another textbook Century Mark short showed up in First Solar (FSLR) as it broke back below the $100 level after clearing it last week. Perhaps the tip-off here was the two long-tail days where the stock made a run for the $110 level before reversing and closing negative. The breakdown today took FSLR all the way down to the top of its prior base and near the 20-dema, which in my book is a perfect near-term cover point.

 

 

Other solar names that I’ve discussed in recent reports have also lost their shine to some extent, with the entire group pulling in sharply over the past couple of days. Of course, this may simply provide us with opportunistic entries where such pullbacks come into identifiable support.

Starting with my first group of solar names, Canadian Solar (CSIQ), DAQO New Energy (DQ), Enphase (ENPH), and SolarEdge (SEDG), I noted that CSIQ and SEDG appear to be in the best potential long entry spots. CSIQ is holding support at its 10-dma which can also be used as a selling guide. Meanwhile SEDG successfully tested its 20-dema today and can be bought here using the line as a tight selling guide.

I would like to see DAQO and ENPH perhaps test their 20-demas as more opportunistic entries if I can get ‘em. For now, I’ll take the more discernible lower-risk entries in CSIQ and SEDG.

 

 

In the second solar group chart consisting of Array Technologies (ARRY), First Solar (FSLR), Sunrun (RUN), and SunPower (SPWR), we might dispense with FSLR since I already discussed it above. However, note that like SPWR it is also pulling into the top of a prior base, where it could also present a lower-risk entry given that today’s decline came on below-average volume.

That’s the 360-degree scoop on FSLR, and the same long-side potential is found in SPWR’s pullback to the top of its own prior base, although it did close just below the 20-dema today. RUN has come in below its prior peak of late November but note that today’s pullback took it into the 20-dema and the top of a prior and broader area of price congestion. Therefore, it may be in a lower-risk entry spot using the 20-dema as a tight selling guide.

ARRY had to be acted on today when it kissed its newly-appeared 50-dma and bounced hard. Watch for some settling action here along the 20-dema and the 50-dma where more opportunistic entries might be found on pullbacks to either moving average.

 

 

VivoPower International (VVPR) is a little bit solar and a little bit EV, so has those hot button characteristics capable of generating FOMO moves, as I discussed over the weekend. However, note that last week’s big-volume, stalling bottom-fishing buyable gap-up (BFBGU) failed today, taking that long set-up off the table rather quickly.

However, today’s pullback also filled the gap and successfully tested the 50-dma. Frankly, for my money, I like this pullback better as a lower-risk entry using the 50-dma as a tight selling guide if it fails to hold what is now last-stand support.

 

 

In the land of big-stock tech names, the S&P Five, consisting of Apple (AAPL), Amazon.com (AMZN), Facebook (FB), Alphabet (GOOG) and Microsoft (MSFT), not much strikes me as all that compelling now that AAPL and MSFT are extended on the upside. FB perhaps looks interesting here after posting a pocket pivot at the 50-dma yesterday. This puts it in a buyable position using the 50-day line as a tight selling guide.

AMZN launched off its 50-dma yesterday on news of a collaboration with TSLA and is now extended. GOOG is reversing back into its 20-dema, which technically offers a lower-risk entry, but, overall, the pattern doesn’t strike me as all that appetizing.

 

 

Netflix (NFLX) was buyable at the 20-dema per my comments over the weekend and shook out at the line yesterday for an MAU&R long entry trigger. That led to a pocket pivot off the 20-dema today, and just like that, it’s extended again. Pullbacks to the 20-dema would remain potential lower-risk entry opportunities to watch for going forward.

 

 

The “new NFLX,” Walt Disney Company (DIS), doesn’t show as much near-term spunk as the old NFLX, but it is still holding in a tight flag formation since posting a buyable gap-up a little over two weeks ago. In this position, any constructive pullbacks to the 10-day line would offer lower-risk entries and can be watched for.

 

 

I’ve been continuing to work FireEye (FEYE) on the short side over the past four days, and so far, I haven’t had a single losing trade in the stock, covering at the close and re-entering on subsequent rallies the next morning. However, it is now holding relatively tight as volume declines which makes the prospect of shorting this very tricky.

What I would really like to see is a V-shaped test of the prior high near 26 where I might stalk it using the 620-chart to find a possible short-sale entry. All of the cyber-security names that jacked last week on the U.S. government hack news are starting to roll back. Since I find it difficult to believe that this hacking news means a flood of new business for cyber-security names, I have viewed it more as a possible opportunistic short-sale opportunity.

But this is tricky business, and it remains so for inexperienced short-sellers, as far as I’m concerned. FEYE is cited as the “cheapest” of the cyber-security names since it sells at only 5.4 times forward sales vs. 46 to 48 among its bigger peers. I tend to think this is a sign of how little the market values its sales, and thus makes it perhaps the one to pick on as an opportunistic and intrepid short-seller.

 

 

Snap (SNAP) went a bit haywire yesterday as it slashed below its 20-dema, only to gap back above the 10-day line this morning before stalling to close just below the line. In this position, I can surmise that for now, pullbacks to the 20-dema would offer lower-risk long entry opportunities from here.

Twitter (TWTR) is tracking tight sideways as it now dips below the rising 10-day line. Hard to say whether this offers a lower-risk entry spot here, but what I will say is that my preference would be to look for a more opportunistic entry on a deeper pullback to the 20-dema if I can get it.

 

 

In Gilmo’s World of Semiconductors, Advanced Micro Devices (AMD) is starting to get doggy here as it dips below the 20-dema. Selling volume isn’t heavy, so of course we can always watch for some sort of MAU&R move back above the 20-dema as a possible long entry trigger.

Meanwhile, Marvell Technology Group (MRVL) has pulled into its 20-dema on light volume which brings it into a lower-risk entry position using the line as a tight selling guide. Qorvo (QRVO) is also in a lower-risk entry spot as it pulls into the 10-dma on light volume. The 10-dma then becomes your selling guide on this.

Qualcomm (QCOM) continues to track tight sideways along the 10-dma and 20-dema as volume remains light. Thus, this is also a potential lower-risk long entry spot using the two moving averages as a tight selling guide. Be aware with any of these, however, that breaches of near-term support at the 10-dmas or 20-dema could also trigger these as short-sale entries within the context of a general market pullback.

 

 

Clouds have been taking some heat as of late. Appian (AAPN) found support at its 20-dema yesterday and bounced nicely but ran into resistance at the highs of its current range. In this position, I’m only watching for pullbacks down to the 20-dema as possible lower-risk entries.

Fastly (FSLY) triggered as a short-sale entry at the 10-day line yesterday as the rumors of it being bought by Cisco Systems (CSCO) fade. It slashed through the 10-dma and 20-dema yesterday and reversed today at the 20-dema, so for now is extended on the downside, but the short-sale set-up was there for those who were alert to it yesterday.

JFrog (FROG) has lost its legs here as it slumps down toward its prior 62.43 low. It tested the low today without undercutting it but can be watched here for a possible U&R set-up along the 62.43 low if it in fact materializes.

Snowflake (SNOW) triggered as a short-sale again yesterday as it initially rallied back above the 20-dema but then reversed badly from there. It is now testing its 50-dma, but the primary dynamic here is that it did undercut and then close above the prior 303.54 low in the pattern, triggering a U&R long entry here using that low as your selling guide.

 

 

While clouds have been hit with selling over the past couple of days or so, some of these pullbacks are now coming into key near-term support. Thus, we can initially watch to see whether these offer lower-risk entries at the 10-day or 20-day lines. Four of my favorite clouds, below, are showing just such action.

Coupa Software (COUP) has pulled right into its 20-dema and the top of its prior base. This is a lower-risk entry spot using the line as a selling guide. CrowdStrike (CRWD) has pulled into its 10-dma as it holds up on a test of the $200 Century Mark. This is a lower-risk entry using the 10-dma and the $200 price level as tight selling guides.

Okta (OKTA) has pulled into its 20-dema where it offers a lower-risk entry using the line as your selling guide. ZScaler (ZS) has pulled into its 10-dma where it can be treated the same way using the line as a selling guide. Note also that ZS has dipped just below the $200 Century Mark by about 1%, which is acceptable porosity.

 

 

Yalla Group (YALA) has failed to hold support at its 20-dema but both yesterday and today posted U&R moves through the prior 15.72 low in the current three-week base. This keeps it in a long entry position using the 15.72 low as a selling guide.

 

 

Here comes Sonos (SONO) right into its 20-dema and the top of its prior flag base formation as volume dried up to -54.8% below average today. This puts it in a straightforward lower-risk entry position using the 20-dema as a tight selling guide.

 

 

 

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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Some of the selling that we’re seeing may be due to tax selling since today was the last day to sell with settlement before year-end based on the T+2 settlement rule. Some of the pullbacks, I must admit, look a bit tantalizing. Where I can come in on the long side as close to near-term support as possible, I am willing to take a shot as appropriate.

Otherwise, if things start breaking near-term support one after the other, I have no problem flipping short where appropriate. That has certainly been the case with names like FSLY, FROG, and SNOW, for example. From a visceral standpoint, I have found that lately the short side has been a bit more rewarding than the long side. Whether that is meaningful remains to be seen as we finish out the year and head into 2021, so stay alert.

Happy New Year!

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 OUNZ, though positions are subject to change at any time and without notice.