The Gilmo Report

January 13, 2021

January 13, 2021 6:54 pm ET

The major market indexes remain in uptrends, but the rally continues to get further extended. Meanwhile, 2021 has gotten off to a very interesting start, and not just from a market perspective. Big-tech censorship, rioters breaching the U.S. Capitol Building, and impeachment votes have already imparted a certain dystopian aroma to the New Year.

The censorship movement among the big-stock NASDAQ names is one such dystopian development, with Alphabet (GOOG) becoming the latest among the S&P Five big-stock techs to censor the current lame duck President by kicking him off YouTube this morning. However, Investors don’t seem to react well to this type of thing, as both Facebook (FB) and Twitter (TWTR) have discovered recently.

 

 

While big-stock techs have mostly been napping, stuff-stocks have been more than willing to take a leadership role as industrial metals, agricultural, and materials-related names continue to run. Even maritime shippers, Matson (MATX) and Starbulk Carriers (SBLK), which I discussed in a blog post last Thursday have rallied sharply since then.

 

 

My favored industrial metals names continue well, with Alcoa (AA) and Freeport McMoRan (FCX) expected to report earnings in about two weeks or less while U.S. Steel (X) is expected to report in early February. X has been the leader since I first discussed these names as they sat along their 10-dma and 20-dema at year-end, with a move of over 45% at its peak in 2021.

AA is a bit slower, pulling into its 10-day line Monday morning and then again today where it offered a lower-risk entry at that point on a very light volume. It is expected to report earnings next week on January 20th, however, so it’s not clear that one would what to step into the stock ahead of next week’s earnings report.

FCX yanked down into its 10-day line on Monday at the open, which occurred so rapidly that one would have no doubt wondered if something was up. But no negative news was to be found, and FCX bounced off the line and shot higher from there as it now tests the prior highs.

These names are mostly extended at this point, and my preference is to sit back and see how they play out headed into earnings. If they can sustain recent profit cushions, then one could hold at least partial positions into earnings later in the month and in early February when these names are expected to report.

 

 

My favored agricultural names, Bunge (BG), Corteva (CTVA), Mosaic (MOS), and Nutrien (NTR) have remained extended. The fertz MOS and NTR had big moves yesterday as they become even more extended. Pullbacks from here seem likely, so we can watch for pullbacks to the 10-day lines first as possible lower-risk entry opportunities.

 

 

Caterpillar (CAT), not shown here on a chart, is expected to report next week on January 20th and remains extended after a huge breakout last week. I see nothing to do here ahead of earnings next week as we keep our eyes on the 10-dma and 20-dema for possible lower-risk entries on any pullback after earnings.

Precious metals and precious metals miners remain under pressure. Thus, in a world where stuff-stocks are doing well, these particular stuff stocks are getting, well, stuffed. Silver acts better than gold by virtue of the fact that it is holding support at its 50-day moving average while gold holds support at its 200-day moving average.

The iShares Silver Trust (SLV) has bounced off its 50-day line and is now reversing course slightly in a retest of last week’s low. This could play out as a Wyckoffian Retest if the SLV holds last Friday’s low and volume dries up. This is what I’m watching for right now with respect to silver and whether we are looking at a possible long entry opportunity at the 50-day line in what is a very fluid situation currently.

 

 

Gold is the laggard as it tries to hold support at the 200-day moving average. The SPDR Gold Shares (GLD) bounced off the line on Monday but reversed to the downside on heavy selling volume. This contrasts with the SLV, which is showing light volume on a potential retest of its 50-day line. The GLD, on the other hand, looks much less constructive. I’m certainly not a buyer of either just yet as I watch to see how the current sell-offs play out.

 

 

With the metals under pressure the metals miners are under even more pressure. My group of favored silver miners, First Majestic Silver (AG), Coeur Mining (CDE), Gatos Silver (GATO), and Pan-American Silver (PAAS) are all getting hit with selling. AG and CDE look like they’re headed straight for their 50-day lines while PAAS has busted its own 50-day line.

Meanwhile, the leader in this small group of four silver miners, GATO, is holding up relatively better, but I would not be in a hurry to buy it here. It closed just above its 10-dma and the 12.72 low of two and four days ago, a mini-U&R, if you will, but the stock overall strikes me as in need of more base-building. However, one could still test this on the long side here using the 10-dma or the 12.72 prior low as selling guides.

 

 

I blogged yesterday that if the silver and gold miners want to go lower, then I have no problem turning around and shorting them, which is what I began to do yesterday. Specifically, failures at the 20-dema in names like AG, CDE, and PAAS were initial triggers, with CDE having the additional distinction of failing at the 9.39 prior low in the pattern in a U&R attempt that went nowhere. The long side of these names is on the back-burner for now pending further evidence.

The Weed Patch continued to ride the Blue Wave this week, with Canopy Growth (CGC), the leader in the group in my view, continuing higher after last week’s buyable gap-up (BGU) move. The stock gave buyers a chance to take shares when the stock tested the 29.35 intraday low of last Wednesday’s BGU on Monday morning when it hit an intraday low of 29.60.

It is now slightly extended and out of buying range. Watch for the 10-day line to continue moving higher and above the $30 level where it would then serve as a guide for near-term support.

 

Lithium names have also remained in play as combination EV and stuff-stock plays, with Lithium Americas (LAC) taking the surprising lead in the New Year by rallying about 80% in the first eight trading days of the year. Now that, as I like to say, is a spicy meatball.

 

 

The others among my favored lithium names, Albemarle (ALB), Livent (LTHM) and Piedmont Lithium (PLL), not shown, are all in extended positions where pullbacks TO the 10-day lines would be our first reference for buyable pullbacks. Given how extended these are, however, I might prefer to hold out for a more opportunistic pullback to the 20-dema in any of them if I can get it.

Among solar names that I’ve discussed in recent reports, some have moved into lower-risk entry positions. Canadian Solar (CSIQ) is pulling into its 10-dma as volume comes in below average but is far from voodoo levels. Nevertheless, this can be tested as a long entry using the 10-dma as a selling guide, although I might prefer the more opportunistic approach by looking for a deeper pullback to the 20-dema if I can get it.

 

 

Enphase (ENPH) is sitting just a little over 2% above the $200 Century Mark as it settles in on lighter volume after clearing the mark last week. This puts it in a lower-risk entry position using the $200 price level as a tight selling guide. ENPH isn’t expected to report earnings until mid-February.

 

 

ENPH’s cousin SolarEdge (SEDG) is pulling down to the top of its prior base and the 20-dema. It closed today just below the 10-day line, so is in a buyable zone here using the 20-day line as a maximum selling guide.

 

 

After enduring a tug-of-war around the $100 Century Mark, First Solar (FSLR) is tightening up along its 10-day moving average and the $100 level as volume declines to -41.9% below average. This puts it in a buyable position using the 10-day line as a tight selling guide or the $100 Century Mark as a slightly wider selling guide.

 

 

In the EV space I would note that the battery and charging names have all gone nuts over the past few days, with huge consecutive gap moves in Ballard Power (BLDP), FuelCell Energy (FCEL), and Plug Power (PLUG). The only one that was even close to being in a buyable position as of last week was Blink (BLNK), which was sitting at its 10-day line when I discussed it in Sunday’s video report. It, too, is now extended, but if you’ve been playing this group you’ve been well-rewarded.

 

 

EV/Solar hybrid play VivoPower International (VVPR) is holding tight along its 10-dma where it held intraday support today. Volume dried up to -40.9% below average, making this a long entry point here using the 10-day line as a selling guide. Otherwise, the closer to the 10-day line one can buy it, the better.

 

 

If the market rally continues, perhaps we’re reaching a point where we might see some strong moves in EV delivery vehicle makers. Workhorse Group (WKHS) is an old friend of ours that has recently come back to life. After getting swept up in the Blue Wave last week the stock ran up to its prior base highs and is now backing up a little bit in what looks like a normal pullback and consolidation.

The 10-dma is rising to meet up with the stock which pulled back a little more today on a closing basis. Volume today also dried up nicely to -40.3% below average. So as WKHS comes into the 10-day line here, watch for volume to potentially dry up further, creating an actionable voodoo-type of long entry as close to the line as possible while using it as a tight selling guide.

 

 

Forum Merger III (FIII), which we can think of as Electric Last Mile Solutions, a maker of EV delivery vehicles and the only Class 1 EV delivery vehicles currently on the market, is pulling into its 20-dema as volume remains light. The stock tried to get going this morning but ran into resistance along its 10-dma which is not necessarily what we want to see as volume is picking up.

However, this pullback is buyable using the 20-dema as a tight selling guide. However, keep an eye on the prior 12.70 low from late December as a possible U&R price point if FIII breaks the 20-dema and heads lower. This is a volatile former SPAC that may need more time to set up after going from $0 to $15 in nothing flat.so may need more time to set up.

 

 

Chinese EV names remain spunky. Niu Technologies (NIU) and Nio (NIO) are both extended, in my book, after running straight up the right sides of new bases.  Meanwhile, both Li Auto (LI) and Xpeng (XPEV) caught fire yesterday on big pocket pivot moves off their 50-day moving averages. I discussed these in Monday’s video report, and they both responded by posting strong-volume pocket pivots.

Both LI and XPEV pulled back slightly today, so watch for pullbacks to their nearest moving averages. For LI, this would be the 10-dma and for XPEV the 20-dema.

 

 

As Tesla (TSLA), not shown, holds well above its latest Century Mark conquest at the $800 price level, its would-be battery-technology rival QuantumScape (QS) remains an interesting name to my chart eye. Of course, this is one for nimble traders as it attempts to hold support at its 50-dma. There are a couple of things going on here that catch my eye.

The first is that the stock is trying to rally back above the prior 55.55 low of mid-December where a U&R possibility arises. The stock has been back and forth around that low but is tightening up slightly as volume declines. Today’s close at 56.40 puts it just above that 55.55 low and therefore buyable as a U&R using that low as a selling guide.

The second thing going on here that perhaps is a bit more coherent is a potential Wyckoffian Retest. First, we have the big-volume low last week near the 50-dma that led to a rally up into the 20-dema that then reversed. Now we’re coming in to the 50-day line again as volume declines and starts to lighten up. Therefore, this brings up the possibility of an entry as close to the 50-dma as possible if we see volume continue to dry up on this retest of the mid-December low. Play it as it lies.

 

 

Uber (UBER) played out nicely after rumors of Goldman Sachs (GS) shopping around a mystery block of 38 million shares never materialized into anything concrete. At least there were no headlines of large block crossing, and it certainly didn’t show up in the daily volume levels until UBER launched yesterday on a big-volume pocket pivot breakout.

That was buyable at the 10-dma/20-dema confluence on Monday morning based on my discussion in the weekend report. It is now extended but can be watched for pullbacks closer to the prior breakout point at $56. UBER is expected to report earnings on February 4th.

 

 

UBER’s cousin, Lyft (LYFT) also moved higher with UBER yesterday on a pocket pivot move up through its 10-dma and 20-dema. It pulled back into the 10-dma today as volume dried up to levels just low enough f or a voodoo pullback at -36.8% below average. This becomes a long entry point using the 10-dma or 20-dema as selling guides well ahead of LYFT’s expected February 9th earnings report.

 

 

In semiconductor land, Advanced Micro Devices (AMD) is expected to report earnings on January 26th, so I’m not inclined to do much with it. However, it was a short trigger today when it broke below the 10-dma and 20-dema on heavy selling volume. One could look for moves up into the moving averages as a short-sale entry with the idea of scalping a few percent before earnings.

Qualcomm (QCOM) and Qorvo (QRVO) are both expected to report on February 3rd. QRVO is extended while QCOM found support at its 10-dma today and close up. Marvel Technology Group (MRVL) isn’t expected to report until March 3rd but remains extended for now.

 

 

Despite the big-volume reversal last week after reporting very strong earnings, Micron Technology (MU) continues to hold above its 10-dma. I’d watch this for constructive tests of the 10-dma as possible entry opportunities. Otherwise, a breach of the line could trigger this as a base-failure type of short-sale situation.

 

 

Ambarella (AMBA) isn’t expected to report earnings until March, so earnings roulette is not a factor for the stock in January. It is currently trapped between a prior base breakout point and the $100 Century Mark and is finding support right at the 10-dma. This can be looked at in 360-degrees.

First, resistance at the Century Mark brings up the possibility of a short-sale entry using the $100 level as a covering guide. In this case we would then look for a break below the 10-day line as confirmation of a potential Century Mark short-sale as well as a base-failure type of short-sale set-up in progress.

Otherwise, if AMBA can hold support here at the 10-dma and the top of the base with volume drying up, it may offer a lower-risk entry right here. One would then use the 10-dma as a tight selling guide. Overall, however, this is very fluid and how one plays this will no doubt depend on incoming real-time evidence as it plays out, so play it as it lies.

 

 

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.

____________________________________________________________

 

Big-stock financials will be reporting at the end of the week. On Friday morning we’re expecting earnings from Citigroup (C), J.P. Morgan (JPM), and Wells Fargo (WFC). Financials have been rallying sharply since the start of the New Year in reaction to rising interest rates. Friday’s earnings reports in these names may give us some idea as to where the group and interest rates are headed, so that will be something to keep an eye on at the end of the week.

This is still a market where regardless of what the indexes are doing, there is always something actionable and interesting going on. As we progress through earnings season, this will likely remain the case. In the meantime, most names we’ve been following, outside of some situations discussed in this report, are extended. So, take your time and pick your spots carefully. 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 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.