The Gilmo Report

June 19, 2013

June 19, 2013

The Fed Chief Ben Bernanke tried to “walk back” his comments from the last time he gave a post-Fed policy announcement press conference by talking a softer line today. But that did little to soothe the markets, which remain in a choppy range, as we can see in the daily chart of the NASDAQ Composite Index, below. Yesterday’s trendline breakout that resulted in a near-term higher high was breached today on heavier volume, adding another distribution day to the NASDAQ’s count. The last time the market experienced the ecstasy of a Fed policy announcement the markets reversed hard, resulting in the big outside reversal day that you can see on the chart at the very left end of the dotted trendline I’ve drawn. Despite the ugly action seen in the major market indexes, which all closed right near the lows of the day, most leading stocks are still holding up in their patterns or pulling back after having a few days of strong upside. Two examples are Angie’s List (ANGI) and Infoblox (BLOX), both of which were up today in the face of a hard market sell-off. It will be interesting to see how far down the NASDAQ goes, as it has so far avoided getting down as far as its 50-day moving average. At this point, if the market is unable to find its feet in the next day or so, the 50-day moving average and the two prior lows from the earlier part of June are likely to come into play.




The S&P 500 Index, shown below on a daily chart, also came back into its own trendline breakout from yesterday, and my guess is we could see the index breach its 50-day moving average and undercut its earlier June lows if the selling continues over the next few days. It certainly has less ground to cover to get to these levels. The big question is whether we can see a further breakdown in the indexes or whether we are just in the process of building a big, sloppy and choppy sideways summer range. Speaking for myself, treating the market not as a stock market but rather as a market of stocks remains my general approach. This means utilizing both the short and long side of the market depending on where the set-ups lie. In my weekend report I discussed some ideas on the long side, and some on the short side. It is interesting to note that a number of the long ideas remain above their closes of last Friday while the short ideas have seen further downside.




Tesla Motors (TSLA) bucked today’s sell-off as it just missed a pocket pivot buy point yesterday after finding support at its 10-day moving average. To me, TSLA looks like it wants to go higher, but it’s now more of a market question as a weak general market will likely slow the stock down. Otherwise, I tend to think TSLA is just working on a new base.




The same thing goes for LinkedIn (LNKD), which actually flashed another “bottom-fishing” pocket pivot off of its 50-day moving average today, despite the general market sell-off. LNKD held up and stayed positive into the close, but it needs to hold the 50-day line here on any continued pullback.




Today also saw Valeant Pharmaceuticals (VRX) flash its second pocket pivot in two days after pricing a 23.5 million share secondary offering last night at 85. Both of these pocket pivots stalled a bit but held above the 10-day moving average. Watch to see whether this holds the 10-day moving average on any pullback should the market weakness continue.




Over the weekend I pointed out the three-weeks-tight (3WT) formation in Cree (CREE), and yesterday it broke out of this 3WT on a pocket pivot volume signature that was buyable. Today’s market weakness caused the stock to reverse and close slightly down on the day. This needs to hold the 63 level, basically the top of the prior 3WT, on any pullback from here.




Invensense (INVN), which had a buyable gap-up move last Thursday, continues to track tight sideways in a little three-day flag formation as volume starts to dry up. The 14.05 intra-day low of the buyable gap-up day provides a nearby stop in case the general market continues to weaken and drags the stock down with it.




Regeneron Pharmaceuticals (REGN) flashed another “bottom-fishing” pocket pivot yesterday, but failed as the stock reversed back down through the 50-day line on light volume. This may end up undercutting the 227.47 low of June 5th.




Among the short-sale targets I discussed over the weekend, Celgene (CELG) ran into resistance again at the 50-day moving average on Monday and is now at the lows of its nine-day price range. I would look for a break down from here to undercut the early June low at 111.50, providing a short-term profit objective and cover point.




Another weekend short-sale target, Lennar Corp. (LEN), broke back down through its 200-day moving average today on a sharp pick-up in volume. From here I might look for an undercut of last week’s 36.33 low as a short-term cover point.




Facebook (FB) provided a short-sale entry today as it rallied up into the 200-day moving average and the 25 price area, a short-sale zone I’ve discussed in previous reports. Volume remained light as the stock simply ran out of gas and reversed to the downside. This is potentially shortable here using the 200-day moving average as your upside stop.




Apple’s (AAPL) violation of its 50-day moving average last week, as I discussed in this weekend’s report of June 16th, was a telling sign of further downside in the stock. That’s what we saw today as the stock broke to a lower low. The mid-May low just under 420 might be a short-term cover point, but if the market gets into further trouble then I’m looking for a move closer to the late-April low down at 385.10.




After-hours I note that most of the financial cable TV pundits are dismissing today’s sell-off with comments like “the market got it wrong” and “this is a one- or two-day event.” Maybe it is, maybe it isn’t, but let’s make one thing perfectly clear here: The market never “gets it wrong.” Whether one views Fed Chairman Ben Bernanke’s comments during his press conference or the general Fed policy statement that was released today at 11:00 a.m. my time here on the West Coast as sending a benign message or not, it is not smart to dismiss the market’s message should further weakness ensue over the coming days. I simply continue to keep an eye on my stocks, and while I am long a couple of names here, I am also short AAPL and will jettison the long positions very quickly. However, two of my long positions, TSLA and LNKD, were up today, which is a tough problem to have. Should they reverse course tomorrow they will likely be summarily tossed with the idea of buying them back should the general market find its feet.


The bottom line here is that the market from a purely technical perspective is in a roughly four-week correction and sideways range. Yesterday saw the indexes make a higher high following last week’s higher low, but a break down through these levels would certainly put the market in a compromising position. In this case, it becomes a matter of watching your stocks, keeping a close eye on your stop-out levels. Meanwhile short-sale targets remain in play if the market weakness continues.


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 a position in AAPL, CREE, INVN, LNKD, and TSLA, though positions are subject to change at any time and without notice.


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