The Gilmo Report

July 17, 2013

July 17, 2013

The market has had an incredibly steep run off of the lows of June 24th, not unlike the run it had off the lows of mid-April, as we can see in the daily chart of the NASDAQ Composite Index, below. With the index drifting higher on lighter volume following last Thursday’s gap-up move to new highs, the market is seen as being in a “precarious” position where a pullback could happen at any time. That was the thinking last time in May after the NASDAQ gapped up and then spent the next twelve days working its way higher. Perhaps the most interesting development of the day was Fed Chief Ben Bernanke’s testimony to Congress today, which confirmed that QE would remain in place as long as the employment situation remained weak. Last week, similar comments made by Bernanke during a speech resulted in the Thursday gap-up, but today the market pretty much yawned at Bernanke’s comments. I’m not sure if this sets up a pullback here for the major market indexes. A number of leading stocks did get hit with some selling yesterday, but for the most part were able to find support at logical area on their charts. Thus the uptrend remains intact for now.




Over the weekend I indicated that I would expect Tesla Motors (TSLA) to hold its 10-day moving average on any pullback, but yesterday it sliced right through the moving average. I’m generally pretty quick to cut a stock that breaks down like this, and it did have a nice 20% move from the 107-109 area where I previously considered it buyable (see June 30th report). Today the stock traded lower to 104.50, before finding support above its 50-day moving average, but right at its 10-week line.




We can see on TSLA’s weekly chart that it did find support this morning at the 10-week moving average, which is logical. Thus the nimble, opportunistic trader could have bought some shares right there, although I would expect a lot of volatility in the name going into earnings as it may swing about in a range from here. The company expects to post the Q2 release after the close on Aug. 7.


GR071713-TSLA Weekly


Solar City (SCTY) was one leader that got hit with some volume selling yesterday but managed to hold its 10-day moving average. If this is to remain viable it should continue to hold the 10-day line, although going into earnings next week I would not want to maintain anything more than a core position in the stock, say 10-20% maximum.




First Solar (FSLR) had a sharp run-up into the 52 area where there is some overhead resistance, and pulled back to test the 50-day moving average. Monday saw the stock push above the 50-day line in a bottom-fishing pocket pivot move coming on the heels of Friday’s extreme bottom-fishing pocket pivot off the 10-day line given that the 10-day line is below the 50-day. Both FSLR and SCTY ran into what looks like some overhead resistance from the left sides of their bases, but I would expect both to hold their 50-day lines on any pullbacks.




Celgene (CELG) has not moved much since its buyable gap-up of last week. I would prefer to see some velocity here to the upside, but it may be that with earnings coming up the stock will just sit here in a little flag. It is showing some hesitancy as volume remains light. For those willing to take the risk, I would recommend sticking to a 10-15% position size if you are going to hold into earnings. For those of you who want to play earnings roulette with a larger position then that is your call. The same idea goes for Biogen Idec (BIIB).




Trulia’s (TRLA) bottom-fishing pocket pivot of June 25th (see July 26th report) has led to a nice cup breakout which was buyable Monday, but is extended now.




LinkedIn (LNKD) is trying to hold above its 197.25 pocket pivot buy point from last Thursday and was able to find support at its 10-day moving average during yesterday’s sell-off. This is another situation where the stock may not do much going into earnings in early August given its prior price run up over the past three weeks. So, again, if you aren’t sitting on a decent profit going into the earnings announcement, you have to think hard about whether and how you might like to play “earnings roulette.”




Gigamon (GIMO) has pulled back into its 20-day exponential moving average, which I use in place of a 20-day simple moving average. This looks like a normal pullback for a volatile new IPO, and this is where you buy shares, in my view, with the idea that it should at least hold the 28 pocket pivot flag breakout level.




Fleetcor Technologies (FLT) is another correcting leader that is trying to round out the lows of the base as it pulls down into its 50-day moving average as volume quiets down. This puts it in position for a potential pocket pivot buy point here along both the 50-day and 10-day lines, so keep an eye out for that.




Over the weekend I still thought Acadia Pharmaceuticals (ACAD) was holding very nicely along its 10-day moving average and ready to make a move, and it did that on Monday after an alleged positive blog post about the company. The stock scheduled to announce earnings on August 16th, so it could drift in a bit towards the 19 price level from here where it should find support, in my view.




Regeneron Pharmaceuticals (REGN) is holding its double-bottom breakout point at 161.75 well here as it weathers yesterday’s selling, and remains within buyable range. The stock is now showing “ants” on its chart, the little black triangles that show up when a stock is up 12 out of 15 days in a row or better. REGN announces earnings on August 6th.




The 3-D stocks aren’t going anywhere lately as they continue to range about near the peaks of their current bases. Stratasys (SSYS) keeps getting hit with heavy volume off the peak that exceeds the up-volume over the past couple of weeks, so it may not resolve its current pattern until it announces earnings on August 8th.  I would be careful with this one.




Don’t look now but the mortgage servicing stocks are making a comeback after getting pelted in late May and again in late June following Fed meetings where QE tapering was an issue. Nationstar Mortgage Holdings (NSM) came up and off of its 50-day moving average today on a pocket pivot move that was also roughly a breakout from a double-bottom base formation. Even Ocwen Financial (OCN), not shown, is looking like it wants to break out as it sets up in its own little cup formation but with no clear buy points. NSM however did issue a buy signal today with the idea that it should hold its 50-day moving average on any pullback from here. It is expected to post a 120% increase in earnings on a hard number of 97 cents when it announces on August 14th.




For any stocks discussed in recent reports that were not discussed in today’s report, please refer to the most recent reports as my thoughts on any of these stocks remain the same. As long as leading stocks pull back into areas of logical support and are able to hold, they become buyable on such pullbacks. Pullbacks into the 50-day or 10-week moving average, the 10-day moving average, or the 20-day exponential moving average are all pullbacks I will take a hard look at with the idea that a stock bought in such a manner should show some resilience at said point of support.


My general approach has been to be active selling into strength and then looking to buy into pullbacks as I campaign leading names. While this is not something that suits everyone’s style, I find that this strategy has worked well for me in 2013 as a lot of leading stocks have had big moves only to “round trip” back to where they started. Right now there are plenty of leaders that provide a nice pool of names within which to rotate around, move around. As earnings reports approach, this facilitates the ability to move around and choose to be out of any stock about to announce earnings. An example of how this might work is seen in Sunpower (SPWR), which was first buyable at about $20 per my report of June 30th. The stock has already run up over 30% from there, and one could choose to take the profit before the company announces earnings on July 31st. TRLA is another stock in this type of position, as it was buyable around the 31 price level per my report of June 30th and it is now about 20% above that buy point. NFLX is another one, up some 40 points since its pocket pivot buy points along the 50-day moving average in early July, per my reports of June 7th and June 10th.


I’ve noticed as well that many stocks have been playable this way, particularly when one is buying them as they round out the lows of a base, the so-called “roundabout” formation I’ve been discussing in recent reports. As well, with a nice cushion in a stock like SPWR, TRLA, or NFLX, one could sell half and hold the other half into the earnings announcement. Thus one has some flexibility, and using these bottom-fishing pocket pivots on “roundabout” formations is critical in gaining such advantage. Stay tuned.


Gil Morales

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


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