The Gilmo Report

November 13, 2013

November 13, 2013

As I wrote this past weekend (in my usual prescient manner J), “In any case, with the Dow making a new all-time closing high [on Friday], this puts the market, at least on the basis of the Dow’s action, in a de facto rally resumption, oddly enough. If the S&P 500 or the NASDAQ does the same this week, then the rally is on again.” Today the NASDAQ Composite, shown below on a daily chart, moved to a new high today along with the S&P 500, not shown, confirming that the market is now in a de facto resumption of the rally.




The main reason cited for the market’s gyrations lately has been concern about QE tapering. The market has reacted to some Fed head comments over the past couple of days as it tries to figure out when and if the Fed is going to get serious over QE tapering. The crowd’s expectation is that QE tapering will be bad for the market, which makes me ask the question, “What if QE tapering turned out to be good for the market?” The action in the precious metals, gold and silver, which is represented in the daily chart of the SPDR Gold Shares (GLD) ETF, below, are now testing or pushing below their early October lows. They seem to be telling us that some tapering is coming, but the uncertainty lies in exactly when and by how much.

With Senate Democrats scrambling to pass a bill that would alter Obamacare, perhaps the market can find a near-term catalyst in the slowing-up of Obamacare, which has so far been a disaster for the Administration and an albatross around the neck of the economy. Thus my theory that the beginning of the end for QE might be a good thing for the market finds its confirmation in a GLD that is selling off while stocks rally. In any case, it is simply a matter of playing the market on a stock-by-stock basis, as the names I discussed in this past weekend’s report as potential long candidates have provided ample opportunity this week.




To be specific, such “ample opportunity” was found in Gogo, Inc. (GOGO), which I discussed this past weekend. As I predicted it might in that discussion, GOGO gapped up on Monday after announcing what was construed as a positive earnings report. As we can see from the daily chart, one could have entered the stock somewhere around the 22 price level at the open or thereabouts on Monday on the basis of a clear buyable gap-up move. After three wild days of upside, my tendency is to bag short-term profits in the stock and look for some sort of flag to form here. However, if one owns the stock from Monday at around the 22 or even 23 price level, one could simply sit through any pullback and short-term consolidation given the cushion one has based on today’s closing price of 28.30. This is a very powerful gap-up move with strong follow-through, so my longer-term expectations for the stock are quite bullish as long as the market remains in rally mode.




Facebook (FB) became the third “headless horseman” when it violated its 50-day moving average on Monday, as we can see on the daily chart below. However, FB, with or without its head, was able to hold the 45.26 low of early October as well as the 65-day exponential moving average, the black moving average I’ve drawn on the chart, over the past two days. In this market 50-day moving average violations have often led to short-term lows in leading stocks, and I’ve noticed that stocks which do violate the 50-day line and then recover usually find support along the 65-day exponential moving average. If the market doesn’t weaken again, I think one might try buying a little FB here and use the 65-day exponential line as your downside stop. With the stock poking its head back above the 50-day moving average, this sets up the potential for a v-shaped pocket pivot back up through the 50-day line.




LinkedIn (LNKD) remains in its busted pattern, but it is finding support at the 150-day exponential moving average, as we can see on the daily chart below. As I was discussing over the weekend, I will use the 150-day as well as the 65-day exponential moving average on my charts as I have found that stocks often do find support at these moving averages. Of course, one has to be careful of drawing too many moving averages as it eventually just creates a situation where no matter what your stock is at, it’s always finding support somewhere! In any case, LNKD pushed further below the 213.50 early October low yesterday and right down to the 150-d.e.m.a. before bouncing today on strong volume. Now that it has become obvious as a short-sale target, it may need some time to back-and-fill to the upside where it could see initial resistance at around the 220 price level where the stock closed today. However, if the stock gets through this small area of resistance, it could easily rally back up to the 50-day moving average, currently at 238.16 in the midst of a broken pattern that could still be a late-stage failed-base in the making.




Despite several days where we’ve seen the market sell off sharply, Netflix (NFLX) has refused to give up the 10-day and 20-day moving averages, as we can see on its daily chart below. Notice also that volume dried up sharply today, creating a classic “voodoo” type of set-up along the 10-day and 20-day lines. If the general market continues this new rally, I would expect NFLX to move up from here as it possibly flashes a pocket pivot buy point off of the 10-day moving average. Ever since the stock reversed in a very ugly manner following its post-earnings gap-up move, additional selling has not come into the stock, giving it time to heal and set up again, which is what it looks like it’s doing, at least to me.




Tesla Motors (TSLA) is another busted pattern, but notice on the daily chart below that it has found support at the 150-day exponential moving average, just like LNKD. The question is whether TSLA will rally back to the upside, perhaps up to its 50-day moving average, currently at 170.43. I see at least three waves of selling in the pattern, given that I would count the two little two-day selling waves right off the peak as a single, more substantial selling wave. If one was brave enough, one could try and pick off the stock here on the long side using the 150-day moving average, the orange line on the chart, as a quick downside stop down at 132.13. However, I would only see this as a tradable rally as the stock would need to stabilize and set up again in proper fashion before becoming more than that, in my view.




I wrote over the weekend that I like the pullback in Taser (TASR) despite the fact that the stock five days ago had briefly violated the intra-day low of the buyable gap-up day that occurred 11 days ago on the daily chart, shown below. This morning the stock successfully tested the 20-day moving average before turning back to the upside and breaking the short five-day downtrend that formed after the buyable gap-up day. This was already buyable on the basis of a coherent pullback, as I discussed in my last report, but this small trendline breakout is potentially buyable with the idea that the stock will continue to hold above the 20-day line on any further pullbacks. But as I wrote over the weekend, I still believe the fundamental theme behind TASR is quite viable, and I believe the stock has further upside from here in any continued market rally.




NXPI Semiconductors (NXPI) is happily consolidating after its buyable gap-up move of 15 days ago on the daily chart, below. The stock moved up nicely from the buyable gap-up day and has pulled in slightly to test the 20-day moving average over the past five days. This looks like a buyable position, using the 20-day moving average as a quick “hyper-stop” for the portion of your position that is purchased up here vs. whatever might have been purchased down lower near the initial buyable gap-up.




A new, albeit probably slower long idea that I covered in my report of this past weekend, Microchip Tech (MCHP), is also edging up from a prior buyable gap-up move as it holds along the 10-day moving average. MCHP was buyable on Monday, and has since trickled higher, as we can see on the daily chart below. MCHP pulled back to its 10-day line this morning before finding support and closing at the peak of its daily price range. So far, so good.




Big-cap semiconductor name Sandisk (SNDK) has edged higher over the past three days, as we can see on its daily chart, and was quite buyable Monday morning off the 20-day moving average as I discussed in this past weekend’s report. SNDK is now sitting on top of its 10-dya moving average, so watch for the possibility of a pocket pivot developing there.




SolarCity (SCTY) succeeded in bouncing off what is roughly the top of its prior base as I discussed it might in my report of this past weekend. SCTY has now bounced back up into its 10-day moving average, as we can see on the daily chart, below. If you bought the stock on Monday right at the top of its base, now you’re looking for the stock to stabilize here and perhaps hold along the 10-day or 20-day moving averages before trying to move higher, perhaps even flashing a pocket pivot buy point along the way. So far, however, this is all hypothetical. But it is one way the stock could play out from here given that it did what I thought it would do based on my discussion of this past weekend, which was to bounce off the top of its prior base, roughly in the area that I’ve highlighted on the daily chart, below.




Something that is hitting my radar these days as a possible “roundabout” formation is Acadia Pharmaceuticals (ACAD), which got smashed back in early October after a big run-up from the 20-21 area up to 29.73, but which has since tried to “round out” the lows of a possible new base, as you can see on the daily chart below. As the stock moves tight sideways here along the 10-day moving average you want to be on the lookout for any possible “bottom-fishing” pocket pivot that might develop along the 10-day line. So far, the stock is moving tight sideways as volume dries up nicely, so some sort of resolution one way or the other is likely soon to be at hand.




Since rumors surfaced of IBM buying Three-D Systems (DDD), 3-D printing stocks have been hot, and Exone Company (XONE) has been able to join the fun by making a move to get back above its 50-day moving average last week on a strong-volume “bottom-fishing” pocket pivot move, as we can see on its daily chart, below. XONE announced earnings after the close today and came in a bit light. However, earnings misses have not kept other 3-D stocks from moving higher, and I note that after-hours as I type, XONE is trading at around 58.70, slightly below where it closed today at 59. I stepped in and bought a few shares of XONE after-hours as it pulled back right after the announcement and hit an after-hours low of 55.30. Keep an eye on this as a small pullback on the open tomorrow might be buyable with the idea that the stock will hold above the 20-day moving average at 55.38. XONE’s earnings conference call is scheduled for tomorrow morning at 8:30 a.m. Eastern time, so this could have an effect on where it opens up tomorrow.




Something to keep an eye on is the action in social-networker Groupon (GRPN) which has been building what might be the left side of a possible cup base over the past several weeks. GRPN came out with earnings last week and beat expectations by coming in with a profit of two cents vs. estimates of one cent. Nothing spectacular, but better than the 4-cent loss Yelp (YELP) announced last week before violating its 50-day moving average – and it’s still trading in the mid-60’s. GRPN’s sales came in at a tepid 5% growth rate last quarter, which is pretty poor. However, revenues are expected to turn around for the company going forward, but I have to admit I am more focused on the stock’s price/volume action as a possible “roundabout” formation. After announcing earnings, GRPN flashed a big-volume bottom-fishing pocket pivot buy point off of its 10-day moving average after announcing earnings. This came from a position with the 10-day line below the 50-day moving average, but this is still actionable, in my view, with the idea that it will hold above the 10-day line at 10.01 from here.




Short-sale target Trulia (TRLA) clambered back above its 200-day moving average, as we see on the daily chart below, and today had a sharp move up and off the 200-day line on volume that would qualify as a pocket pivot volume signature. As I discussed in my report of this past weekend, TRLA had hit its downside profit/price objective when it slammed into and through the 200-day moving average last week. Thus the objectives of the initial short-sale up around 42 had been achieved, and it is now a matter of watching to see how the stock acts from here and whether any shortable rallies emerge. So far, while TRLA’s action today would not qualify as a bottom-fishing pocket pivot given the steep prior downtrend, it does tell us that covering at the 200-day line and taking our profit on the short-sale position was the right thing to do. This is a good illustration of why you have to set profit objectives and stick to them on the short side without trying to get too “piggy.”




With TRLA turning back to the upside, we can see that its cousin, Zillow (Z), is also turning back to the upside as it appears headed for its 50-day moving average. Buying volume picked up today and came in above average – therefore this is not a “wedging rally” where you would see volume declining. On this basis this is not a shortable rally, and a continued market rally could turn this thing into a “roundabout” formation that sees the stock try to get back up to its former highs as it rounds out the lows of a potential new base.




Another short-sale target, ARM Holdings (ARMH) gapped down even more deeply below its 50-day moving average yesterday before trying to stabilize today, as we can see on the daily chart, below. ARMH is now right above both the 200-day and 40-week moving averages on the daily and weekly charts, respectively, which would put it in a position to bounce. If you have a profit from shorting this up closer to the 20-day or 10-day moving averages, you might consider banking it given the fact that the general market is now in a de facto rally resumption.




The market’s recovery today after starting down this morning on news that China’s leaders were not taking any concrete steps to reform the primarily state-run economy was somewhat impressive given that volume picked up and all the big market indexes moved to new highs. Over the weekend I gave you actionable ideas in GOGO and TASR, among others, and these two were really all you needed in terms of long ideas to participate handily in the market’s resurgence so far this week. With the indexes back at fresh highs, the rally is back on, and our attention focuses once again on the long side until further notice.

On an administrative note, I’ll be presenting online tomorrow morning at 7:00 a.m. Pacific time, 10:00 a.m. Eastern time, at the eMoneyShow which is being held tomorrow. My colleague Dr. K and I will be presenting a short online webinar on short-selling, for which members can register at the following website:


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 FB, GRPN, NFLX, SCTY, TASR, and XONE, though positions are subject to change at any time and without notice.

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