The Gilmo Report

March 20, 2019

March 20, 2019

Big-stock NASDAQ names powered the NASDAQ Composite Index to higher highs as we started the trading week. Monday saw all the major market indexes post their highest highs since the Christmas Eve lows, but the NYSE-based Dow Jones Industrials and S&P 500 Indexes closed negative yesterday on higher volume. Meanwhile, the NASDAQ stalled on higher volume, and then today did the same on slightly higher volume again.

 

 

All the swinging about today was due to the Fed, which released its latest policy announcement, and, as expected, they did nothing. They did, however, indicate that no further interest rates would be coming in 2019, and that they had downgraded their economic outlook. The market took this as a Fed that had become incrementally more dovish, sending the indexes rallying initially.

But the rally lost momentum as the Dow and the S&P 500 both ended the day in the red. Volume was higher, marking the second day in a row that both indexes have stalled and reversed off the intraday highs on higher volume. From an index point of view, the action looks cautionary. This is logical given the extended state of the market, so I would not be surprised to see further downside from here. How much or for how long is unknown, however.

 

 

The group chart of the big-stock NASDAQ names that followS shows the big moves in several. Among these, we can see upside streakers in Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOG), Microsoft (MSFT) and Nvidia (NVDA). Netflix (NFLX) posted a strong-volume pocket pivot and range breakout today, as note on its chart, below.

If you like to buy breakouts, then I suppose this NFLX breakout is actionable, but volume was just 9% above average, not quite enough for a certifiable O’Neil-style breakout. It was, however, good enough for a pocket pivot. I have preferred using pullbacks into the moving averages as lower-risk entries myself.

Oracle (ORCL) was the dog among this set of big-stock NASDAQ names today, reversing hard to the downside on heavy volume. It did, however, manage to close just above its 20-dema, but the action does not make the stock look all that appetizing right here.

The main point of the group chart, below, is that it illustrates how money is now driving into big-stock NASDAQ names. This is what kept both the NASDAQ Composite and the NASDAQ 100 Index in positive territory today, although both indexes did stall and reverse from their intraday highs.

In the past, when money has started to pile into NDX names as everything gets extended, it has marked at least a short-term peak. We’ll see whether that holds true this time. But my theory a couple of weeks ago that if the big-stock NASDAQ names come to life, we could see the market move higher, has come to pass.

 

 

Boeing (BA) has continued to suffer from a steady stream of bad news, but the stock has continued to hold support along the top of its prior, long-term base and the 200-dma. Only worse news, such as the discovery of fraud during the 737 Max 8/9 certification process, would likely be able to send the stock lower.

There is also the cross-current (no pun intended) regarding the continuation of tariffs on China for some time, which President Trump alluded to today. The stock is literally trying to fly into some strong headwinds, which are keeping it grounded for now. Those puns were intended, but for now the idea of buying the stock on pullbacks to the lows of this current range and/or the 200-dma remains viable until further notice.

 

 

Cloud Names

Coupa Software (COUP) remains in a tight range here along its 10-dma and 20-dema. Volume dried up today to voodoo levels today, putting the stock in a lower-risk entry position here while using the two short moving averages as a tight selling guide.

What I like about this pattern is the tight basing action with a nice shakeout down to the 50-dma that came after earnings. If I’m going to go long anything in this market, I tend to be more attracted to stocks holding in tight formations, as this can present a more solid launching pad for further upside, should that in store for COUP.

 

 

Okta (OKTA) also looks interesting as it hangs along its 50-dma with volume drying up to -41% below-average. The action along the 50-dma comes after a big-volume shakeout following earnings and puts the stock in a buyable position using the 50-dma as a tight selling guide.

There’s no guarantee that either this or COUP will work, but given the shaky index action, I prefer situations where risk can be kept to a minimum. That means set-ups where a stock is holding tight along a moving average, or several moving averages, which I can then use as tight selling guides if things don’t work out.

 

 

Cyber-Security

FireEye (FEYE) is still holding along the confluence of four moving averages: the 10-dma, 20-dema, 50-dma and 200-dma. Volume has been drying up sharply, dropping to -40.4% below average today. FEYE therefore remains in a buyable position using the lowest moving average (as they all jockey for pole position) as a tight selling guide.

 

 

Mimecast (MIME) continues to slumber along its 10-dma and 20-dema as things get quiet for the stock. Volume dried up to -56.2% today as the stock traded in a tight range. This keeps it in a buyable position here while using the 10-dma and 20-dema as tight selling guides.

 

 

Semiconductors 

Advanced Micro Devices (AMD), not shown, launched on news yesterday on news that its Radeon GPUs and developer tools would be used by Google to power a next-generation streaming gaming platform. That’s big news for the chipmaker, but it is now out of buying range. In addition, sellers took advantage of the move to unload shares today as the stock reversed off its highs on heavy volume about the equivalent of yesterday’s.

The reality for us is that AMD stock was last buyable along the 200-dma two weeks ago when it undercut the prior BGU low and rallied back above it after bouncing off the 200-dma. That was the opportunistic, lower-risk entry spot for those with the savvy and courage to take advantage of it. The second entry occurred at the 20-dema, as I discussed in the weekend report.

On Monday, AMD posted a voodoo pullback into the 10-dma and 20-dema as volume dried up to -57% below average. That was the place to take shares. And for my money, selling into today’s 10%-in-two-days move seemed like a nice swing-trade to put into the bank. We’ll see whether it sets up in a lower-risk entry spot again, but for now it’s very extended.

 

 

Other chip names that I follow have not acted well this week. Applied Materials (AMAT) has dipped back below its 200-dma but is finding support on the approach to its 20-dema. However, the action is disappointing since last Friday’s big-volume pocket pivot move through the 200-dma last Friday has now failed.

Another argument for avoiding the urge to buy abject strength. The question is whether this pullback to the 20-dema, and the 10-dma which lies just below, sets up a more opportunistic entry point. That can be tested but keep a tight stop around the 20-dema and 10-dma.

 

 

Skyworks Solutions (SWKS) posted a pocket pivot last Friday that was very much like AMAT’s pocket pivot of the same day, except that it failed to clear its own 200-dma. Instead, the 200-dma has served as solid resistance for the stock. Today, volume picked up as the stock sold off but manage to close just above its 20-dema.

This could offer a lower-risk entry that is certainly more opportunistic than chasing last Friday’s strength, but the 20-dema or at least today’s low would have to serve as a tight selling guide. The jury is still out on SWKS and AMAT, for now, but the chart positions are what the chart positions are, so play ‘em as they lie.

 

 

Telecom-Related

Acacia Communications (ACIA) posted a pocket pivot at its 10-dma on Monday on strong volume. It was already buyable per my comments over the weekend regarding its prior undercut & rally long set-up. The stock is holding tight here, but I’d view any constructive pullback into the 10-dma down at 54.15 as a potentially lower-risk entry spot from here.

 

 

Ciena (CIEN) bombed out today and busted its 50-dma on heavy selling volume. This took it out of contention as a buyable set-up along the 50-dma, but we might notice the undercut & rally move it posted today off the intraday lows. After bottoming out at 37.30 today, it bounced to rally back above the 37.69 low of two weeks ago.

That triggered a U&R long set-up today using the 37.69 low as a tight selling guide. Whether it works is another story, since the action today looks rather ugly. At the very least, if one is brave and nimble, it can be acted upon, because we know precisely where our stop is, so risk can be kept to a minimum.

 

 

Social-Networking

Facebook (FB), not shown, rebounded off its 50-dma today, but remains in an uncertain chart position. Meanwhile, Snap (SNAP), also not shown, pulled back into its 10-dma following last Thursday’s buyable gap-up move. That brought it into a lower-risk entry position using the 10-dma as a tight selling guide, if you were watching it.

I discussed my view that Twitter (TWTR) looked ready for another attempt to clear its 50-dma in my video report, or GVR, last night. Lo and behold, the stock did exactly that today, as it leapt up through its 50-dma on a pocket pivot move, ignoring the market index turmoil. This came after a subtle pocket pivot along the 10-dma on Friday.

As I noted over the weekend, “…but if you are a TWTR bull, you can take Friday’s pocket pivot at face value and buy it here, using the 10-dma as a tight selling guide.” That would have been the preferred entry approach, but the pocket pivot is buyable using the 50-dma at 31.72 as a tight selling guide. Also, constructive pullbacks into the 50-dma would offer slightly lower-risk entries as well.

 

 

The Weed Patch

Aurora Cannabis (ACB), not shown, is still in an extended position. However, the 10-dma is starting to catch up to the stock, so pullbacks to the line, now at 6.86, would offer lower-risk entries from current levels.

Canopy Growth (CGC) and Cronos (CRON) still look like twins, but CGC broke the mold today with a pocket pivot move. This came on news of a two-year cannabis processing deal with a firm called Hollywood Manufacturing & Extracts, Inc. This sent CGC higher, but it stalled to close just below the mid-point of its daily trading range.

The pocket pivot, however, remains in effect, with the idea of perhaps using the 50-dma, now at 45.03, as your selling guide. The other option is to use the 10-dma at 45.95 as a tight selling guide. In any case, the base continues to tighten up and remains constructive.

 

 

Cronos (CRON) is also holding within a constructive-looking base that continues to tighten up here. Volume dried up in the extreme today at -68.6% below average as it closed three cents above its 20-dema. This puts it in a lower-risk voodoo entry position here using the 20-dema as a tight selling guide.

 

 

Tilray (TLRY) reported earnings Monday after, beating on revenue but missing on earnings. The stock initially gapped up and then reversed to close down on heavy volume yesterday. Today volume dried up as sellers disappeared and the stock closed positive for the day. This has the look of a Wyckoffian Retest type of move.

There are a few other things going on here on the chart. The lowest low on the left side of the chart, in fact a little further left of what is shown, is at 64.86. Two weeks ago, TLRY traded down to a low of 64.45, undercutting that low, and then rallied back above it on the same day. That triggered a U&R long set-up at that point.

Of course, with earnings coming up, that was mostly playable as a short-term swing-trade. Today, notice that TLRY undercut the 70.00 low from late January and rallied 73 cents above that by the close. That can be viewed as a secondary type of U&R, using the 70.00 level as a tight selling guide.

TLRY can be a bit squirrely at times as can the Weed Patch in general, so you must be a bit creative and enterprising in determining where opportunistic entries might show up. The stock is still in the lower reaches of a long base extending back several months, so there may be many more opportunities to come with this one if the cannabis theme remains a strong one in this market.

 

 

Chinese Names

Chinese stocks remain a bit funky given their tendency to move this way and that based on the latest U.S.-China trade talks news. Today’s news sent most of these names lower, but in some cases this just helps to produce opportunistic entries. I’ve been discussing repeatedly how pullbacks to the 200-dma in Iqiyi (IQ) are your lower-risk entry opportunities when you get them.

That’s what happened today. Volume was strong as IQ bounced off the 200-dma, qualifying as what I refer to as a supporting pocket pivot. This remains buyable on these types of pullbacks, with the idea of keeping risk low by using the 200-dma as a tight selling guide. Meanwhile, IQ continues to base constructively.

 

 

Alibaba (BABA) also posted supporting action today after selling off in response to President Trump’s comments about tariffs on China remaining in place for some time as a trade deal gets hashed out. But it found volume support near its 20-dema, which in my view makes it buyable here using the 20-dema as a tight selling guide.

 

 

Anyone jonesing to own Momo (MOMO) got their chance today when the stock pulled right into its 200-dma on light volume and held. That presented a lower-risk entry at that point. MOMO is acting well following a buyable gap-up move after earnings last week. Pullbacks to the 200-dma remain your lower-risk entries from here.

 

 

Tencent Music Entertainment (TME) reported earnings yesterday after the close and got smashed today. The stock gapped down below its 20-dema and just kept going, until it undercut the prior 16.65 low in the pattern. At that point, it bounced right off the 10-week moving average on its weekly chart and rallied to close a single penny above that prior 16.65 low.

Technically, this does present a U&R long set-up here using the 16.65 low as a tight selling guide. However, one penny is not much leeway to give TME since it tends to be a very volatile stock. I’d like to see how the stock acts in the coming days, as a test of the 50-dma on the daily chart at 16.03 might be in store.

However, with the undercut of the 16.65 low today, we are in an area where we can define potentially opportunistic, Ugly Duckling type long entries. TME has had a strong move since I first began discussing it in early January, so it is entitled to work off some of this upside momentum and potentially set up again.

Therefore, you want to keep all your Ugly Duckling trading tools handy with TME here as it gets tagged with heavy selling that is, as I see it, natural profit-taking. TME beat earnings and sales estimates when it reported yesterday, but mobile MAUs declined sequentially. That was enough of an excuse for owners to take profits, and we’ll see whether the decks are eventually cleared.

 

 

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 index action today is somewhat cautionary, but I think it’s mostly a matter of watching the stocks. Fresh set-ups, especially of the opportunistic or quiet variety, can be acted upon. Just know where your out points are and play them as they lie.

Meanwhile, review your selling guides and trailing stops for existing positions, and be ready to act in case the market decides it wants to pull back and correct for a little while. It’s always helpful to have some dry powder in your pocket when this happens, so keeping some on hand, perhaps selling into extended moves, and maintaining an opportunistic approach, is prudent. That is all.

On an administrative note, I will review the shorting strategy I blogged about yesterday morning with respect to the financials, centered around the Fed meeting today, in a short Gilmo Video Report that will be out shortly. That trade has worked out well over the past two days, and I will review where we go from here with it in today’s GVR.

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.

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.