The Gilmo Report

January 25, 2012

January 25, 2012


The Fed’s announcement that interest rates would be kept at their current low levels well into 2014 was enough for the markets to continue what they’ve already been doing over the past month, which is rally on to higher highs, as we see in the representative NASDAQ Composite Index, shown below on a daily chart. As I’ve been writing over the past two weeks, the long side of this market is the place to be, given that today’s news confirms what the subtle signals coming from the precious metals and the bullish action in big-stock NASDAQ names like Apple (AAPL) and (PCLN) were all telling us before: QE is on the way again. And so the market launches to higher highs on sharply higher volume today. There is not much more one could ask for from a market that indeed is in a confirmed uptrend. I suppose by now the overbought indicators are flashing an even brighter shade of red, but a market that remains in a strongly overbought state may often simply be telling us how strong it is, and that any pullbacks in this market and leading stocks are likely pullbacks that should be bought into.

NASDAQ Composite Index Gilmo Report Chart

The big story in the market is not Apple’s (AAPL) earnings, in my view, but the movement we are seeing in both silver and gold. We’ve been onto the initial clues regarding the gathering strength in both of these metals as discussed in my last three reports, and today’s action in silver and gold was a full-on buy signal coming on the heels of the pocket pivot buy points we have seen in the iShares Silver Trust (SLV) and the SPDR Gold Shares (GLD) in recent days. Today we saw the GLD execute a big pocket pivot buy point coming up through its 50-day moving average, something that the SLV did last week, as we see on the SLV’s daily chart below. Hopefully Gilmo members were able to enter the SLV earlier this week as it took a short break after launching up through the 50-day moving average last week. Today’s action was another pocket pivot, in my view, coming up off of the 65-day exponential moving average. Note that silver is outperforming gold here, which is overall a good sign for the precious metals as I see it. As I wrote in my report of this past weekend, January 22nd, the SLV looks like it is headed for the 200-day moving average up at 34.87 currently.

iShares Silver Trust (SLV) Gilmo Report Chart

With the Fed ringing the QE bell today, investors went into a mad dash for hard currencies like silver and gold as evidenced in their price and volume moves today. Keep in mind, however, that the subtle clues of this impending and mad rush into the precious metals today were presaged over the past few days with the pocket pivot in silver on Friday and the very subtle pocket pivots off the 200-day moving average by the GLD on Wednesday and Friday of last week as I pointed out in my reports of January 18 and 22nd. As we see in the daily chart of the GLD, below, the subtle signs of accumulation were evident last week, and today’s huge-volume pocket pivot buy point confirms that the GLD is indeed trying to come up the right side of a big double-bottom type of formation. My thinking is that investors should have some position in the SLV and GLD here on the basis of these buy signals, if last week’s buy signals weren’t enough for them, now using the 50-day moving average on both of them as downside guides for a stop.


One of the big stories today was the earnings blow-out by Apple, Inc. (AAPL), shown below on a daily chart, which led to a technically buyable gap-up move in the stock on huge buying volume. The price bar on the chart shows up as red, even though AAPL closed well up on the day thanks to the gap-up, but the red color indicates that it closed lower than it opened on the gap. I think the tendency of the crowd here might be to doubt this earnings-related gap-up, since as we see on the chart similar gap-ups twice before on earnings news have not led to sustained upside moves in AAPL from those points. Perhaps this time the Rule of Three can be applied, and this earnings-related gap-up fools the crowd and sends the stock on a sustained upside move. Food for thought, but if you like AAPL it is technically buyable here using the 443.73 intra-day low of today as your quick stop.

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Tractor Supply Co. (TSCO) has been on my radar since flashing a big buyable gap-up nine trading days ago. As we see on the daily chart below, TSCO gapped up and closed near the peak of its range that day after raising earnings guidance for 2011. Since then the stock has held very, very tightly in here right along the 80-82 price level as it waits for the 10-day moving average to catch up, which it has. In my view, the stock is primed to move higher as long as the general market remains in an uptrend. We saw Lululemon Athletica (LULU) act similarly as it gapped up but did not make further progress until it met up with its 10-day moving average last week, and my discussion of LULU over the weekend pointed out this “meet-up” with the 10-day line – LULU has since launched to new higher highs. TSCO looks ready to do the same, and given that it has already raised guidance ahead of announcing earnings on February 1st, it is cleared for take-off as far as I’m concerned, using the intra-day low of 77.40 on the gap day as your downside guide for a stop.

Tractor Supply Co. (TSCO) Gilmo Report Chart

We’ve seen how the market can be spruced up by the appearance of “new merchandise” in the form of, say, motion sensor chip-maker Invensense (INVN), for example. Another stock in this category that my radar has picked up recently is recent new issue and airline stock Spirit Airlines (SAVE), shown below on a weekly chart. SAVE is a small no-frills airline with a unique approach to offering customers varying prices depending on what they want on their flight, such as meals, for example, and offers customers memberships that allow them to travel as cheaply as $9 a flight in some cases. With those kinds of prices, you’d think these guys are losing money hand over fist but the last two quarters have seen a big turnaround in earnings growth from -29% three quarters ago to +909% and 117% in the past two quarters on earnings of 40 and 39 cents, respectively. Next quarter the company is looking for 33 cents and 136% earnings growth. The stock is trying to come up out of a base-on-base formation after a shakeout last week under the lows of the base on a secondary offering that was priced at $14.50. The stock has since flashed a pocket pivot buy point as it has come up through its 10-week/50-day moving average over the past three days. This looks potentially buyable using 15 as your stop.

Spirit Airlines (SAVE) Gilmo Report Chart

I often find oil stocks to be choppy, uneven affairs, and outside of 1997 it has always been hard to play strong trends in these stocks. With stuff stocks and precious metals on the move, I would have to say my favorite oil play is Concho Resources (CXO), shown below on a daily chart. CXO broke out today through the peak of a cup-with-handle base on very heavy volume. CXO will announce earnings towards the end of next month, but the company is expected to grow earnings 51% in fiscal 2011 and then another 31% to $5.41 a share in 2012. This is a breakout buy here with the idea that the stock should hold the 105 trendline breakout, roughly. You might notice on the chart that the prior two days showed very subtle, minor pocket pivot type moves which my screens picked up, but I would be more comfortable buying this stock after seeing some big-volume strength come into it today on this breakout. Naturally, if I’m going to play “stuff” on the basis of more QE to come, I prefer the SLV and GLD to oil stocks. But if you like oils, then CXO is certainly at a technically proper buy point right here, right now, using either a maximum 7% downside stop or the 105 level as your selling guide.

Concho Resources (CXO) Gilmo Report Chart

In this report I’ve given you a couple of new ideas that I like, but for me the main play right now is in the SLV and GLD given the tremendous technical strength they are showing currently. Otherwise, there have been plenty of stocks to buy based on my discussions of long ideas in the past few reports, and several are making decent progress for now. Below are some notes from my trading diary regarding these other long ideas discussed in recent reports:


ALXN – pullback after running up to 77-78 from 70 buy point. Stock holds the 20-day moving average well, and could be potentially buyable off the 20-day line if a pocket pivot volume signature shows up at any time. Volume would have to exceed 1,682,658 traded four trading days ago – the highest down-volume in the pattern over the prior 10 trading days, so watch for that.

BIIB – acting well and holding up within its base as we approach earnings on the first of February. Today’s action was another in-the-base pocket pivot buy point off the 10-day moving average.

– I am ignoring the stock right now given earnings growth of 5% announced last Friday combined with weak technical action. I prefer stronger-acting bio-techs if I’m going to play in this sandbox.

SLXP – was downgraded last Friday by a brokerage analyst who said that the heart is essentially out of the watermelon when it comes to forward earnings growth for SLXP 45.35. The stock needs to recover soon from its recent gap-down move on the analyst downgrade, otherwise it is going to get tossed out of the sandbox like CBST.

– pulled right back to top of its recent flag breakout just above the 15 price level and tried to bounce on Monday, but is starting to come under some volume selling pressure. My view is that there are likely other, better bio-techs to play, such as ALXN,. BIIB, or VPHM, for now.

VPHM – holding above its recent breakout from an ascending flag formation eight trading days ago. Looks fine, but using 27.90 as my maximum downside stop here.

Other sectors:

– the bottom-fishing pocket pivot of eight trading days ago sent the stock back above the 50-day moving average, but AMZN has been unable to hold that line. With other stocks to play I see no reason to focus on trying to play AMZN on a bottom-fish, especially going into earnings next Tuesday.

FFIV – continues to hold the buyable gap-up of five trading days ago. If the market is going to go higher, then tech stocks such as clouds are likely going to participate as they lead in another cycle. I would give the stock a little porosity down to the 10-day moving average at 114.90 as my maximum downside stop. This is potentially buyable in my view, anywhere under 122, less than 7% away from that maximum downside 114.90 stop.

TIBX – the “bottom-fishing” pocket pivot buy point of seven trading days ago is still in force, but the stock did find resistance at the 200-day moving average and the 26 price level, as I surmised it might in my report of this past weekend, January 22nd. However, the pullback appears orderly and TIBX may just continue to move sideways before attempting another assault on the 200-day moving average and overhead resistance in the 25-26 price zone.

CF – continues to find support along its 10-day moving average and has broken out through the 176 resistance level.


– continued to make new highs but got a little bit frothy yesterday as it took off on a roughly 60% jaunt from its original pocket pivot buy point in the 10-11 price area 15 trading days ago in the 10-11 price area. Thus today’s big meltdown is no surprise, but note that the stock is holding right at the 10-day moving average. This probably needs to spend some time building a base around these current price levels if it is going to continue higher over time.

LULU – continues to hold buyable gap-up of January 10th. As I discussed in my report of this past weekend, the stock was buyable at the 10-day moving average, and over the past three days the stock has launched to higher highs as it gets very close to the left side of its current base and its all-time high at 64.49.

ISRG – can’t hold the 50-day moving average – so…no me gusta! Deja le! Translation: I don’t like it, so leave it alone!

MNST – Buyable gap-up of seven days ago remains in, as well as the less-important Livermore Century Mark Rule now that MNST has moved above the $100 price level. Nothing to do here but sit, pending the next buy signal in the stock.

PCLN – has held tight following two picket pivots, one coming up through the 50-day moving average seven trading days ago and one coming up through the 200-day moving average six trading days ago. Looking for earnings after the first week of February, otherwise the stock acts just fine, and as a big-stock NASDAQ name its continued constructive action is likely a positive for the general market.

STMP – Following the pocket pivot buy point of eight trading days ago, the stock has acted quite well and is holding tight along the 30 price level as it meets up with its 10-day moving average. A hold for now pending the appearance of a new buy point.

Gil Morales

CEO & Principal, Gil Morales & Company, LLC
Principal and Managing Director, MoKa Investors, LLC
Principal and Managing Director, Virtue of Selfish Investing, LLC

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