The Gilmo Report

June 12, 2019

June 12, 2019 4:07 pm ET

The market remains a trendless affair, despite the sharp reaction rally off last Monday’s lows and the follow-through day on Friday. The NASDAQ Composite Index ran into resistance along its 50-dma on Monday and Tuesday, with volume picking up yesterday on a reversal day.

Today, the index traded in a tight range on lighter volume as buyers mostly backed away. The index sits at a crossroads here just below resistance at the 50-dma. A pullback in a retest of last week’s lows remains a possibility while the index sits in this position without regaining the 50-dma.



The S&P 500 Index looks much more constructive as it pulls back into its 50-dma with volume declining. If it breaks below the 50-dma, then look for the NASDAQ to peel away to the downside. If the S&P holds steady at the 50-dma, then it could help drag the NASDAQ back above its own 50-dma.

Overall, the action is messy and not entirely clear. We could go in either direction at this point, so it’s a matter of staying alert to changes in the market and individual stocks as they occur in real-time. I still mostly consider this a market for swing-traders since an overall trend is lacking in both the indexes and individual stocks.



Perhaps the most exciting action of the week occurred in cloud names, most of which rallied sharply on Monday on the news of (CRM) buying out Tableau Software (DATA). I blogged early on Monday that these sympathy moves, many coming after prior four-day or more rallies off last week’s lows, looked shortable. Indeed, they were.

I offered a list of several names to look at in this regard, including Zendesk (ZEN). You simply could not have asked for a better short-sale set-up into strength. This came on the fifth day of a rally in a straight-up v-shaped move that started with, what else, a big down day on heavy selling volume two Mondays ago.

Monday’s breakout was one to sell into, as I blogged at the time, and the stock ended the day in the middle of its price range. On Tuesday, it was slammed hard on heavy selling volume, completing the failed breakout attempt. This took ZEN down to its 20-dema, where it then attempted a small bounce today.

While the move on Monday made for a nice, opportunistic short, the stock is now at a crossroads. The pullback here into the 20-dema may put it in a lower-risk entry position looking for a re-breakout. Or ZEN could fall back below the 20-dema and trigger as a possible late-stage failed-base (LSFB) short-sale set-up.

That will likely depend on what the general market does from here. More market downside could possibly drag ZEN below the 20-dema, along with many of its cloud cousins, as we will see.



Workday (WDAY) was another one that I pegged as a shortable move on Monday, and it worked out much the same way as ZEN. Monday’s move back up to the prior late-May high reversed to close near the intraday lows. A brief rally on Tuesday offered another short entry point, and WDAY then split wide open from there.

Selling volume yesterday was not heavy, but no buyers were in sight as the stock got zapped right back to its 20-dema. It then bounced logically off the line today on light volume. As with ZEN, a breach of the 20-dema would turn WDAY into a possible LSFB short-sale set-up at that point.



The other names I blogged as shortable sympathy moves to the CRM for DATA buyout were AYX, FIVN, OKTA, SPLK, and ZS. The group chart below shows that they all worked quite well as shortable rallies on Monday, some better than others. The basic idea was the same. Short opportunistically into strength based on news that was not relevant to every cloud name in the market.

While all of these names reversed from Monday’s highs and broke sharply lower yesterday, we did see some sharp rebounds in AYX and ZS, for example. Alteryx (AYX) benefited from a big analyst upgrade today and a $120 price target, but it was one that could have been shorted Monday for a nice two-day swing-trade on the downside.



Coupa (COUP), HubSpot (HUBS) and ServiceNow (NOW) acted identically to the other cloud names I’ve discussed above. Its uncanny the way all these names rallied for 4-5 days sharply to the upside after last week’s lows, even bottoming together on down-big-on-volume breaks.

Among these, NOW is back at its 20-dema, which could put it in a lower-risk entry position, while HUBS looks more like it’s in a shortable position. Yesterday’s sharp downside break on heavy selling was followed today by a weak-volume rally back up toward the 50-dma. This could bring the stock into shortable range here using the 50-dma as an upside stop.



They then all rallied together, including Monday’s rally in sympathy to the CRM for DATA buyout, before rolling over again yesterday. Overall, most of the clouds show erratic action with no real trends outside of swing-trading type moves that last for a day to a few days in one direction or the other.

Even The Trade Desk (TTD) got caught up in Monday rally and also sold off from its Monday highs. It then found support near the 10-dma today. It was, however, already extended after a more orthodox pocket pivot move through its 50-dma last week. The only way to buy this now would be on any further pullbacks to the 10-dma that hold near-term support.



Netflix (NFLX) has been one of the best wash-rinse-repeat, short-sale targets among the big-stock NASDAQ names. It again ran into and reversed at its 50-dma on Monday and is now pushing back to last week’s lows near the 200-dma. Once the NASDAQ Composite Index began stalling around its 50-dma on Monday, NFLX took its cue and headed lower from there.

The stock remains a short-sale target on any further rallies up to the 50-dma. At this point, if we see the general market roll over, expect NFLX to bust its 200-dma, which would trigger it as a short-entry at that point. One would then seek to use the 200-dma as a guide for an upside stop.



Microsoft (MSFT), not shown, remains within buying range of last week’s base breakout, so if you like that sort of thing there it is. I’ll pass myself, thank you, and perhaps take a look at Apple (AAPL) as a possible short-sale target right here at the 50-dma, where the stock has been churning around over the past two days.

Since AAPL is a big market stock, its action mimics that of the NASDAQ Composite as it closes just below its 50-dma. Although this looks like a short here, I tend not to short the stock since it pays a decent dividend, and if one is short the stock when the dividend comes due, you get to pay it!

For that reason, I use the action of AAPL and other big-stock NASDAQ names as a way to gauge the prospects for a decent move in any of the NASDAQ 100 inverse ETFs. Certainly, if AAPL fails here at the 50-dma, then we can expect an associated upside move in an inverse ETF like the ProShares UltraShort QQQ ETF (SQQQ).



I keep getting these emails from IBD that (AMZN) “is approaching a buy point,” and that may be so if you consider new-high breakouts to be be-all end-all buy points. But I would point out that the stock may also be at a short-sale point as it now sits just below its 50-dma. How this plays out, however, is always a function of the general market context.

If the general market rolls back to the downside, then I would expect AMZN to peel away from its 50-dma on the downside. While one could short the stock on that basis using the 50-dma as a guide for an upside stop, it also provides a gauge against which one can measure the prospects for a potential upside move in an inverse ETF.



Roku (ROKU) pushed further above the $100 Century Mark today on news that a company called Cinedigm launched SVOD Services on The Roku Channel. That sent the stock to new highs on light volume. For a stock that doesn’t fit CAN SLIM®, ROKU has had a monstrous run since I first discussed it as buyable around 29-30 in early January.

At this stage, I would look to use the 10-dma as a selling guide. Another option is to simply use the $100 Century Mark level as a trailing stop, since a Century Mark failure could potentially be the first sign of an impending pullback.



I wrote over the weekend that we should watch for a possible move back above the 50-dma in Etsy (ETSY). The stock ignored an indecisive general market by posting a stalling pocket pivot at the 50-dma on Monday. It then rallied yesterday and continued higher today on strong volume.

If one caught the move up through the 50-dma on the pocket pivot, then the move has made a strong, long swing-trade. ETSY is now testing its prior range highs around 70 and is extended. It does help to illustrate the two-sided nature of this market where short-sale targets work briefly as swing-trades and then morph into long plays.



Uber (UBER) has pulled down to its newly emerged 20-dema. Volume dried up in the extreme to -80.9% below average. That came on 5,944,345 shares, the lowest daily volume traded in UBER over its short, but eventful lifetime. This puts it in a lower-risk entry position using the 20-dema as a tight selling guide.

Note that the breakout last week from what was alleged to be an “IPO base” by certain sources failed miserably. It again shows why we do not look to buy breakouts when they are coming straight up from the lows of the pattern. UBER was first buyable along the 10-dma after it tested the prior U&R long set-up at the 39.46 low of May 20th.



Lyft (LYFT) is floundering along its 10-dma, 20-dema, and newly emerged 50-dma which just showed up on the chart two days ago. The pullback into the moving averages on Monday pushed below all three lines. The downside drift doesn’t look all that bad from a strict price perspective, however, since the stock is holding at its 20-dema with volume drying up to -83.4% below average.

Today’s trading volume of 1,532,196 shares represents the lowest volume for LYFT since it began trading in late March. If the general market doesn’t come apart, this can be considered buyable here on the basis of the extreme voodoo volume action using the 20-dema as a tight selling guide.



If I had to make a general market call, I would say that the market looks a bit weak and sluggish here. But individual stocks are a different story. As I’ve said, this remains an environment for swing-traders given the sharp moves in either direction. So, with this in mind, I want to have some short ideas and some longs ideas in my back pocket at all times.

Another name that looks interesting on the long side here is Twitter (TWTR) as it holds support at the 50-dma. This followed last week’s moving-average undercut & rally (MAU&R) move back above the 50-dma. Today, TWTR pulled into the 50-dma as volume declined to -56.2% below average. That puts it in a lower-risk entry position here, using the 50-dma as a tight selling guide.



In last night’s Gilmo Video Report I noted that following a six-day rally in Facebook (FB) the stock looked ready for a pullback and therefore was potentially shortable at that point. FB did in fact roll over today after a small upside move after the open but found support at its 10-dma. I view this as a market stock as well.

If the market rolls over here, then look for FB to break back below its 10-dma, triggering it as a short-sale. At that point we might look for a retest of the 200-dma, where it found support last Monday. On the other hand, if it can hold near-term support at the 10-dma and the general market continues its rallying ways, I’d look for FB to make another run for the 50-dma.



Snap (SNAP), not shown, remains extended from last week’s base breakout. However, I’d watch for any pullbacks to the 10-dma at 13.02 or the 20-dema at 12.50 as potentially actionable on the long side.

Advanced Micro Devices (AMD), not shown, also remains extended from last week’s base breakout. I’d watch for pullbacks to the rising 10-dma, now at 30.41, as your best, lower-risk entry opportunities if you can get ‘em.

Stich Fix (SFIX) might have been a bit of a radical idea over the weekend, but it started out this week with a move to higher highs. This followed last week’s bottom-fishing buyable gap-up (BFBGU) after earnings. It then ran into selling today as the general market came in. However, as I discussed in my weekend report, we would look for pullbacks into the 200-dma as lower-risk entry opportunities.

That turned out to be the case today as SFIX came right into the 200-dma early in the day but found volume support at the line to rebound and close back up near the highs of its daily trading range. This remains buyable on any further pullbacks closer to the 200-dma, which then serves as a tight selling guide.



GW Pharmaceutical (GWPH) did what I thought it would do based on my discussion of the stock over the weekend, I wrote that we should “watch for a for a possible U&R move back up through the 171.71 low as an opportunistic entry.” That occurred on Monday, and the stock continued higher yesterday after briefly testing the 50-dma.

GWPH ran into some selling pressure today, however, as the general market came in but found ready support again at the 50-dma. This remains buyable on pullbacks to the 50-dma while using the line or the prior 171.71 low as tight selling guides.



Tradeweb (TW) broke down yesterday but was able to regain its feet and close back above the prior 42.28 low in the pattern. That set up an undercut & rally (U&R) at that point, but TW again dipped below the low today. And, it again rallied back above it.

Sometimes U&Rs require a little time and persistence. In this position, I view TW as a U&R long entry right here, using the 42.28 price level as a tight selling guide. Note that TW provides yet another example of a so-called “IPO Base” breakout that failed, probably because the breakout occurred on a move coming more or less straight up from the lows of the base.

Now TW has been working on a new base that is around four weeks in duration. Buying along the lows on the types of U&R moves seen over the past two days is probably better than chasing breakouts, but overall TW is still showing little upside impetus as it remains in its new base.



Zoom Video Communications (ZM) gapped up on Monday, so it didn’t give anyone a chance to buy the stock as close to the 92.50 low of last Friday’s buyable gap-up (BGU) move after earnings. However, a second chance was to be had yesterday when the stock pulled back to an intraday low of 91.57, just barely undercutting the prior 92.50 low.

It then rallied to close back above 92.50 as it printed a closing price of 94.87. Thus, that constituted a U&R long entry as it came back above the 92.50 price level. ZM then zoomed to a new closing high today on light volume. Pullbacks closer to 92.50 remain lower-risk entries, but for now yesterday’s buying opportunity has come and gone.



Sciplay Corporation (SCPL) fell out of bed today as it broke to new lows on increased selling volume. That’s not really what we want to see, and this is now off my IPO long watch list pending some sort of U&R move back up through the lows of the prior base.



Parsons Corp. (PSN) looked like it was going to fall out of bed on Monday as it rallied at the open and then reversed sharply. That downside reversal took it below the prior May low at 30.88 by two cents at which point the stock rallied to close at 31.84. That constituted a U&R long entry at 30.88 on the rally off the intraday lows.

PSN closed at the 20-dema today as volume dried up to -83.6% below average. That puts it in a lower-risk entry position using the 30.88 price level as a relatively tight selling guide.



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.

I know it gets old, but this remains a market for opportunistic swing-traders. While there are a small handful of breakouts here and there for those who like to buy such things with the idea of riding some intermediate trend, I don’t really see that happening in this market environment.

The barometer here, in my view, is the NASDAQ Composite Index. If it can quickly regain its 50-dma, then the rally is still in business. If it peels away from the 50-dma while we see the S&P 500 break support at its own 50-dma, then a test of the lows may be on.

The best approach, in my view, is to maintain an opportunistic approach that doesn’t chase strength or weakness. One must also do their homework and be ready with both long and short ideas, depending on how things play out. I’ve covered a little of both in this report, and that, combined with some of the ideas I’ve covered in my last two video reports (see the long play in AMBA, for example) should offer enough to focus on in a difficult market environment.

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.

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