The Gilmo Report

December 7, 2011

December 7, 2011

After a sharp general market rally up to the 200-day moving average on the major market indexes, such as the NASDAQ Composite, shown below, the markets have essentially been stuck in neutral as the world waits with bated breath for the final details on just how the Europeans will go about printing money in order to stave off an immmediate crisis. In the meantime, the market looks to be trying to consolidate its prior gains off the late November low, but in terms of making real progress, for all practical purposes we are in a trendless environment. Perhaps tomorrow the European Central Bank comes riding in with a “bazooka” and the indexes all spin to the upside and blast through their 200-day moving averages. Certainly with volume picking up slightly today and the NASDAQ closing well up off its lows, as we see in the chart, it appears the stage is being set for some kind of attempt to clear the 200-day line, leaving us with something of a “QE rally-in-waiting.” The market has cleared this barrier before in late October and early November, but was unable to hold each time. I think we’ll see how this resolves in the next few days.

NASDAQ Composite Gilmo Report Chart

Traders may be focused on the idea that stocks will rally if the ECB comes out with a money-printing “bazooka,” and perhaps one can debate whether the idea of layering debt on more layers of debt is a non-solution that stocks must, eventually, have a difficult time dealing with. Thus I continue to think that if we are looking at a QE rally-in-waiting here then precious metals, specifically gold, should provide a ready vehicle to ride any QE rally that does in fact materialize. As we see on the daily chart of the SPDR Gold Shares ETF (GLD), below, gold continues to consolidate well here as it pulled back normally on Monday and then Tuesday before finding support around the 50-day simple and 65-day exponential moving averages, as we see on the chart. Volume picked up slightly over the past two days which looks constructive. So far gold is a hold, nothing more, nothing less. I would like to see a pocket pivot show up in here and currently we are looking at that possiblity since volume levels over the past ten days have been below-average. A good upside push on the GLD from here with volume exceeding 11,486,800 shares would be the ticket, so keep an eye out for that type of action in the GLD which would be your next buy point for the yellow metal.

SPDR Gold Shares ETF (GLD) Gilmo Report Chart

Over the weekend I looked at four short-sale target stocks that were rallying up into areas of potential resistance, and all four have done exactly that so far this week. It is not clear, however, after each has pulled back from resistance over the past couple of days, whether they are going to fail just yet as little selling volume has come in.

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If you shorted any of these three days ago, you are are up a couple of percent, but so far there is nothing conclusive here, as these could simply be consolidating before trying to move higher. Watch your stops!

On the long side I’ve covered ULTA, PNRA, ISRG, CMG, etc., among others, in reports over the past month or so and most of these are still moving sideways at best. If there were ever a lousy environment for making progress this is it. But the situation can change at any time, so while it is not necessary to “play” it is certainly necessary to pay attention, as the next window of opportunity will likely open when everyone least expects it. Meanwhile I see stocks trying to form bases while others may be forming topping patterns, such as the short list of short-sale targets for which I show charts in this report, but so far the action overall remains somewhat inconclusive. Therefore, my message remains: Play light until some kind of discernible trend identifies itself. There is no sense in wasting precious capital otherwise, and there is no sense in saying too much currently, as often what I don’t say is more important than what I do say. This is because there are times when doing very little, or nothing, is the best course of action. This is one of those times.

Dr. Chris Kacher and I will be presenting a free online webinar tomorrow, December 8, at 10 a.m. Pacific Time, 1 p.m. Eastern Time “at” the eTraders Expo. The presentation will cover “Short Selling Theory & Practice” followed by a general market discussion. Gilmo Members who are interested in attending can register at the following eTraders Expo website: http://www.moneyshow.com/upcoming_chats.asp?scode=025621.

Gil Morales

CEO & Principal, Gil Morales & Company, LLC
Principal and Managing Director, MoKa Investors, LLC
Principal and Managing Director, 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 AGQ, and DGP, though positions are subject to change at any time and without notice.

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