The Gilmo Report

November 11, 2020

November 11, 2020 7:28 pm ET

A White Swan in the form of positive Phase 3 test results for Pfizer’s (PFE) and BioNTech’s (BNTX) jointly developed vaccine sent the market gapping absurdly higher on Monday morning. As the day progressed, it involved into a Manic Monday as the NASDAQ Composite Index gave up a nearly 213-point upside move to close down -181.45 on the day in an ugly outside reversal.

The alibi for selling off tech across the board sent the NASDAQ lower yesterday in a bearish follow-through to Monday’s big outside reversal. The index held support at the 10-dma and 20-dema yesterday and then bounced today on lighter volume. In this position we might watch for a retest of the 10-dma and 20-dema.

 

 

With economically-sensitive names rallying on Monday, the S&P 500 and Dow Indexes closed up for the day but gave up most of their gains Tuesday in a similarly ugly reversal off the intraday highs. The S&P 500 filled Monday’s gap yesterday and rebounded, pushing higher again today on much lighter volume.

 

 

Precious metals were slammed Monday on the PFE/BNTX vaccine news. The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) gapped down Monday on heavy volume but have so far held along their recent lows. The GLD has three prior lows in the pattern that I am watching closely. The September 24th low at 173.77, the October 7th low at 176.43, and the October 29th low of 174.83.

Based on today’s closing price of 174.90, the GLD is holding above two of those lows, thus is in an undercut & rally (U&R) long entry position using either the 173.77 low or the 174.83 low as selling guides.

 

 

The iShares Silver Trust (SLV) is back below its 50-day moving average but has still held above its October lows. There are a number of lows in this pattern that could be watched, but I’m focused on the 20.45 low of September 24th, the September 30th low of 21.53 in combination with the October 6th low at 21.62, and the October 29th low at 21.27.

The SLV closed today at 22.52, which keeps it above all four lows in the chart. Therefore, the U&R of two weeks ago through the 21.53 and 21.62 lows remains in force. The closer to those lows one can buy the SLV, the better, but the bottom line is that the U&R that occurred on October 29th is actionable using the 21.53 and 21.62 lows as tight selling guides.

 

 

Most of the v-shaped rallies in leading stocks off last week’s lows have rolled over this week, but there are some outliers here and there. Among the S&P Five, which in my view remains a critical group to monitor, Apple (AAPL), Amazon.com (AMZN), Facebook (FB), Alphabet (GOOG) and Microsoft (MSFT) have mostly been chopping around over the past two weeks with little show for their action.

AAPL, FB, and MSFT have all posted low-volume rebounds off their 50-day moving averages, where an intrepid soul might have tried to buy them yesterday or this morning. AMZN looks like it might be a short as it comes up closer to its 50-dma. Meanwhile, GOOG is holding up on last week’s buyable gap-up (BGU) which is still buyable as close as possible to the BGU intraday low at 1706.03 while using it as a selling guide.

 

 

Overall, these patterns reflect a certain incoherency that is being seen in many areas of the market, particularly in tech and other shop-from-home, work-from-home, and entertain-oneself-from-home areas of the market. From my perspective, none of the S&P Five, above, look like appetizing longs right here, right now, until they settled down or set up in more concrete fashion.

Netflix (NFLX) was happy to be back above its 50-dma last week, but that didn’t’ last long in the face of Monday’s White Swan news. It cratered and undercut its late-October lows, leading to a quick undercut & rally U&R move yesterday that has so far carried up as far as the 10-dma.

I’m inclined to watch NFLX for possible short entries here at the 10-dma, or further up at the 20-dema or 50-dma if it wants to rally that far. Of course, the success of such a short will likely depend on the general market context. If we see the indexes roll over after a two-day rebound, then NFLX may likely roll over right along with them.

 

 

Tesla (TSLA) remains in a coherent-enough pennant type of formation here as it winds around its 50-day line. It traded in a tight range today and closed just below the 50-day line as volume declined to -69.2% below average. Watch this for a possible moving average undercut & rally (MAU&R) if it can quickly regain the 50-day line, triggering a long entry at that point while using the line as a tight selling guide.

Otherwise, if resistance at the 50-day line holds, this could also become a short-sale entry point. In that case, one would use the 50-dma as a covering guide with the idea of taking a 360-degree approach. This means that if one is stopped out on a short attempt, then flipping long based on what would then be a MAU&R long set-up as described above would be a definite possibility.

 

 

More incoherent patterns can be found among formerly leading semiconductors that were looking good a week or so ago but have now become somewhat chaotic, at best. Advanced Micro Devices (AMD), Broadcom (AVGO), Marvell Technology Group (MRVL), Nvidia (NVDA), and Skyworks Solutions (SWKS), all names I’ve discussed in recent reports, all show closely correlated v-shaped rallies last week followed by immediate and in some cases brutal reversals to the downside.

All five names rebounded today on much lighter volume relative to yesterday’s action, which keeps them more or less in no-man’s land. Looking at these five charts, I could say that AMD is buyable here just above the 50-day line while using it as a tight selling guide, but a reversal back through the line could just as easily trigger it as a short-sale target if it occurred. One could take the same exact approach with NVDA, which is expected to report earnings next week.

SWKS looks like a short as it rallies right up to its 50-day line with volume declining today. The other two, AVGO and MRVL, would have required taking a flying leap at the stocks on the long side yesterday when they were trading down to their 50-dmas. More patterns that look more incoherent than actionable, but we can watch to see how these set up again, either long or short, from here once the volatility settles down.

 

 

Qualcomm (QCOM) and Qorvo (QRVO) offer a bit more coherency. Since they both gapped-up after their respective earnings reports on the same day, they have spent the last week  consolidating those gap-up moves. QCOM undercut the 141.83 intraday low of last Thursday’s BGU move yesterday, and then gapped back above it today. QCOM opened at 144.50, 2% above the 141.83 low, setting up a U&R using the 141.83 level as a selling guide.

QRVO came in closer to the 138 intraday low of its own Thursday BGU price range as possible lower-risk entries from here. It got down as low as 140.68, about 2% above the low, so was within buying range yesterday. Today’s gap-up move put it back out of buying range.

 

 

Last week’s big earnings gappers in the cloud space, Appian (APPN), Hubspot (HUBS), CloudFlare (NET), and The Trade Desk (TTD), have pulled in over the past few days with the rest of the clouds. Unlike most clouds, however, these are not busted patterns. Two of them, NET and TTD, posted U&Rs through their prior BGU intraday lows at 61.70 and 725.30, respectively, today.

One had to catch those early in the day as they pushed higher into the close. APPN is way extended and on its way back to the downside where it may find support at the rising 10-dma or 20-dema as it rises up to meet the stock. HUBS failed on its BGU on Monday after running into resistance Friday near the $400 Century Mark (about 1% below it). It now looks like it’s headed for a test of the 10-dma and 20-dema from here.

 

 

The idea that Monday’s PFE vaccine news marked the beginning of the end of the virus is what sent techs down hard on Monday, and a large number of cloud names went down with the ship. The cloud group chart below shows four leading clouds that were attempting to recover last week completely come undone this week.

Salesforce.com (CRM), CrowdStrike (CRWD), DocuSign (DOCU) and Okta (OKTA) were all clobbered on Monday and Tuesday. CRM and OKTA were both able to rebound back above their 50-day lines today, so could be viewed as buyable using the 50-day lines as selling guides. Reversals back through the line would of course trigger them as short-sale entries if they occur.

Meanwhile, CRWD and DOCU both posted deep U&R type moves yesterday and kept rallying today. Unfortunately, they both remain far below their 50-day moving averages. One can watch for the 20-dema as potentially shortable resistance for CRWD, with the 50-dma a secondary resistance just slightly above. DOCU can be watched for resistance first at the 10-dma and then secondary resistance at the confluence of the 20-dema and 50-dma.

 

 

In the third cloud group chart, Splunk (SPLK), Workday (WDAY), Zoom Video Communications (ZM) and ZScaler (ZS) are all similarly busted patterns. Only WDAY has been able to regain its 50-dma, which it did today on light volume. While it is buyable here using the 50-day line as a tight selling guide, a reversal back through the line would trigger it as a short-sale at that point.

SPLK and ZS posted deep U&R type moves today through last week’s lows, but were technically actionable today as they pushed up through those price points. They remain far below their 50-day lines, however, where they might find shortable resistance if they keep pushing up that far following today’s U&Rs.

Meanwhile, ZM remains deep down in its pattern after gapping sharply below the 50-day line Monday.

 

 

In the fourth and final cloud group we see more of the same in Coupa Software (COUP), DataDog (DDOG), ServiceNow (NOW), and Shopify (SHOP). These can all be described in pretty much the same terms as the previous twelve clouds I’ve already discussed, and you can get the sense of how sloppy and incoherent things are. However, all sixteen make worthwhile action names if one can use the current volatility to their advantage.

 

 

Uber (UBER) and Lyft (LYFT) were big beneficiaries of the vaccine news, with UBER continuing higher following last week’s buyable gap-up move. UBER’s cousin, LYFT, was discussed at the same time in my video reports, and it also shot to higher highs as it vaulted over its 200-dma.

In my view, these are both sells, with UBER triggering my suggested selling guide at the 47.30 low of Monday’s buyable gap-up (BGU). LYFT is still holding above its own BGU low set on Monday at 34.96 as a selling guide, but for my money could have just been sold into strength today.

 

 

Here comes Snap (SNAP) right into its 20-dema today with volume declining to -17.9% below average, not enough to call a VooDoo pullback. If it can hold the line, then it can be bought here using the 20-dema as a tight selling guide. If it breaches the line, then it could quickly trigger as a short-sale entry at that point.

Twitter (TWTR) ran into resistance at its 20-dema after gapping up hard with the market on Monday. It ended the day back below the 50-dma. Obviously, the jack to the 20-dema on Monday was a very opportunistic short-sale entry, and now we can watch to see if the 50-dma serves as solid enough resistance to offer short-sale entries on any rallies up closer to the line from here.

 

 

Chinese electric vehicle names seem to be less affected by the domestic virus news, but have been pulling back over the past few days.  Li Auto (LI) pulled into its 10-dma and 20-dema today which is a buyable pullback, but earnings are expected to be reported Friday before the open. Nio (NIO) remains the leader as it holds up near its recent highs, with earnings expected next week on November 17th.

Niu Technologies (NIU) and Xpeng (XPEV) are both pulling into their 10-dma/20-dema price regions where they are holding support. NIU isn’t expected to report until November 23rd, so is the more actionable of the two using the 20-dema as a selling guide.

XPEV is expected to report earnings tomorrow before the open, so can be watched for any actionable set-ups to materialize once earnings are out. All reversed sharply off their peaks on Friday. All four are extended and can be watched for pullbacks to their 10-day moving averages as potential secondary long entry points.

 

 

Workhorse Group (WKHS) posted a pocket pivot along its 10-dma on Monday after it reported earnings before the close. It’s holding right along the 20-dema which may put it in a buyable position using the line as a tight selling guide, but I would prefer to look for a deeper pullback to the 10-day line myself and then use that as my selling guide.

 

 

Lithium stocks remain of interest. Livent (LTHM) pulled into the 10-dma and the top of its prior base yesterday, which represented a lower-risk entry. It has now moved back up to its closing highs and remains one to watch as a possible long entry on any further pullbacks to the 10-dma and/or the top of the prior base.

 

 

LTHM’s cousin, Piedmont Lithium (PLL) is in more of an Ugly Duckling type of position undercutting its prior late-September low at 22.22 and rallying back above it to trigger a U&R long entry not quite two weeks ago. It is now tracking extremely tightly along its 10-dma as volume remains light.

However, what is far more interesting on PLL’s chart is the fact that it has posted three pocket pivots in a row along the 10-dma over the past three days. This puts the stock in a buyable position right here using the 10-day line as a tight selling guide. As long as the market doesn’t come apart again, this set-up looks very interesting as a potential long play.

 

 

In my October 25th report I discussed watching closely to see whether the pullback in Virgin Galactic (SPCE) after it clarified its current test launch schedule on October 22nd might offer an opportunistic entry. That opportunistic entry came after Monday’s pocket pivot off the 10-dma and 20-dema when the stock pulled into the 50-day line on lighter volume on Tuesday. This offered a lower-risk entry where one would simply use the 50-day line as a tight selling guide.

After bouncing off moving average support yesterday, SPCE launched higher again today as it heads back toward its October highs. The news momentum may again be on SPCE’s side here as a late-November test launch from its Spaceport America facility in New Mexico, the first scheduled launch at the new spaceport, comes into focus.

One had to be mindful of my comments in the October 25th report and alert to the set-up as it unfolded on Monday and Tuesday. Now one would have to watch for pullbacks to the 20-dema as potentially lower-risk entries from here. Monday’s PFE vaccine news was also an additional catalyst, since the virus will affect their ability to start taking space tourists up into orbit next year.

 

 

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Note #1 for newer members: 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 (black line). In all cases I will mostly use the shorthand version of “10-dma,” “50-dma,” etc.

Note #2 for newer members: A U&R, or undercut & rally, is a long entry signal that occurs when a stock undercuts (moves below) a prior meaningful low in its chart pattern and rallies back above that low. The precise entry occurs at the prior low, which then becomes your selling guide. There are no other special requirements for a U&R other than the price action. It is similar to Wyckoff’s Spring. A MAU&R, or a moving average undercut & rally, is essentially a shakeout at a moving average where your entry point occurs at the moving average as the stock is coming up through the line. This then becomes your selling guide. You can run things tight by using the actual price levels as stops or allow for 1-3% of further downside (otherwise known as downside porosity) before being stopped out.

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The big question in my mind is whether Monday’s vaccine news means that the virus is more behind us than ahead of us at this time. If it is, then we may see clouds and other beneficiaries of the do-everything-from-home-on-the-internet theme continue to sell off. If it isn’t, then these names could sling-shot back to their prior highs.

Overall, I find that most chart patterns out there have become an incoherent mess, and it’s mostly a matter of playing these in 360-degree fashion depending on how the latest virus news plays out. We are also seeing another wave of lockdowns, which I think is the worst possible solution to this crisis since it has the potential to create far more harm than the virus itself.

Meanwhile, I don’t find airlines, oils, or other economically-sensitive names that rallied on Monday’s vaccine news to be attractive either since I don’t see the vaccine as an all-encompassing panacea for the virus. The situation is therefore fluid from a news perspective while entirely incoherent and sloppy from a technical perspective. Like I wrote last week, the market very much has a seat-of-the-pants feel to it where one has to react to changing news and changing technical evidence in real-time.

It all just points out the danger of this market, and the potential for news to come into play at any time, whether of a Black Swan or a White Swan nature. This may create a lot of actionable volatility, but it also creates greater risk as anyone holding tech names over the weekend found out on Monday. Caution is advised.

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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