The Gilmo Report

November 13, 2019

November 13, 2019 3:42 pm ET

The Big Three major market indexes have continued to grind higher as they lean against muted hopes of a Phase One U.S.-China trade deal. The NASDAQ Composite Index looks like both the S&P and the Dow as it huffs and puffs its way higher over the past several trading days, but did not post a new closing high as the other two of its Big Three brethren did today.

 

 

The slow grind higher in the indexes has been accompanied by a mix of action among individual stocks. Dynamic leadership is nowhere to be found, which continues to make the situation difficult for growth-stock investors. Despite new highs in the indexes, this does not strike me as a big-money market, at least not yet, and the best high-velocity, high time-value moves tend to come after earnings reports.

The big index mover today was Disney (DIS), which reported earnings last Thursday after the close, and then gapped up and stalled on Friday in an unimpressive move. But news today that it had reached 10 million subscribers for its new Disney+ streaming service in its first day sent the stock sharply higher and into new-high price territory.

DIS reported a -28% earnings contraction on Thursday on a 34% sales increase. Certainly not the stuff of CAN SLIM® characteristics but DIS probably benefits from the alt-currency theme here as money piles into the stock. If you believe in buying breakouts, here’s one for you – I suppose.

The better way to handle this would have been to treat it as a bottom-fishing buyable gap-up (BFBGU) over the prior two days as it tested the 136.74 intraday low of Friday. Hopefully, I’ve taught members enough that they would recognize this as a possible entry where risk can at least be kept to a minimum, despite the sluggish gap-up on Friday.

 

 

Meanwhile, precious metals are attempting to come up off their recent lows. The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) both moved back above their respective U&R lows today. The GLD closed at 137.98, just above its prior 137.80 low of October 1st while the SLV closed at 15.83, right at the prior 15.83 low of September 30th on Friday.

These can be treated as undercut & rally (U&R) long entries here using the prior lows as selling guides. I prefer to take the opportunistic route when it comes to precious metals, and today’s U&R moves would represent exactly that. The advantage, of course, is that risk can be controlled tightly here along the prior lows.

 

 

DIS’ success was viewed as a fail for new rival Netflix (NFLX), which sold off on the news. NFLX made a break for its 50-dma, but no further. Volume was higher vs. the prior day but only about average. Nimble traders could have viewed the breach of the 10-dma as a short-sale entry trigger. But in this position, I’d would watch for a possible breach of the 50-dma as a more decisive short-sale entry signal, should it occur.

 

 

The group chart below shows a mixed bag among big-stock NASDAQ names. Money has continued to flow into Apple (AAPL), which posted a new high today on higher volume.

Alphabet (GOOG) has edged back into its 10-dma, which technically provides a lower-risk entry spot using the 10-dma as a tight selling guide.

Money also keeps flowing into Microsoft (MSFT), which continues to edge higher. Volume is quite low, however, but the stock’s alt-currency status doesn’t appear to be in jeopardy for now.

Money doesn’t seem to be flowing into Amazon.com (AMZN), however, as it continues to move lower after running into resistance along its 200-dma last week. The stock posted a lower low on higher volume, a move that may have been helped along by the DIS news since DIS is now a competitor to AMZN’s Prime Video streaming service as well.

 

 

Facebook (FB) unveiled its new Facebook Pay payments services yesterday and popped on the news. The move qualified as a five-day pocket pivot but was best bought simply on the pullback to the 20-dema, something I had discussed as a viable approach with the stock in prior reports.

Today FB tucked back into its 10-dma as volume lightened up considerably. This can be viewed as a secondary entry here at the 10-dma while using the line as a tight selling guide.

 

 

Tesla (TSLA) announced it was building a new factory in Germany, jacking higher on the news. At one point, on an intraday basis, it was up over 50 points from its post-earnings buyable gap-up move of late October. But the move stalled off the intraday peak and TSLA reversed to close down on higher volume.

The October 31st short-interest report is out, and there were still 31.7 million shares sold short at that time. It’s not clear how many shares have been covered since then. But the bottom line is that in this extended position only a constructive pullback to the 10-dma would bring TSLA into any kind of reasonable buying range.

 

 

Semiconductors are a mixed bag, with Advanced Micro Devices (AMD) leading the pack currently. The stock posted a higher high today after briefly testing its 10-dma early on Monday. That was the proper entry point if you were looking for it, and the stock is now extended, even from its prior new-high breakout point at 35.55.

 

 

Among those semis that I follow closely, Applied Materials (AMAT), not shown, also continues to hold its ground as it tracks tightly along its 10-dma. AMAT is expected to report earnings tomorrow after the close, so that is one to watch very closely.

Also, keep a close eye on Nvidia (NVDA) tomorrow after the close when it is expected to report earnings. The stock is up about 15% since early October, when the current market up leg began and has also been tracking along its 10-dma for the past several days.

KLA-Tencor (KLAC), which is a semiconductor manufacturing cousin-stock to AMAT, is also tracking along its 10-dma and posted a five-day pocket pivot at the line today. Expect a sympathy move from KLAC tomorrow after AMAT reports earnings.

 

 

The dog in the pack is Micron Technology (MU), which reversed at its 10-dma yesterday and closed back below its 50-dma. MU gapped below the line on Friday but gapped back above it yesterday after getting an analyst’s buy recommendation and $52 price target. Apparently, the stock didn’t get many takers on that sage advice.

MU undercut Monday’s 45.85 low by a few cents and rallied back above that low today to close at 46.30. If one wants to treat that as a U&R long entry that is certainly possible, using the 45.85 price point as a tight selling guide. Among the four semis that I follow closely, however, MU has been the laggard.

 

 

At the intersection of Cloud Land and IPO Land, I blogged this morning pre-open about DataDog (DDOG) which was gapping up after reporting earnings yesterday after the close. The stock was also on my Earnings Watch List which I posted on Monday on the Live Gilmo Blog page. The company offers what they describe as turn-key integrations that “seamlessly aggregate metrics and evens across the full develops stack.”

DDOG opened up today at 38.82, set a low of 38.25 within the first five minutes of trade, and then pushed as high as 41.92. That took it just beyond the left-side peak of its base, another one of those new-high breakouts. As we know, these tend not to work so well, especially when a stock is coming straight up from the lows of its base.

Fortunately, we have the buyable gap-up or BGU long set-up at work here, which allows us to dispense with the idea of buying breakouts. In this position, any constructive retest of the 38.25 BGU low would offer a lower-risk entry while using the 38.25 low as a selling guide.

 

 

Another IPO earnings play to keep an eye on tomorrow at the open is Ping Identity (PING). The company reported earnings after the bell today and as I write is trading up into the 18-19 price level. This could develop as a buyable gap-up (BGU) tomorrow morning, so I’ll be very interested in seeing how this plays out tomorrow.

 

 

Guidewire Software (GWRE) pulled into its 10-dma this morning, which put it in a lower-risk entry spot using the 10-dma as a tight selling guide, or the 20-dema as a wider selling guide. Given its proximity to the 10-dma by the close today, it remains within buyable range using the 10-dma or 20-dema as your prescribed selling guides.

 

 

Keysight Technologies (KEYS) did almost the same thing as GWRE but didn’t quite make it to its 10-dma before bouncing off its intraday lows. The company is expected to report earnings on November 26th, which is less than two weeks away. Buying it here implies that one is looking for a nice upside move and hence some profit cushion ahead of earnings, at the very least.

 

 

News of a 1.75 million share secondary offering sent RingCentral (RNG) gapping down to its 10-dma this morning. But the stock held support at the line as volume picked up sharply. This puts the stock in a lower-risk entry right here, using the 10-dma as a tight selling guide.

Depending on how quickly the secondary is priced, one may simply want to wait for that to occur before stepping into the stock. Volume of 1.7 million shares doesn’t strike me as a huge number given that RNG trades a little over that many shares a day on average.

 

 

DocuSign (DOCU) has failed on two breakout attempts over the past several trading days, but at the same time refuses to break near-term support at its 10-dma. It has tested the line three times so far this week and held each time as volume continues to dry up sharply. Today’s volume, for example, came in at -69% below average.

DOCU isn’t expected to report earnings until December 5th, so it has plenty of time to move higher if that’s what it wants to do.  For now, I continue to view pullbacks to the 10-dma as lower-risk entries, with any pullbacks to the 20-dema as the more opportunistic, lower-risk entries if you can get ‘em. Meanwhile, only a breach of the 20-dema would/could trigger this as a short-sale should that occur, but for now the pattern remains constructive.

 

 

With the Phase One U.S.-China trade deal more hype than fact these days, Chinese stocks tend to swirl about. Momo (MOMO) is perhaps the most deliberate among the Chinese names that I follow. After the pocket pivot of two Fridays ago, which I noted in my weekend report of two Sundays ago, MOMO has posted one range breakout that failed, and then a second that is still holding up.

MOMO pulled into the 10-dma today as volume picked up slightly but still remains below average. This pullback to the 10-dma puts it in a lower-risk entry position at the line as well as the top of the prior range breakout. The 10-dma then becomes a tight selling guide. Keep in mind that MOMO is expected to report earnings on November 26th.

 

 

Alibaba (BABA) has been all over the place so far this week, bouncing hard off its 10-dma on Monday but then busting below the line today on above-average volume. The pullback, however, only brings the stock right back on top of its prior range breakout. One could view this as a lower-risk entry using the 20-dema as a tight selling guide.

 

 

My thinking on BABA is somewhat derived from what I’m seeing in JD.com (JD), which posted a range breakout last week and has continued to hold that breakout constructively. JD is slightly extended here, but there is nothing to do with the stock anyway since it is expected to report earnings on Friday before the open. So it makes sense to put it on your Earnings Watch List and see what sort of actionable move, if any, transpires Friday.

 

 

Over the weekend I discussed watching to see if Baozun (BZUN) retested last Wednesday’s undercut & rally move as a potentially lower-risk entry opportunity. It did exactly that on Monday and rallied to get back above its 200-dma on higher but very light volume.

Today it tucked back into the 200-dma on lighter volume, which puts it in a lower-risk entry position using the 200-dma as a very tight selling guide. BZUN is expected to report earnings on November 21, next Wednesday, before the open.

 

 

In the land of payments’ stocks, we can see that PayPal (PYPL) has acted more like a short over the past couple of weeks after busting its 200-dma in late October. Today the stock rallied into the 50-dma and reversed, giving short-sellers some fun if they hit it at the 50-dma. If this remains weak, further rallies into the line could offer additional short-sale entries from here.

 

 

Surveying the other payments stocks I’ve discussed in recent reports in the group chart below, we can see that Global Payments (GPN) has now made it back to its prior highs. Note that it failed on the BGU attempt and filled the gap where it became buyable, as I suggested in last Wednesday’s report. In this market, opportunistic entries are often your best shot.

Both MasterCard (MA) and Visa (V) are hanging around their prior range highs and above their 50-dmas, but neither seems to be all that interested in going anywhere for now. At best, all I can say is that they appear to hold pullbacks to their 20-dema or 50-dma where they might be buyable on those pullbacks.

Paycom (PAYC) cleared its 50-dma last week, as I noted over the weekend, and has continued to move higher. Now that it’s extended from the 50-dma there are no concrete entries at this point, but it does help illustrate along with the other examples here that payments stocks are a mixed bunch.

 

 

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.

Despite mixed news on the trade front, the major market indexes do not seem too intent on giving up any ground as they march to new highs. Meanwhile, the situation with individual stocks remains the same. I find that when optimal set-ups present themselves in real time, it’s not that difficult to scalp a trade long or short.

The big issue for me, however, is where I can latch on to a big, thematic trend in a dynamic stock with a compelling theme. Right now, there isn’t much to be found in this regard. Thus, it remains a matter of just picking your set-ups and going with what the market gives you, when it gives it to you. In other words, play it as it lies.

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. ©2008-2020 Gil Morales & Company, LLC. All rights reserved.