The Gilmo Report

November 17, 2019

November 16, 2019 12:34 pm ET

New highs in the major market indexes remain the order of the day. The NASDAQ Composite, S&P 500 and Dow Jones Industrials all sit at all-time highs. But in a market where the #1 ranked group is Mobile Homes and RVs, consisting of stocks like dynamic, cutting edge Winnebago (WGO), finding those dynamic “super stocks” capable of three- and four-bagger price moves or better is a difficult proposition.

As I’ve been saying, this remains an alt-currency market, where the index trend to new highs is driven by the movement of money into big-cap, established companies with reliable business models. These are the names that have shown the more consistent trends since the early-October market low. The main issue for me is whether this is beginning to shift, so read on.

 

 

The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) are both holding above their recent undercut & rally (U&R) lows at 137.80 and 15.83, respectively, but not by much. The GLD closed Friday 138.21 while the SLV closed at 15.85. Both remain active as U&R long entries using those prior lows as tight selling guides.

 

 

The correction in gold and silver after sharp upside runs strikes me as quite logical given the current Fed rhetoric about not having to lower rates any more now that they’ve “conquered inflation” and put the economy “in a good place.” What is interesting to note is that a number of gold-related stocks are holding near their highs and continuing to form constructive bases.

Franco-Nevada (FNV), which owns gold production streams rather than producing the yellow metal itself, posted a combination buyable gap-up (BGU) and pocket pivot on a trendline breakout Tuesday after it reported earnings. The stock has held tight since then in constructive fashion and remains within range of the trendline breakout.

 

 

Kirkland Lake Gold (KL) has been my favorite gold stock for some time now, and it, too, is basing constructively. It posted a pocket pivot last week at the 50-dma and then settled back as selling volume dissipated. It regained the 50-dma on Wednesday and is now pulling back in toward the confluence of its 10-dma, 20-dema, and 50-dma where it becomes buyable using the $44 price level as a tight selling guide.

 

 

With stocks like FNV and KL holding up well as gold and silver correct, we may be getting a clue that the current pullback in the two metals will be short-lived. Unless I see these stocks come apart as well, I am persuaded that this very well may be the case.

Apple (AAPL), Alphabet (GOOG) and Microsoft (MSFT) all maintain their status as the alt-currency elite as money continues to pile into these names, despite their relatively tepid earnings and sales growth. But their established and reliable business models seem to be an attractive place to stash cash when it absolutely has to come into the market.

As we see on the group chart below, all three of these stocks are extended on the upside, but the fourth, Amazon.com (AMZN) apparently didn’t get the alt-currency memo. The stock continues to make lower lows since reversing at its 200-dma two weeks ago as selling volume picked up substantially on Friday.

 

 

New streaming rivals Netflix (NFLX) and Disney (DIS) switched places over the past two days as NFLX rebounded from its 50-dma and DIS sold off on a failed breakout attempt. As I wrote on Wednesday, the pullback into the 50-dma in NFLX offered a lower-risk entry opportunity, with the proviso of using the 50-dma as a tight selling guide. It is now back at its range highs.

 

 

Disney (DIS) illustrates the futility of buying breakouts in this market, especially when they come straight up from the bottom of the formation. The proper entry came on the bottom-fishing buyable gap-up (BFBGU). At this point, I would only be comfortable buying the stock near the rapidly rising 10-dma given its extended state.

That said, I have to wonder whether DIS is really the new streaming entertainment juggernaut. While the big rally was fomented by news of 10 million subscribers signing up on the first day of the service, I don’t find it all that surprising. Whether the new service translates into big growth for a company that reported a -28% earnings contraction in the most recent quarter, even as they grew sales by 34%, remains to be seen.

 

 

Facebook (FB) strikes me as having alt-currency potential, but there are the psychological overhangs of certain political candidates threatening to break the company up as well as the issue of whether the company will shoot itself in the foot by banning political ads the way Twitter (TWTR) has. Despite all this, the stock hangs tight along its 10-dma and 20-dema as it shows better upside volume.

Over the past two weeks plus, FB has posted two standard ten-day pocket pivots and two five-day pocket pivots at its 10-dma more recently. As you know, I like to see clusters of five-day pocket pivots in lieu of a single ten-day pocket pivot, so this action fits the bill. I prefer looking to buy the stock on weakness down to its 10-dma or 20-dema, but it is in buying range using the 20-dema as a maximum selling guide.

 

 

If you listen closely, you can hear the bones of 31.7 million shares worth of short interest crunching as Tesla (TSLA) grinds short-sellers into a gooey mush. The last lower-risk entry in the stock occurred less than two weeks ago at the 10-dma, and it has continued to move higher from there. It is now a mere 9.6% below its all-time high of 389.61.

The stock is holding right up near its recent highs of the move that started with a big BGU after earnings. Volume is drying up as sellers, at least natural sellers, don’t seem to be all that interested in dumping shares. That is certainly what the shorts are looking for, but for all we know TSLA will reach the infamous “420” price level before we see sellers do what short-sellers are hoping they’ll do.

And if TSLA ever does print 420, CEO Elon Musk may decide to immerse himself in a relaxing cannabis oil bath in celebration. Hopefully, it will not end up on the internet as a viral video. Meanwhile, I’d look at any pullback to the 10-dma as a lower-risk entry opportunity, should that occur.

 

 

Applied Materials (AMAT) set the now #2 ranked industry group, the semiconductors, alight on Friday as it beat on earnings Thursday after the close. This resulted in a gap-up move Friday morning that saw the stock open at 60.33, set a low of 60.22 within the first minute of trade following the opening bell, and then cruise higher from there.

That was a buyable gap-up move at the outset and was, of course, something we were watching for given AMAT’s position on our Earnings Watch List, as I discussed Wednesday. However, I can understand how some might not necessarily jump on this right at the open.

 

 

AMAT’s five-minute 620-chart is an interesting study in this regard. Notice that it peaked out at 60.98 in pre-open trade Friday, and then sold off for the next 30 minutes into the opening bell. The five-minute red bar just before the blue opening bar hit a low of 60.15, and AMAT opened higher from there. The 60.22 low was posted quickly.

In this case, one might have had more conviction if making note of the 60.15 low just before the open. For highly liquid stocks like AMAT, pre-open and post-close price/volume action is often quite relevant. AMAT then scampered to a peak of 61.90 within the first five minutes of trade and stalled, giving the first five-minute bar of the day a 61.06 close.

That action might have been scary to some, and any short coming in near the 61.90 high might have been emboldened to sit with it. However, there was no MACD cross to the downside, which kept the entire set-up bullish based on the firm low at 60.22/60.15. Note that it was not until the fast orange MACD line crossed below the slow blue MACD line that an intraday peak at 62.92 formed.

From there, AMAT slowly drifted lower, ending the day at 62.06, but still a valid BGU that closed well above its regular-session intraday low of 60.22. But all the excitement took place within the first 90 minutes of the trading day, providing bold longs who took the BGU bait with a very nice high-velocity, high time-value trade. Technically, AMAT remains buyable on any constructive retests of that low, and the closer the better, using the 60.22 low as a tight selling guide.

 

 

Advanced Micro Devices (AMD) moved higher in sympathy to AMAT but was already well-extended by the time it gapped up on Friday. Your closest reference for a lower-risk entry on any pullback from here is the 10-dma at 36.84.

 

 

KLA-Tencor (KLAC) also gapped up in sympathy to AMAT but reversed off its intraday highs to close near the intraday lows. Only pullbacks to the 10-dma at 174.43 would offer lower-risk entries from here.

 

 

The stock that acted the strongest in response to AMAT’s BGU was AMAT itself. We can see that AMD and KLAC stalled and reversed off their intraday highs, and the same is true for Micron Technology (MU). Its reversal was a bit more pronounced as it showed a longer upper tail on a shooting-star type of daily bar. Volume picked up sharply from the prior day, but MU held its ground at the 10-dma. From here, I would just view any breach of the 10-dma as a short-selling trigger.

MU tends to be a choppy stock, and over the past three weeks or so has shown no real trend. The chop and slop in between all that, however, has been playable on a day-trading basis, however, but this is so far not a big-money stock since it hasn’t gone anywhere over the past four months as it builds what looks like a big head-and-shoulders top. Play it as it lies.

 

 

Nvidia (NVDA) beat earnings estimates after the close on Thursday but lowered guidance, all of which led to a roughly flat open on Friday. The stock attempted to rally briefly but quickly reversed to close down on the day in a big downside outside reversal as selling volume ballooned. It held the 20-dema, however, so in this position I’d watch for any weak rally up into the 10-dma as a possible short-sale entry.

 

 

Study the five-minute 620-chart of NVDA below, and you’ll notice that a MACD cross and a moving average cross occurred right at/before the open and NVDA immediately broke lower after kissing the 211.78 high within the first three minutes of trade. It was all downhill from there until the stock bottomed as the MACD crossed back to the upside, triggering an intraday cover point.

Note that NVDA is like AMAT in that all of the high-velocity, high time-value action occurred within the first 40 minutes of the trading day. Both stocks further my argument that some of the best high-velocity high time-value trading opportunities occur in stocks after they report earnings.

 

 

DataDog (DDOG) has acted well since Wednesday’s buyable gap-up move, but notice that it failed on a new-high breakout attempt. This is par for the course, so to speak, since the buyable gap-up was the proper entry on Wednesday. At this point, look for a retest of the 38.25 intraday low of Wednesday’s BGU price range as a possible lower-risk entry, assuming this dog can hunt.

 

 

Ping Identity (PING) acted poorly on its buyable gap-up move of Thursday following earnings. It opened near the $20 price level and after a brief rally that reversed near the left-side peak of the cup formation (not too unlike DDOG), it closed closer to its intraday lows.

PING tested the 18.25 intraday low of Thursday, the BGU low, on Friday and rallied from there. That move to 18.26, one penny above 18.25, was lower-risk entry. Further successful tests of 18.26 would offer the same.

 

 

There has been some percolation off the lows in several of the formerly hot but now thoroughly beaten-down IPOs that I’ve discussed in reports over the past few months. In my recent video reports, I’ve discussed watching for undercut & rally moves in certain formerly hot IPOs along their lows, and some are following through with more upside, which I show in the IPO group chart, below.

CrowdStrike (CRWD) posted a U&R move and Wyckoffian Retest several days ago and has moved higher. On Friday it posted a pocket pivot as it pushed through its 50-dma on big volume. CRWD is expected to report earnings on December 5th.

Lyft (LYFT) is still holding a prior U&R move from last week as it now clears its 50-dma, so is in a buyable position using the 50-dma as a tight selling guide.

Slack Technologies (WORK) posted a U&R move along its lows on Tuesday and has continued higher. It then posted another pocket pivot at its 20-dema on Friday. This is extended now, but a pullback to the 20-dema might offer a lower-risk entry. WORK is expected to report earnings on December 4th.

Zoom Video Communications (ZM) posted a pocket pivot at its 10-dma and 20-dema on Friday, which is buyable using the two moving averages as tight selling guides. ZM is expected to report earnings on December 5th.

 

 

CrowdStrike (CRWD) deserves a more detailed discussion and a large chart, since there are some subtleties involved with this U&R which is also a Wyckoffian Retest. One member asked a very good question as to whether one uses the absolute intraday low or the closing low to determine the prior low in the pattern. The answer is that normally we use the absolute low, although one can also use the closing low if one can keep risk to a minimum.

In the case of CRWD, it posted a 44.58 intraday low with a 46.20 closing low on October 22nd. From there, it rallied and then rolled over again in early November. Note that selling volume was noticeably lighter in late October into early November, so this worked out as a Wyckoffian Retest of the October 22nd low. That then led to a U&R through the 46.21 low of October 29th.

I tend to see this as a Wyckoffian Retest followed by a U&R through the October 29th low. Once you get the first pocket pivot three days ago through the 10-dma, then you have your confirmation. This is a little tricky, but the dual concepts of a U&R and a Wyckoffian Retest combined with the confirming pocket pivot provided the tip-off. So, when watching for U&Rs, don’t forget the venerable Wyckoffian Retest!

 

 

Another recently hot IPO gone cold is Fastly (FSLY), but it too is showing signs of life off its recent lows. On Tuesday the stock posted a U&R coming up through the prior October low, and followed that up with a big-volume pocket pivot on Wednesday at the 10-dma.

It is now finding support along the 10-dma and looks to be buyable as close to the line as possible while using the line as a tight selling guide. FSLY has a blistering run off the lows back in August as it more than doubled in a little over two weeks. Now that it has its earnings report out of the way as of last week, can it relive the magic of that August move?

 

 

Guidewire Software (GWRE) and Keysight Technologies (KEYS) both continue to trend higher as both stocks follow their rising 10-dmas and 20-demas. Pullbacks to the moving averages have been where lower-risk entries have been found, but both stocks are now extended near-term. They are nice examples, however, of some coherent long ideas I’ve had in recent reports that have acted more normal than not as they move higher.

 

 

RingCentral (RNG) remains in a buyable position along its 10-dma, using the line as a tight selling guide. Meanwhile, it has yet to price a 1.75 million share secondary offering of stock that is being sold by Avaya Holdings (AVYA), with which RNG announced a partnership last month. In light of this, the more opportunistic route would be to look for a pullback to the 20-dema, should that occur, as a lower-risk entry.

 

 

DocuSign (DOCU) continues to track tight sideways along its 10-dma as volume reaches bone-dry levels. Volume levels on Thursday and Friday were at -71% and -62% below average, respectively. The stock remains in a buyable position using the 20-dema as a maximum selling guide, but keep in mind that earnings are expected on December 5th.

 

 

Momo (MOMO) is working on a re-breakout after clearing its current price range and failing last week. The pullback offered a lower-risk entry near the 20-dema on Thursday as it failed to hold support at the 10-dma. Technically, it is within buying range of the re-breakout, but the company is expected to report earnings on November 26th. So you’re looking for a big move to develop ahead of earnings if you didn’t buy the pocket pivot at the 50-dma two weeks ago.

 

 

Alibaba (BABA) looks a bit like MOMO here as it breaks out, fails and re-breaks out again. The pullback to the 20-dema offered a lower-risk entry as I discussed in my Wednesday report, but BABA remains within buying range of the re-breakout.

 

 

JD.com (JD) reported earnings on Friday before the open and gapped up on response. It opened at 35.05, quickly logged an intraday high at 35.43, and headed lower from there to negate the gap-up and close negative on the day. Selling volume was heavy but JD managed to hold support at the 10-dma and near the top of its base breakout of two weeks ago.

Technically, the breakout remains in force, since JD held support above the breakout point and the 10-dma. If it comes into the 20-dema and we see selling volume decline, it could become buyable at that point, with the idea of using the 20-dema as a tight selling guide. Otherwise, a breach of the 20-dema would trigger the stock as a short-sale entry at that point.

 

 

Put Baozun (BZUN) on your Earnings Watch List for this week as it is expected to report earnings on Wednesday, November 21st. The post-earnings picture for Chinese names has been less than ideal, to be sure, given the action in JD on Friday.

The charts of Sina (SINA) and Weibo (WB) illustrate the mixed action of Chinese names as well as the danger of playing earnings roulette.  Both companies reported earnings on Thursday morning and promptly blew to pieces. The two correlate so well because SINA owns a big stake in WB, which certainly didn’t help the situation for either.

 

 

The group chart of payments stocks below is interesting in that all five of the names I’ve discussed in recent reports have been rallying over the past few days. Global Payments (GPN) is in the pole position now that it has streaked to new highs after becoming buyable on the gap-fill down to the2-dema last week.

Paycom (PAYC) looks impressive as it plows right through the 50-dma and keeps on going, while PayPal (PYPL) has cleared its 50-dma and looks to be headed for its 200-dma. Meanwhile, the big-stocks in the group, MasterCard (MA) and Visa (V), have been edging higher but are still stuck in price ranges that extend back over two months.

V posted a pocket pivot on Thursday, but that hasn’t resulted in any substantial upside. That does make the stock buyable right here using the 10-dma or 20-dema as tight selling guides. But overall, I don’t see anything else that is technically actionable among these stocks.

 

 

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.

As the major market indexes continue to make new highs, and alt-currency names continue to assist in that drive to new highs, I’m starting to see some percolation among some of the more dynamic but severely beaten-down names in this market. Last weekend, in my GVR, I noted turns in names like Okta (OKTA) and Zendesk (ZEN), for example, and these stocks had nice moves this past week.

As we see above, there is also some percolation among the formerly red-hot but now beaten-down IPOs that we watched move higher into the summer. Now we are seeing the emergence of some new IPOs that are acting well in DDOG and PING. If this type of action starts to follow through and broaden out, then I am more than willing to play it on the long side.

As we know, the sharpest upside moves in this market occur off the lows, and some of these stocks just starting to show signs of life off their lows could gather momentum while the market rally remains intact. Meanwhile, as discussed above, there is still plenty of high-velocity, high time-value action to take advantage on both long and short side among stocks that have just reported earnings.

I’ll cover more ideas in my weekend video report among the stocks that are beginning to show up on my Ugly Duckling screens. Objectively, my interest is piqued by the fact that I am seeing more names coming through my screens in this regard. While the market rally may be “tired” (do machines ever get tired?) or “suspect,” there is always the potential for things to broaden out.

Sure, we could top out and roll over at any time. Right here, right now, I see no evidence of this, but I remain open to changing evidence when I see it. There are some individual stock set-ups on the short side that have presented themselves this past week as noted above, but the fact is more stocks are going up than down – it’s just a matter of where the higher-velocity, higher time-value action can be found.

I say just stay with the set-ups that you see. If the market weakens and rolls over, then the set-ups will naturally push you in that direction. Current leaders will start busting their 10-dma and 20-dema lines. Until we see that, the general trend remains up, with some opportunities on the short side here and there. 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.