The Gilmo Report

June 19, 2019

June 19, 2019

Excitement over Facebook’s (FB) new crypto-currency gave way to excitement over a presidential tweet regarding an “extended” meeting with Chinese President Xi at the upcoming G-20 summit. Altogether, the news sent the NASDAQ Composite Index gapping up through its 50-dma. And then came the Fed, which refrained from lowering rates today.

Some swinging about after the Fed policy announcement was seen, but overall there wasn’t a lot in the way of major fireworks today. All we have is the NASDAQ holding above its 50-dma after gapping above the line yesterday on strong volume. As long as support at the 50-dma holds, the rally remains intact.

 

 

I tweeted early yesterday morning that I wasn’t impressed with the new Facebook (FB) crypto-currency initiative. As I pointed out, the new creation lacks two of the biggest benefits of crypto-currencies, decentralization and the fact that they are not fiat currencies that can be printed at will by governments and central banks.

Thus, yesterday’ gap-up move became a shortable one, as I tweeted at the time, and FB dutifully turned into the red after a roughly five-point gap-up open. As the realities of the situation crystallized, including the fact that regulators will likely have a field day with the new crypto-currency, FB moved lower again this morning.

It’s not clear where the stock will go from here since the sharpest part of the move occurred off the lows following the big-volume sell-off of nearly three weeks ago. If one is looking to buy the stock, then your first reference would be any pullback to the 50-dma.

 

 

Meanwhile, Twitter (TWTR) rallied right up into its 50-dma yesterday, becoming a short at that point as I discussed in my weekend report. It remains a short on any further rallies into the 50-dma, in theory. One interesting point I would make, however, is that TWTR is also finding support along its 65-day exponential moving average, the black moving average on the chart below.

Sometimes the 65-dema can serve as stealth support since most of the mainstream thinking only considers the 50-dma and 200-dma as major support lines. So, it’s possible that TWTR could be bought here looking for a rally at least to the 50-dma, maybe even further depending on what the general market does from here.

 

 

Snap (SNAP), however, is living in its own little world, posting higher highs yesterday on strong volume. In fact, given that SNAP had closed below its 10-dma on Monday, yesterday’s move qualifies as a pocket pivot. However, I would only be looking to enter the stock on any pullbacks to the 10-dma from here, and I might even just take the more opportunistic approach of simply waiting for a deeper pullback into its 20-dema.

 

 

The news regarding an “extended” Trump-Xi meeting at the G-20 summit sent many tech stocks rocking to the upside. This included Apple (AAPL), which posted a pocket pivot as it popped above its 50-dma. As I wrote over the weekend, with the stock finding support at its 200-dma on Friday, “…one thing to watch for would be a moving-average undercut & rally (MAU&R) coming back up through the 50-dma.”

AAPL pulled in slightly today as volume declined. It is actionable on the long side here using the 50-dma as a tight selling guide. As long as AAPL can hold above the 50-dma, then this action is bullish for the market as well as the stock.

 

 

Netflix (NFLX) has the gift that keeps on giving on the short side every time it rallies up into or just beyond its 50-dma. As I wrote over the weekend, the sell-off last week that took the stock down to the 200-dma could result in a bounce depending on the general market context. Since the market has been rallying this week, NFLX has again traded up to and just beyond its 50-dma.

The question is whether this will end the way the last two rallies through the 50-dma did. Both of those rallies offered optimal short-sale entry points and the stock then s old off down to its 200-dma each time. With NFLX now trading just above the 50-dma, watch for any reversal back below the line as a potential third short-sale trigger.

I don’t really see the stock as being in any kind of long set-up here, unless one would simply want to teste the stock on the long side based on the move back up through the 50-dma. It’s always possible that the stock will fake short-sellers out this time and just keep moving higher. Buying the stock here would then mean using the 50-dma as a tight selling guide.

 

 

Amazon.com (AMZN), not shown, popped off its 50-dma on Monday on a small gap-up move, but has been stalling over the past two days as it makes higher highs. It is currently not in buying position, and only a constructive pullback to the 50-dma at 1861.94 would offer a lower-risk entry from here.

I blogged on Monday not to count Uber (UBER) out as it was hanging constructively along its 10-dma with volume remaining low. This led to a sharp move back up towards the highs of two weeks ago. The stock is extended here but pullbacks to the 10-dma would offer your best, lower-risk entry opportunities from here.

 

 

I noted over the weekend that Lyft (LYFT) looked much better than UBER given its longer, more constructive base. The stock responded with another pocket pivot at the 10-dma on Monday and is now extended. Watch for pullbacks into the 10-dma as potentially lower-risk entries.

 

 

The IPO space has been a very fertile one as of late. In fact, 2019 is on track to be the largest IPO year in terms of money raised since the year 2000. Whether this is indicative of a speculative fever in the market that may be a cautionary sign isn’t all that important to me. I’ll just play ‘em as they lie until I can’t play ‘em any more.

In this vein, elsewhere in IPO-land, I noted that Parsons Corp. (PSN) was still “…in actionable range using the 31.65 price level as a tight selling guide.” It’s not clear the one would have wanted to hold through earnings, which were reported yesterday before the open. But the stock was actionable at the open as it tested the 20-dema and held.

The stock continued higher today on a big IPO flag breakout and is now wildly extended on the upside. From here, only pullbacks closer to the 10-dma or 20-dema and the top of the flag would offer lower-risk entries, if and when they occur.

 

 

Pinterest (PINS) has continued to rally to higher highs and got somewhat extended from its 10-dma yesterday. That led to what seems like a logical pullback today back to the 10-dma as volume dried up to -64% below average. Lower-risk entries can be had as close to the 10-dma as possible, but this is within buying range of the 10-dma while using it or the 20-dema as tight selling guides.

 

 

Zoom Video Communications (ZM) is building a little flag here as the rapidly-rising 10-dma has zoomed higher to approach the current stock price. One can take the approach of looking to buy the stock on any pullback closer to the 10-dma at 97.45. The more opportunistic approach, however, would be to wait for any kind of move closer to the 92.50 intraday low of the prior buyable gap-up (BGU) move that came after earnings.

In that case, we might see the 20-dema move higher so that it was positioned above the 92.50 price level. That would then make the 20-dema a handy reference for support on any deeper pullback from here. Play it as it lies.

 

 

Tradeweb (TW) looks about as dull as PSN did last week as it continues to trundle about in a new base. The stock regained the 10-dma and 20-dema today on a five-day pocket pivot, but I would want to see a cluster of two or more five-day pocket pivots in lieu of a single ten-day pocket pivot.

If TW can hold support here at the 10-dma/20-dema confluence, then it can be viewed as buyable using the two short moving averages as tight selling guides. As was the case with PSN, just when these things start putting you to sleep is when they’ll have a sudden upside move.

 

 

I discussed a small group of cloud names in similar chart positions that I felt offered a reasonable go to list of names in case the market rallied after the Fed meeting. What these stocks all have in common is that they are holding very tight right near their highs and in position to break out if the general market continues higher. These were all buyable along support today and earlier in the week.

The first, Zendesk (ZEN), has held its 20-dema, finding support at the line today as volume picked up sharply. I like this closer to the 20-dema, so it was buyable earlier today near the line before the Fed policy announcement. In this position I would watch for any further pullbacks into the 20-dema as lower-risk entries.

 

 

Workday (WDAY) is another one that held support at the 10-dma and 20-dema last Friday as volume dried up sharply. That voodoo pullback led to a move higher this week that resulted in an all-time closing high today. Note that WDAY found support at the 10-dma this morning, and any further pullbacks into the 10-dma or 20-dema would offer lower-risk entries from here.

 

 

Twilio (TWLO) also posted an all-time closing high today as it attempts to re-breakout following last week’s failed breakout attempt. Volume, however, was lacking badly. For that reason, I would tend to look for a pullback into the 10-dma or 20-dema as a lower-risk entry from here.

Otherwise, if one feels the stock is worth buying here, then using the 10-dma or 20-dema as tight selling guides would make sense. This would be the case for any of these names hanging tight along their 10-dma/20-dema and on the cusp of potential breakouts.

 

 

Besides holding tight near their prior highs, another aspect that all of these cloud names share in common is that they all failed on breakout attempts last week. Atlassian (TEAM) shows this same general pattern, and after the failed breakout it held constructive along its 10-dma and 20-dema as it tracks tight sideways and near its highs.

TEAM today found support at its 20-dema as volume picked up slightly. This can be bought here using the 20-dema as a tight selling guide. Otherwise, one can take the opportunistic approach of looking to buy closer to the 20-dema on any pullback closer to the line, assuming you can get it.

 

 

ZScaler (ZS) is another one of my favored cloud names that posted an all-time closing high today. It was also holding tight near its prior highs and along the 10-dma. Today it found support at the 10-dma and rallied off the line as volume picked up nicely.

This can be viewed as buyable here using the 10-dma or 20-dema as tight selling guides. Otherwise, the more opportunistic approach (and yes, this is sounding a bit like a broken record or, as millennials might put it, a corrupt .mpeg file) would be to wait for a pullback to the 20-dema as the lowest of the lower-risk buying options, if you can get it.

 

 

Avalara (AVLR) was last buyable on the retest of the prior U&R from early June. That U&R occurred when the stock undercut and then rallied back up through two prior lows in the pattern as well as the 65.86 low of the buyable gap-up day’s price range. In this position, I’d be looking for any pullback into the 10-dma or 20-dema as a lower-risk entry, although the stock can be bought here while using the 20-dema as a tight selling guide.

 

 

Ringcentral (RNG) was the least spunky of my current cloud favorites, closing in the red today after testing the 50-dma earlier in the day. Volume picked up with the stock closing in the middle of its daily price range, so this can be considered as supporting type action at the 50-dma.

This puts the stock in a lower-risk entry position here using the 50-dma as a tight selling guide. I was a little disappointed that the stock didn’t move up more vigorously as the others did, but there’s always tomorrow. Meanwhile, the 10-dma/20-dema confluence acts as upside resistance, so any breach of the 50-dma could flip this into play as a short-sale target, should that occur. Play it as it lies!

 

 

I can also throw in The Trade Desk (TTD) as another cloud name I like. That was last quite buyable on the pocket pivot coming up through the 50-dma, which I told members should be watched for back when the stock was tracking tight sideways just below its 50-dma. The stock has since broken out and is extended from the breakout point just above 231.

The stock still acts quite strong, in my view, however, and is currently holding at its 10-dma as the line has now caught up to the stock price. One could approach this as buyable here using the 10-dma as a tight selling guide. The other option is to take the more opportunistic route and hang back for any possible pullback closer to the rising 20-dema, now at 231.47.

 

 

The Gilmo Stock of the Year, first discussed as buyable back in January at $29-$30 a share, Roku (ROKU), continues to act very well here. The stock has held along its 10-dma quite well as it remains above the critical $100 Century Mark. As I wrote last week, one can use a violation of the 10-dma or a clean breach of the $100 price level as a trailing stop at this point.

The tight, unrelenting action also leads me to think that if the general market keeps moving higher, then ROKU will do the same. Perhaps its epic run in 2019 will have to end with some sort of climactic action. If one is looking to add shares or even take a fresh entry/re-entry, then I think pullbacks to the 10-dma can be considered actionable while using the $100 Century Mark as a tight selling guide.

 

 

Advanced Micro Devices (AMD) illustrates very nicely the concept of a moving-average undercut & rally (MAU&R) in action. The stock breached the 20-dema and its prior base breakout point on Monday on volume that was only about average. But it immediately regained the line on Tuesday, qualifying as a MAU&R at that point.

Yesterday’s action also constituted a pocket pivot at the 20-dema as volume picked up nicely. AMD again tested the 20-dema this morning as volume declined and held. It remains actionable here on the long side, using the 20-dema as a tight selling guide. This can also be viewed as a simple pullback to the original breakout point, so can be treated as an actionable breakout as well.

 

 

GW Pharmaceuticals (GWPH) has arisen from the dead once again as it moves from the lows back up to the highs of a descending trend channel. Each time it has moved up off the lows of this channel it has posted a U&R move back up through the last low. It did it again yesterday as it came back up through the prior 170.64 low on light volume.

It also regained the 10-dma and 20-dema in the process, and today held tight at the 10-dma as volume dried up sharply to -55% below average. The $60 million question here is whether GWPH will simply head back to the downside and the lower end of its trend channel yet again, or is this the magic moment when it will finally break out through the highs of the descending trend channel?

The Weed Patch in general has been filled with shriveled up patterns, but GWPH, as a canna-pharmaceutical (as I like to call it), has been holding up in its base. Only way to test this one is to buy it here and then use the 10-dma as a tight selling guide in the event it decides to retest the low end of its current descending trend channel.

 

 

Stitch Fix (SFIX) has been a great performer since I first discussed it as a potential bottom-fishing buyable gap-up (BFBGU) along the 200-dma two weeks ago. The last entry opportunity came on the retest of the 200-dma six trading days ago, and it has since become more extended on the upside.

The rapidly-rising 10-dma now becomes your reference for near-term support as it reaches the 29.34 price point. Otherwise, SFIX remains extended and out of buying range for now.

 

 

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.

The surprise of this week has been that the big movement occurred yesterday, before the Fed policy announcement, thanks to hopeful news surrounding the U.S.-China trade war. Of course, none of that has yet to produce a real agreement, but the beaten-down semis and other areas suffering from the trade war helped drive a strong rally.

Today, the market didn’t get what it wanted from the Fed in the form of an interest rate decrease, but the dovish talk was enough to keep it placated and the current rally off the lows of three Mondays ago intact. It’s just a matter of buying the right stocks at the right spots and keeping risk tight.

If the market keeps moving higher, I see a number of stocks setting up and ready to move higher, and I’ve discussed several of those in this report. I believe this market remains one where taking the opportunistic route where we seek to enter on constructive weakness rather than chasing strength is the correct approach, and today’s action again makes that point. Take it from there.

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 AMD, 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. ©2008-2019 Gil Morales & Company, LLC. All rights reserved.