The Gilmo Report

November 17, 2021

November 17, 2021 7:23 pm ET

Major indexes have melted back up to their prior highs after the quick two-day sell-off early last week but are now running into resistance along those highs. The NASDAQ Composite Index illustrates the general concept as it has come within 1% of its prior all-time highs before backing down slightly today as volume contracted from the prior day.

 

 

For the most part I still don’t consider this to be a hands-down investors’ market – to my chart eye it remains a market mostly suited to swing-traders. And there are plenty of actionable set-ups to be had as well, when it comes to this type of shorter-term approach, so I would certainly not discount the profit potential on either the long or short side, depending on the precise set-up at hand.

Under the surface of this market, I get a sense of sluggishness as the higher relative-strength stocks begin losing momentum while others simply flop around at best and break down at worst. Interest rates remain steady with the 10-Year Treasury Yield ($TNX) ending today at 1.604%, but real yields are falling, while precious metals are mostly consolidating last week’s moves to higher highs.

 

 

The biggest of the big-stock NASDAQ names, Apple (AAPL), sprung to life today on a pocket pivot trendline breakout on strong volume. It wasn’t clear to me what caused the move, although the company did announce this morning that it was instituting a “Self-Service Repair” option for customers who might prefer the do-it-yourself route.

 

 

Meta Platforms (FB) has been able to hold support along its 50-day moving average as volume declines. This puts it in a long entry position using the line as a tight selling guide. If it breaks below the 50-day line, however, it will then transpose back into a short-sale target at that point where the 50-dma then becomes your covering guide.

 

 

Amazon.com (AMZN) has rallied back up to double-top style highs where it has run into consistent resistance over the past several days. Notice also that this coincides with the top of the gap-down falling window from late July. This may put AMZN in a double-top, gap-fill short-sale position using the recent highs as a covering guide.

Alternatively, a clean break below the 10-day line would potentially trigger a short-sale entry as well. This would also add some confirmation to the set-up since at that point one could use the 10-day line as a covering guide.

 

 

Tesla (TSLA) is playing out as a moving average undercut & rally (MAU&R) long entry at the 20-dema as it retakes this key short-term moving average. As I’ve noted in recent reports, when CEO Elon Musk stops selling millions of shares of stock it may be in position for a snap-back move back to the upside. How much of a snap-back, however, is another question.

TSLA held support at its 20-dema this morning before pushing higher but stalled at its 10-day moving average. This doesn’t appear to be out of the woods just yet, but even I was looking for a good long entry anywhere on this chart. I wouldn’t expect anything more than a swing-trade out of the deal. Given the prior near-term climactic move into the $1200 price zone, TSLA likely needs some time to consolidate if it is to set up for another leg up.

 

 

Netflix (NFLX) has continued to build on last week’s MAU&R move at the 20-dema. Note, however, that the stock broke out today to all-time highs but ran into resistance at the $700 Century Mark. NFLX got as high as 700.99 today on an intraday basis but reversed slightly to close at 691.69 and below the Century Mark. Technically, this initially triggers the stock as a short-sale entry here based on Jesse Livermore’s Century Mark Rule in Reverse for the short side.

The $700 level then works as a tight covering guide. However, with the stock not much more than 1% below the Century Mark, this is still not fully resolved. Conformation of the Century Mark failure would occur on a break below the 10-day moving average. Otherwise, be open to the possibility that if NFLX can decisively clear the $700 level, then Livermore’s Century Mark Rule for the long side would kick in as a long entry trigger. The $700 level then serves as a selling guide.

 

 

Nvidia (NVDA) reported earnings after the close today and as I write is trading up above the $300 Century Mark. Note that the stock rolled below the $300 level and the 10-day moving average for the first time since it began its steep upside run in early October. This should be watched closely tomorrow morning since any opening right at or around the $300 Century Mark sets up both long and short set-up possibilities, depending on how it plays out tomorrow.

 

 

While there have been many other semiconductors moving higher over recent weeks, I have not felt it necessary to focus on any other names than the two current big-stock leaders, NVDA and Advanced Micro Devices (AMD). As NVDA flirts with the $300 Century Mark, AMD remains extended where I would only be interested in any opportunistic entry I might find on a pullback closer to the 20-dema currently at 136.34.

 

Rambus (RMBS) is one semiconductor that looks a bit fresher as it finally caught traction and broke out today on heavy volume. The early entry would have occurred along the 10-day line, and you will notice that it didn’t get moving until I began to question the stock in my weekend report. Hell hath no fury like a stock scorned! 😉 In any case, this is a clean base breakout that remains within buying range for those interested.

Booking.com (BKNG) triggered another short-sale entry on Monday at the 50-day moving average and is now heading down toward the prior base lows and the 200-day line. As I noted over the weekend, the big-volume breakout nearly two weeks ago was a short-lived affair that triggered a short-sale entry last Thursday when the stock broke below the 10-dma and 20-dema.

This is now down for six-straight days, so could be considered to be at least somewhat oversold at this stage. It is also in undercut & rally (U&R) land as it comes into the prior base lows, so a rally back up to the 50-dma is not out of the question. I would, however, watch such a rally closely since it could offer a lower-risk short-sale entry into the rally as close to the 50-day line as possible.

 

 

Airlines, which looked strong for one brief shining moment last week, were forced to land shortly after take-off last week as they all broke back to the downside. One could have focused on the big-three airlines, American Airlines (AAL), Delta Airlines (DAL), and United Airlines (UAL) as short-sale targets over the past six trading days as they all triggered short-sale entries at their 200-day moving averages last week.

AAL busted the line last Friday, while DAL busted it last Tuesday and UAL last Thursday. AAL and DAL again triggered short-sale entries yesterday at their 50-day moving averages before moving lower again today. Meanwhile, UAL is attempting to hold support at its own 50-day line, but a breach would trigger a secondary short-sale entry if it occurs.

Overall, some rapid reversals after big shows of strength two weeks ago have served as very profitable short-sale opportunities in a contrarian manner. It really doesn’t get much easier than this, frankly.

 

 

Airbnb (ABNB) has provided swing traders with a lot of excitement since it gapped up after earnings two weeks ago. A sharp move on the initial BGU sent the stock up past the $210 level before it reversed and triggered a short-sale entry at the $200 Century Mark two days later. I then successfully tested the 185.94 BGU low and shorted back up above the $200 level before running into resistance along the prior highs above $210.

A big outside reversal to the downside today played out as a double-top, short-sale entry trigger once it reversed back below the 211.34 high of eight trading days ago. That worked very well as the stock streaked lower and closed at 199.11, just below the $200 Century Mark and right on top of the 10-day line.

ABNB can be played as a Century Mark short here using the $100 level as a covering guide, but we must keep in mind that the 10-day line also serves as near-term support. Therefore, the alternative is to look for a break of the 10-day line, less than 0.5% below the Century Mark, as a possible short-sale entry trigger and confirmation of the Century Mark failure. Still a very fluid situation, so play it as it lies.

 

 

Roblox (RBLX) has also exhibited its own share of volatility after a post-earnings BGU last Tuesday. The stock wobbled around for two days but never closed below the BGU day’s intraday low at 94.38. By last Friday, it was slashing its way back above the $100 Century Mark and has continued to new highs.

 

 

Shopify (SHOP) is holding last Friday’s big-volume pocket pivot and trendline breakout, but in my view remains slightly extended. An optimal entry would occur on a constructive pullback to the 10-day moving average down at 1576.07. Note that this is also another one of these big-volume breakout moves that loses momentum rather quickly, so even from a bullish perspective I would be looking for at least a test of the 10-day line.

That said, I would also remain alert to any break below the 10-dma as a late-stage failed-base type of short-sale entry trigger if it occurs. We’ve seen a lot of these double-top types of breakouts fail in this market, with some breaking lower (e.g., BKNG) and others setting up again before re-breaking out.

 

 

Bill.com (BILL) continues to track sideways following the post-earnings buyable gap-up (BGU) of two weeks ago. That was also a base breakout, and like many other breakouts in this market, no further upside has occurred. Generally, a big-volume BGU should see some upside velocity develop, but in BILL’s case it has gone flat, literally.

In fact, a very shrewd short-seller could have stalked this on the short side along the two-week price range highs just above $340. BILL then closed at 324.38, just below the 10-day line and just above the 20-dema. A tough one to figure out right here, but I would watch for buyable support to hold at least at the 20-dema, while a break below the 20-dema would trigger a potential LSFB type of short-sale entry.

 

 

CloudFlare (NET) is testing the prior highs of two weeks ago and closed today at 211.80, just under 6% above the $200 Century Mark. Note the weak volume as the stock has rallied along the 10-day line over the past week. While this was buyable along the $200 Century Mark on Tuesday, it is now in an interesting 360-degree position where it could run into some double-top resistance along the prior high at 218.

If that did turn out to work as shortable double-top price resistance, then look for a break below the 10-day line at 203.99 followed by a break below $200 as confirmation of a possible short-sale trade at least down to the 20-dema. Otherwise, if NET can hold tight along the 10-dma it could set up a fresh long entry opportunity at some point.

 

 

Among other big-stock cloud names discussed in recent reports, Salesforce.com (CRM), and Workday (WDAY) are expected to report earnings within the next two weeks. WDAY is expected to report tomorrow after the close. Meanwhile, ServiceNow (NOW) reported earnings two weeks ago but is still having issues with the $700 Century Mark.

Today, NOW reached an intraday high of 695.61, within 1% of the $700 price level, and reversed to close at 684.93. Note that the stock is a recent new-high breakout that has not seen much of anything in the way of further upside progress. A brief move above the $700 Century Mark two weeks ago has since failed, and NOW may be vulnerable to a second short-sale trigger if it breaks below the 20-dema.

That would put the stock in motion as a late-stage, failed-base (LSFB) type of short-sale set-up. Otherwise, rallies into and near to the $700 Century Mark may offer additional opportunistic short-sale entries using the Century Mark as a covering guide.

 

 

Snowflake (SNOW) is expected to report earnings on December 1st and has been on a steady uptrend along the 10-day moving average since it posted a price U&R and an MAU&R at the 50-day line two months ago, as I noted in my reports at that time. It has now reached the $400 Century Mark, where it reversed today and closed at 398.

It may be possible to scalp a short-trade, perhaps down to the 10-day line at least, from here, ahead of earnings. The set-up is simple – short it here and use the $400 Century Mark as a covering guide. Otherwise, if SNOW can decisively clear the $400 level, then Livermore’s Century Mark Rule for the long side would kick in, using the $400 price level as a selling guide. Play it as it lies.

 

 

Big moves in Alcoa (AA) and Freeport-McMoRan (FCX) last week have fizzled out this week, but this is nothing new in the current market environment. Big-volume moves generally tend to be short-lived, and this has been the case with AA and FCX. AA’s big-volume pocket pivot through the 50-day line has now triggered short-sale entries at the same moving average, using the line as a covering guide.

FCX is failing on a pocket pivot range breakout attempt from last week as it now noses right down into the 20-dema. If this holds, then it could be treated as a long entry spot using the 20-dema as a tight selling guide. Break the 20-dema and it triggers as a short-sale entry. Overall, just more evidence of one-day wonder moves in stocks that don’t lead anywhere but down, often in short order.

 

 

Other industrial metals, some of which were previously deemed to be beneficiaries of the infrastructure spending bill, which passed earlier this week, have also slumped. Cleveland-Cliffs (CLF) triggered a short entry at the 50-day line today, while steel producer Nucor (NUE) triggered a short-sale entry at its 10-dma and then closed below its 20-dema.

Steel Dynamics (STLD) triggered short-sale entries at its 10-dma and 20-dema today while U.S. Steel (X) triggered a short-sale entry at its 20-dema today. Overall, some weak action for a group of names that were seen as infrastructure bill winners after brief prior displays of upside strength that went nowhere.

 

 

Buying breakouts in this market has for the most part become a bad joke. Here we see uranium producer Cameco (CCJ) post a closing high breakout last week followed by a clean breakout to higher highs before turning south. Today a shrewd, opportunistic short-seller could have hit the stock at the 10-day moving average earlier in the day before it reversed and closed just below the 20-dema.

In this position I would certainly be alert to any moves back above the 20-day line which would trigger an MAU&R. Otherwise, watch for a possible test of the 50-day line if CCJ cannot regain the 20-dema in short order.

 

 

Fertilizers are a mixed bag here, but it is possible that the leader CF Industries (CF), which recently moved into new-high price ground, could follow the weaker Mosaic (MOS) and Nutrien (NTR) to the downside if these names continue to slide lower. MOS triggered a short-sale entry at its 50-dma yesterday and today, and moved lower.

NTR meanwhile continues to run into resistance along the 20-dema and has now pushed down toward its 50-dma. Watch for any break below the line which would create a fresh short-sale entry trigger at the line. The 50-dma would then serve as a covering guide.

CF is sitting up at all-time highs but looks vulnerable to at least a pullback that might result in a test of the 10-dma. If the rest of the group remains weak and moves lower, shrewd, nimble, and opportunistic short-sellers might consider coming after CF here on the short side using the 620-chart to help guide a possible entry into these highs.

 

 

As I’ve theorized repeatedly in recent reports over the past few weeks, all these shortages, from aluminum to coal to uranium and everything in-between will eventually run their course. And when they do, the benefiting stocks will decline, often topping at the very point where the media is engaged in mass hysteria and panic porn over the particular shortage in question.

In the fertilizers, we’ve seen MOS and NTR top as the fertilizer shortage runs its course, and this is one reason why I would lean toward stalking CF as an extended short-sale target. Once these shortages run their course, the associated stocks can unravel quickly and substantially, as we’ve seen in the coal names, Arch Resources (ARCH), CONSOL Energy (CEIX), and Peabody Energy (BTU).

At the very least, these stocks illustrate that when you think things can’t get any uglier for a group, things do exactly that. While ARCH and BTU are extended on the downside, I see CEIX as potentially shortable here along the 10-day line which then becomes your covering guide.

 

 

The Weed Patch lit up briefly last week on hopes of Federal cannabis legalization, but that has not panned out and the group is now wilting badly. As I noted in Monday’s video report, I was a seller into the moves that day as I felt that they had become near-term extended and felt a bit soft. And so, my judgment was correct here as these have all morphed into short-sales over the past two days.

In my neighborhood here along the Santa Monica Bay coast in Southern California, we have no less than three cannabis stores, so for now there doesn’t appear to be any weed shortages that would drive moves more substantial than we saw this week before Aurora Cannabis (ACB), Canopy Growth (CGC), Cronos (CRON), and Tilray (TLRY) reversed course.

 

 

With options expiration coming up on Friday, and with a record amount of call options, $2.6 trillion worth, out there, things could get a bit crazy as we move into the end of the week. As I’ve noted before, the Retail FOMO Crowd feeds primarily on call options, but these are derivatives, and the buying is therefore synthetic. With the majority of these options being of short duration the potential for a market pullback as a result of a big gamma unclench is certainly a possibility.

Beyond that, however, it is enough to operate on the basis of what you are seeing with respect to individual stock set-ups. Despite the fact that the indexes are about 1% or so below all-time highs, I see plenty of short-sale set-ups appearing in real-time, and so the market could easily push one further to the short side based on the set-ups at hand. This is my experience currently, but it’s not like there haven’t been some very strong profit opportunities on the long side for alert and nimble traders.

I would also not assume that an automatic seasonal rally is in force, because I’ve seen many years where weakness in November into early December occurs before the market drifts back to the upside in a tepid Santa Claus Rally afterward, so keep a clear head, stick to following the real-time set-ups at hand and let things play out as they will.

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

 

Notes on Terminology

Note #1 – Moving Averages: 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 – U&R Set-ups: 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 essentially like Wyckoff’s Spring. A MAU&R, or a moving average undercut & rally, is simply 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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