The Gilmo Report

December 4, 2019

December 4, 2019 3:34 pm ET

The final trading month of the year has gotten off to a raucous start, selling off Monday and yesterday on trade fears. President Trump’s statement that that he would be satisfied if a trade deal, even a Phase One trade deal, were delayed beyond the November 2020 election, sent the indexes gapping to the downside yesterday at the open.

But as I blogged shortly after the bell, many of the names that I watch were rallying right off their opening lows and flashing long entry signals on their five-minute 620-charts. This provided some very playable 360-degree trading off the lows. The rally continued this morning on another gap move, this time to the upside on what was billed as positive trade news.

Despite the contradictory news swirl, and aside from the long entry signals in individual stocks, the technical evidence for an intraday turn was also there to be seen in the indexes. Note the undercut & rally move by the NASDAQ Composite Index yesterday at its lows of two weeks ago, which set the stage for a rebound off the intraday lows in all of the major market indexes.

 

 

The rally this morning took the NASDAQ right up into its 10-dma, where it churned and spun around all day without making any significant progress throughout the remainder of the day. Similar action was seen in the other major market indexes, essentially a lower-volume churning day. Overall, the news flow makes this a difficult environment for trend-followers but a fruitful one for nimble 360-degree swing traders.

The rise of trade fears on the basis of more news flow based on what are really speculative comments and reports put a bid under the precious metals yesterday. The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) both gapped up yesterday after posting U&R long entry signals last week.

The GLD held support today on a small -0.14% pullback to the 20-dema as volume dried up. The stock remains within buying range of the prior U&R through the 137.80 low of October 1st. Meanwhile, the SLV, not shown, broke down -1.81% in an odd divergence, closing at 15.76 and just below its prior 15.83 U&R trigger low.

In my view, both are still in buyable range of their prior U&R lows, but I would want to see the SLV quickly regain its 15.83 low of September 30th. The precious metals, however, remain very news-influenced, as I discussed over the weekend, so the Fed meeting next week, and the December 15th tariff deadline, will likely hold significant sway over where gold and silver go from here.

 

 

The strength in precious metals resulted in breakout attempts in both Agnico Eagle Mines (AEM) and Franco-Nevada (FNV) and other metals miners. But as you all know, I don’t advocate buying breakouts, especially in these types of stocks. One has to be opportunistic, so the proper buy points for each were down along their 50-day moving averages.

To prove my point, FNV, not shown, failed on its breakout attempt and moved lower today. But AEM is still holding yesterday’s gap-up move, which traded enough volume to qualify as a buyable gap-up. So the stock is technically buyable using the 60.96 intraday low as a selling guide.

 

 

Big-stock NASDAQ names for the most part have been knocked off their new-high perches over the past two days. Some recoveries were seen yesterday and today, but the action is messy and mixed.

On the group chart below, Apple (AAPL) is seen closing below its 20-dema yesterday but then gapping back above the line today where it ran into resistance on light volume. From a practical standpoint, the stock was a short today at the 10-dma from whence it reversed and closed in the lower half of its daily price range.

Amazon.com (AMZN) tried to gap up with the market this morning but merely ended up reversing badly off the intraday highs and closing in the red. This still has to be treated as a short on any further rallies up into the 200-dma, where it ran into steady resistance last week.

Alphabet (GOOG) posted a pocket pivot through its 10-dma today on news that its founders would be stepping down from their management positions. Frankly, if one wanted to buy GOOG shares, the time to do it was yesterday on the undercut & rally move back up through the mid-November lows. Now the stock is near the range highs and extended, in my view.

Microsoft (MSFT) flipped out at its 20-dema yesterday as well on heavy selling volume, but regained the line today as it stalled at the 10-dma on higher volume. This is an unclear position, and I would need to see the stock settle down before determining whether this is more a long than a short.

 

 

Nvidia (NVDA) was slammed through its 10-dma on Monday and then gapped through its 20-dema yesterday. Not until it was able to post a U&R move through the 200.64 low in the pattern on an intraday basis was it able to rally back up toward the 20-dema.

NVDA then cleared the 20-dema today at the open but stalled to close just below the 20-dema as buying volume tapered off sharply. This technically puts NVDA in a shortable position using the 20-dema as a tight covering guide. A quick turn of events for the stock, which was unable to show much spunk today in the face of the big index rally.

 

 

You have to wonder where the buyers went on Netflix (NFLX) today which tried to rally off the 20-dema yesterday but gave up all of that and today’s gap-up opening move to close tight back at the 20-dema. Volume was lighter as buying interested failed to materialize.

In this position, NFLX is perhaps in a lower-risk entry spot right here at the 20-dema while using the line as a tight selling guide. That said, in 360-degree style, the stock would trigger as a short-sale on any breach of the 20-dema. Play it as it lies.

 

 

Tesla’s (TSLA) is another one that could trigger as a short-sale target if it breaches its 20-dema. The stock was looking good on Monday as it regained its 20-dema, triggering a moving-average undercut & rally long entry at the line. That move ran into resistance today at the 10-dma as the stock reversed to close back at the 20-dema.

Volume was light, so like NFLX, TSLA can initially be viewed as being in a lower-risk entry spot right here at the 20-dema. If it busts the line, however, it then triggers as a short-sale target in 360-degree fashion. Play it as it lies.

 

 

Facebook (FB) resembles some of the other big-stock NASDAQ names above, in that it reversed around its 20-dema yesterday and then ran into resistance at its 10-dma today. This action also mimics the action of the NASDAQ Composite. Right off the bat, my assessment is that FB is a short right here using the 10-dma as a tight selling guide.

 

 

Semiconductor equipment maker cousins Applied Materials (AMAT) and KLA-Tencor (KLAC) look very similar, and both were shortable at their 10-dmas on Monday, after which they dutifully broke to the downside yesterday. Today both managed to rally and pull off undercut & rally (U&R) moves coming back up through prior lows in their patterns.

AMAT closed at 56.09 today, just above the 55.44 low of November 22nd. KLAC rallied back above its prior 157.84 low of the same day and closed today at 160.26. Technically, one can view these as live U&R long entries using those prior lows as tight selling guides.

 

 

Advanced Micro Devices (AMD) came into the 20-dema yesterday, something I was watching for as a potential lower-risk entry opportunity. The stock initially gapped below the 20-dema but began rallying right at the opening bell. Once it cleared the 20-dema and the prior 38.19 low of November 21st, it was actionable as a U&R or a MAU&R.

AMD is out of buying position at this point as it closed just above the 10-dma on lighter volume. I would still watch this one on any further pullbacks to the 20-dema, where it becomes a much lower-risk entry situation.

 

 

Sometimes a chart pattern comes along that makes you wonder whether investing is easier than you thought. Micron Technology (MU) has been bouncing around within a one-month descending trend channel. Each time it has tested the highs of this channel it has headed lower, and each time it has tested the lows of the channel it has headed back to the upside.

And here it is again, bouncing off the lows of the trend channel today after running into resistance at the highs on Monday. Today it stalled around the 50-dma and closed just above it but notice that yesterday it pulled a U&R move through the prior November 21st low at 45.04.

Technically one could play this as a U&R using the 45.04 price level or the 50-dma as tight selling guides. A volume breach of the 50-dma would, however, also trigger it as a short at that point. Until MU resolves its way out of this trend channel, it remains a 360-degree situation that works more as a swing-trading vehicle than anything else.

 

 

Something that was quite noticeable today was the fact that many leading stocks rallied or rallied and reversed today on weak volume. Despite the big index gap-up move, it didn’t appear that buyers were champing at the bit to suck up shares. Disney (DIS) is another example as it reversed at its 10-dma today on light volume.

My view on this one remains the same. It becomes buyable on a constructive pullback to its 20-dema. But it definitely has 360-degree characteristics in that it is also holding just above a prior new-high breakout point. Therefore, if it breaches the 20-dema, it could quickly morph into a late-stage, failed-base type of short-sale set-up at that point. Play it as it lies.

 

 

Keysight Technologies (KEYS) morphed into a late-stage, base-failure (LSFB), short-sale set-up on Monday when it breached both the 10-dma and 20-dema. It then bounced off the 50-dma today but stalled near the 20-dema. I now view this as a short on any weak rallies up into the 20-dema.

 

 

I have to wonder whether some of these charts are providing a subtle clue as to where this market is headed. In general, that action does not look all that inspiring. In this vein, RingCentral (RNG) also began to show signs of becoming an LSFB when it broke below its 10-dma and 20-dema on Monday.

A bounce off the 50-dma yesterday was buyable at the line, but the rally ran into quick resistance at the 10-dma and 20-dema today. RNG then closed in the red as buyers never came to the party. This looks like a potential LSFB in the making, so I would continue to view rallies into the 10-dma and 20-dema as potentially lower-risk, short-sale entry spots.

 

 

I’m also not so sure what to make of Coupa Software (COUP). The company reported earnings Monday after the close and the stock gapped down hard at the open yesterday. It then found its feet near the open and turned back to the upside to post a big upside reversal and pocket pivot coming back up through the 50-dma.

Today, it stalled and churned around the 10-dma as volume declined considerably. I could just as easily view this as a short right here using the 10-dma as a tight covering guide. Otherwise, if I were entertaining thoughts of COUP as a long play, I would much prefer to see a pullback to the 20-dema or 50-dma as lower-risk entries.

 

 

Salesforce.com (CRM), Workday (WDAY), and ZScaler (ZS) all reported earnings yesterday after the close, and all broke down hard today. CRM closed right above its 50-dma and 200-dma on heavy selling volume while WDAY gapped below its 200-dma and spun around all day long with little change between the opening and closing prices.

ZS is the only one of the three that put up a fight, and it posted a U&R move through last week’s buyable gap-up move. The intraday low of that buyable gap-up was 48.05, and ZS closed today at 49.85. Thus, if one was alert to it, the U&R was actionable this morning, and I would only be interested in this as a possible long on a constructive retest of that 48.05 low.

 

 

After the close as I write, Slack Technologies (WORK) has reported earnings and is doing absolutely nothing. It closed today at 21.66 and is currently showing a bid of 21.86. We’ll see what this does tomorrow morning.

DataDog (DDOG) is bee-lining to its 50-dma, proving once again that this is a swing-trader’s market. The stock has mostly worked as a nice swing-trading vehicle, but over the past six days has come almost straight down since failing on a breakout attempt seven trading days ago.

Now DDOG is testing the 50-dma as it drops below the 37.53 low of November 19th. In this position I would just watch for any move above 37.53 as a U&R long trigger. Otherwise, it could become buyable as it approaches the 50-dma, depending on whether the pullback is constructive or not.

 

 

Ping Identity (PING) on the other hand pinged right off its 10-dma yesterday and kept going early today until it reversed to close back in negative price territory. In this position, I’m only comfortable taking the opportunistic approach here and just sitting back and waiting for a potential pullback to the rising 20-dema, now at 20.02.

 

 

Another recent IPO that I’ve discussed in recent video reports and blogged about yesterday when it pulled into a lower-risk entry spot at the 10-dma is CloudFlare (NET). The company is, as you can guess by the name, a cloud company, and bills itself as “one of the biggest networks operating on the Internet.”

I’ve been watching this for a while, and as I indicated in recent GVRs, pullbacks to the 10-dma would be your lower-risk entries. We got just such a pullback yesterday, which I blogged about as it occurred, and the stock bounced smartly off the line.

In this position, however, I think the stock probably needs more time to digest last week’s sharp upside move. Therefore, after buying it myself at the 10-dma yesterday and selling into the upside move, I’m now taking the opportunistic route by looking for any possible pullback to the 20-dema as a new entry.

 

 

Lyft (LYFT) was, as I’ve written in the last two reports, quite extended on the upside, and those seeking to buy the stock would have to see a pullback first. That pullback came yesterday as the stock tested and bounced off the 20-dema. Volume was light, however, and the stock then stalled at the 10-dma today on slightly higher volume.

In this position, only another test of the 20-dema would provide a lower-risk entry opportunity on the long side. Otherwise, it could translate into a short here if the 10-dma acts as solid upside resistance, using the 10-dma as a tight covering guide.

 

 

Uber (UBER) posted a U&R move yesterday through the November 25th low at 28.38 and rallied to close just above its 20-dema. It then held tight today to close just above the 20-dema as volume declined. One could view this as a long play here using the 20-dema as a tight selling guide or giving it more room down to the 28.38 prior low.

At the same time, another weak rally into the 50-dma could set this up as a short-sale entry near the line. With UBER and LYFT sitting in the lower regions of their chart patterns and all the IPO buyers now deeply underwater, both stocks could be subject to tax-loss selling in the coming days, so be open to these as 360-degree situations.

 

 

Among Chinese names, it may be simplest to focus on the biggest of the big-stock China names, Alibaba (BABA). It gapped down on Monday as it peeled away from the $200 Century Mark to the downside. One could have interpreted that as a short entry signal, catching a move down to the 20-dema yesterday.

BABA then became a long again as it bounced sharply off the 20-dema. The stock benefited last week from a favorable news flow surrounding its successful Hong Kong stock listing, but this week was hit by the unfavorable trade news flow. Yesterday’s bounce ran out of gas today as the stock reversed to close in the red.

The stock is in an interesting overall position, as I began to discuss over the weekend.  It has already failed again at the $200 Century Mark and is now wobbling around the prior new-high breakout point. Thus, there is always the possibility of a clean breach of the 20-dema triggering this as a late-stage, failed-base, short-sale set-up, which I believe is something to watch for.

 

 

For newer members: Please note that 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 (thin black line). In all cases I will mostly use the shorthand version of “10-dma,” “50-dma,” etc.

The action so far this week illustrates quite nicely why this is a 360-degree market. One cannot chase strength on the upside, and one cannot likewise chase weakness on the downside. One must remain opportunistic on both sides of the market because the fact remains that despite the index’ moves to all-time highs, most stocks are just chopping around, some in wider ranges than others.

With all the trade news swirling about, the market simply imitates the news. The big news of the month on the trade front will no doubt be the scheduled December 15th imposition of more tariffs. If the tariffs are delayed, then Santa Claus may indeed come to town, but if not, then the Grinch may show up instead.

And then there’s the Fed policy announcement next Wednesday on December 11th. These two key news components will likely figure heavily into whether we have a Santa Claus Rally or not. There are certainly enough surface-to-air missiles lurking in the mistletoe to blow Santa out of the sky and give us a Christmas Chrash (misspelling intended) instead.

For the most part, the names I’ve discussed in recent written and video reports and proven to be adequate vehicles for riding/playing what is mostly a lot of volatility. There is no need to focus on a large number of stocks because the volatility makes it that much harder to keep track of the set-ups as they emerge in real-time.

It’s not as if there are any major trends to jump in the hopes of making big, intermediate- to longer-term money, and the way some individual stock patterns are developing (see examples above) makes me suspicious about today’s reflex rally. That said, we may remain in a choppy state of affairs until we get past the Fed policy announcement and the tariff deadline. In the meantime, play it close to the vest, but mostly play it as it lies. That is all.

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 SLV, 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.