The Gilmo Report

November 20, 2019

November 20, 2019 4:07 pm ET

Market participants were treated to another episode of wild intraday gyrations when news hit earlier in the day indicating that a Phase One U.S.-China trade deal would not happen until next year. That sent the indexes and stocks of all stripes spinning to the downside as the news shot them out of the sky.

A little later, news that White House Deputy Press Secretary Judd Deere spewed that “Negotiations are continuing and progress is being made on the text of the phase-one agreement” stemmed the decline as diving stocks reversed course in mid-air and began to levitate.

By the time the dust settled, the NASDAQ Composite, S&P 500 and Dow Jones Industrials all closed mid-range or better, but still down on the day on much higher volume. Summed up, it was a high-volume distribution off the peak with some support off the lows, perhaps due in part to the shifting news flow.

 

 

Amid all the trade news volatility, the Fed released their most current meeting minutes, with no surprises. The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) held steady, remaining above their recent undercut & rally (U&R) lows at 137.80 and 15.83, respectively. Technically, these both remain within buying range based on the U&Rs, using the prior lows as your selling guide.

 

 

Gold-related names discussed in my recent reports continue to hold up near their highs as both the yellow and white metals remain near their recent lows.

Franco-Nevada (FNV) pulled into the 10-dma today, offering buyers a lower-risk entry at the line while using the 10-dma as a tight selling guide.

Kirkland Lake Gold (KL) got extended today as it made a bid for new highs but backed down to close near its intraday lows. Pullbacks to the 10-dma at 47.05 are your lower-risk entry opportunities from here.

 

 

Big-stock NASDAQ names came under some selling pressure today as all four in the group chart below closed in the red. Most are extended, however, so from here the 10-dma and 20-dema become potentially buyable support on pullbacks.

Apple (AAPL) held at its 10-dma, but given its extended position I’d rather look for a pullback to the 20-dema as a lower-risk entry spot. Alphabet (GOOG) did in fact pull back to its 20-dema today where it held support. That illustrates the more opportunistic pullback to the 20-dema that would be my preference in some of these more-extended names.

Microsoft (MSFT) pulled down near its 10-dma without quite touching the line, so remains extended for now. Meanwhile, Amazon.com (AMZN) sticks out like a sore thumb as the laggard in the group as it ran into resistance at its 50-dma and reversed, making it a short-sale entry at the line earlier today.

I consider these four names to be the biggest of the big-stock NASDAQ genre, and given the extended state of the first three, pullbacks are to be expected. AMZN is another story, as it remains a short-sale target on any moves into resistance which in this case is the 50-dma.

 

 

Netflix (NFLX) has been getting a lot of positive chatter lately, mostly because its rivals’ streaming services don’t look all that daunting just yet. That has driven a rally back up to its prior mid-October high just above 308, where it stalled today to close about three points lower. Volume on the rally has been steadily declining and reached voodoo levels today.

Since NFLX is obviously too extended to buy in this position, it may be a 360-degree situation where it becomes a possible short up here along resistance at the prior high. In this position, one could stalk the stock around the 308 highs and look to short it there with the aid of the five-minute 620-chart. Alternatively, and if the general market continues to pull back, it could also be viewed as shortable right here using the prior high at 308.75, about 1% higher, as a covering guide.

 

 

Facebook (FB) set up in buying range on Monday morning as it tucked into its 10-dma. From there, it pushed higher, posting a pocket pivot on the same day. This came on the heels of two prior, ten-day pocket pivots on the cusp of October and November, and two five-day pocket pivots at the 10-dma last week, as I discussed over the weekend.

FB’s pullback into the 10-dma Monday morning was your last lower-risk entry opportunity, and it is now extended. Further pullbacks to the 10-dma can be watched for possible lower-risk entry opportunities from here.

 

 

Tesla (TSLA) broke out to higher highs yesterday, but that breakout attempt from an already extended position went nowhere. The stock tested the 10-dma today and held as selling volume diminished. However, given the stock’s extended state, I would prefer to look for the opportunistic approach here by waiting and watching for a potential deeper pullback into the 20-dema as a lower-risk entry if you can get it.

 

 

Disney (DIS) pulled into the buy zone I discussed in Sunday’s GVR on Monday where it held and attempted a re-breakout. The stock is still sputtering around its prior, new-high breakout point. From my perspective, the true and proper buy point if one was interested in owning the stock occurred on the prior bottom-fishing buyable gap-up (BFBGU) after earnings.

The breakout to new highs came from a very extended position and straight off the lows of the base. Thus, I do not care to chase it up here, and would prefer to see a more complete pullback to the 10-dma as a possible lower-risk entry. DIS is a big-stock, alt-currency type of situation, in my view, and so if the market keeps rallying, this may do so as well. However, I prefer to remain disciplined and opportunistic about my entry spots if I’m truly interested in owning the stock.

 

 

Members will recall that I tweeted on Monday that the semiconductors were looking a bit on the piggy side, and thus vulnerable to a possible pullback based on my indicators. Over the past two days that’s what we’ve seen in several big-stock semis. That has included semis I’ve discussed in recent video reports, like NXPI and QCOM, and those in the written reports.

Applied Materials (AMAT) dropped below the 60.22 intraday low of last Friday’s buyable gap-up move today after selling off from its recent post-BGU peak yesterday. Today’s move constituted a gap-down break through the prior BGU low, effectively killing the buyable gap-up.

From here I’d look for possible support at the 10-dma or on a gap-fill down to the 57.20 low of the highlighted rising window area on the chart. Otherwise, a clean breach of the 20-dema triggers AMAT as a possible late-stage, failed-base, short-sale set-up at that point,

 

 

Advanced Micro Devices (AMD) has been a monster, rallying ten days in a row by yesterday as buying volume spiked as it seemed to reach FOMO levels. The stock looks near-term climactic to me but could continue higher from here or yank back in violent fashion. Obviously, I’m not going to chase it up here, but a pullback to the 10-dma might be something to watch for as a potentially lower-risk entry opportunity.

 

 

Micron Technology (MU) broke to lower lows today as it starts to fulfill what is looking more and more like a head-and-shoulders formation. From here, I’d watch for any rallies back up into the 50-dma as potential short-sale entry opportunities, with the idea that a test of the H&S neckline and the 200-dma is possible.

 

 

Buyers and sellers seem to be duking it out in Nvidia (NVDA) as the stock can’t seem to figure out which way it wants to go after reporting earnings last Thursday. One could attempt to buy it here while using the 10-dma as a selling guide, but a breach of the 20-dema combined with more general market selling would trigger this as a short-sale target at that point. 360-degrees, please!

 

 

DataDog (DDOG) hasn’t gone anywhere following last week’s buyable gap-up move after earnings. A breakout attempt last Friday failed, which is no surprise given that the stock had come straight up from the lows of the base. It gets interesting, however, on pullbacks to the 38.25 BGU intraday low.

DDOG closed today at 38.40, just fifteen cents above the prior 38.25 BGU low. This puts it in a lower-risk entry spot using the 38.25 price level or the 109-dma at 37.21 as your tight selling guides.

 

 

Ping Identity (PING) held a test of its prior buyable gap-up (BGU) low at 18.26 yesterday, closing above 18.26 before undercutting the BGU low earlier in the day as volume dried up sharply. It closed up again today amid all the trade news turmoil. Constructive retests of the 18.26 BGU low remain your lower-risk entries, with the rapidly rising 10-dma at 17.83 serving as an alternative reference for maximum downside support.

 

 

Among the four other IPOs I discussed in my weekend report, both CrowdStrike (CRWD) and Slack Technologies (WORK) broke near-term support. They are each expected to report earnings on December 5th and 4th, respectively, so there isn’t much to do here.

Zoom Video Communications (ZM) is also expected to report earnings on December 5th, but it acts much better than the other two. It posted another pocket pivot today at the 10-dma and 20-dema on above-average volume today, which is quite respectable amid all the trade news-driven index turmoil.

The question is whether this offers anything tradeable for more upside from here. ZM would need to decisively clear its 50-dma to do so, and that is unclear at this point. Nevertheless, I find the stock of interest based on its constructive action. We’ll see if this figures into anything ahead of earnings, or even after earnings, once they are released.

 

 

Lyft (LYFT) also looks constructive here but has the luxury of having already reported earnings. The stock posted a pocket pivot at the confluence of the 10-dma, 20-dema, and 50-dma on Monday and retested the 50-dma today. It closed off the lows and in the upper half of its daily trading range on heavy volume, which qualifies as supporting action at the line.

It would seem to me that pullbacks to the 50-dma and the other two moving averages would offer the best, lower-risk entries as we saw this morning. LYFT has been trying to work its way off the absolute lows of early October as it builds what is now a four-week base after regaining the 50-dma. Play it as it lies.

 

 

LYFT’s larger cousin, Uber (UBER), is also trying to show some signs of life here. It posted a strong-volume, bottom-fishing pocket pivot at the 10-dma today, an impressive move considering all the index turmoil. If you like the stock, you buy it here and use the 10-dma as a relatively tight selling guide, or you can look for a pullback to the 10-dma as a lower-risk entry.

Also, if UBER can clear its 20-dema in short order, it would also likely trigger a U&R entry through the prior 28.31 low of early October. If that occurs, then one can simply play it as a U&R using the typically prescribed low at 28.31.

 

 

Fastly (FSLY) also has the luxury of already reporting earnings as it continues to build on last week’s big-volume pocket pivot off the lows. A brief pullback to the 10-dma on Monday provided a lower-risk entry, and the stock posted a higher closing high today. It is now at the highs of last week’s big-volume pocket pivot price range.

In this position, FSLY is extended, such that I’d prefer to look for at least a pullback to the 20-dema, even better to the 10-dma, as a lower-risk entry from here. Play it as it lies.

 

 

Guidewire Software (GWRE) and Keysight Technologies (KEYS) both continue to trend higher along their rising 10-dmas as they become ever more extended. GWRE is expected to report earnings on December 3rd, while KEYS is expected to report earnings next Tuesday. For now, given their extended positions and their upcoming earnings reports, they are both on Earnings Watch.

 

 

RingCentral (RNG) ran into resistance along its prior October high and reversed to close negative on slightly higher volume today. In this position, I would only be interested in taking the opportunistic route by looking for a pullback to the 20-dema as a lower-risk entry opportunity if I can get it.

 

 

DocuSign (DOCU) will be going on my Earnings Watch List as its expected December 5th report date approaches. Over the past month, the stock hasn’t been able to break out, nor has it broken down as it continues to track tight sideways along its 10-dma and 20-dema.

 

 

The trade news has taken its toll on Chinese names in general, and the four that I’ve discussed in recent reports have not remained unscathed. In the group chart below, we can see that both Momo (MOMO) and JD.com (JD) triggered as short-sale entries today when they breached their 20-demas.

Both MOMO and JD were recent range breakouts, as I discussed over the weekend, but these breaches of the 20-dema now make them range breakout failures. JD, in particular, came apart after reversing on a gap-up attempt last week and has continued coming down all week long.

Alibaba (BABA) held support at its 20-dema today, but a breach of the line would trigger it as a short-sale entry as well, should that occur. Otherwise, if you think BABA is a stock you want to own, this pullback to the 20-dema offers a lower-risk entry with the idea of cutting the stock loose quickly if it breaches the 20-dema (and perhaps flipping to the short side in 360-degree fashion!). Play it as it lies.

Baozun (BZUN) continues to flounder along its 50-dma and 200-dma, but perhaps tomorrow’s expected earnings report will put the stock out of its misery, one way or the other, for good. BZUN is expected to report tomorrow before the opening bell, so is firmly on the Earnings Watch List until then.

 

 

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.

The market strikes me as being in something of a bifurcated state as the indexes run into one distribution day along their recent all-time highs. This may just be a temporary bout of selling, or we could see things worsen in a deeper index pullback. In this regard, the situation is highly fluid.

As today’s action among individual stocks, and particularly those discussed in this report, shows, there remain opportunities on either side of the market, short or long. In that regard, one should remain aware of how things could play out and be prepared to react as necessary.

As usual, the basic message is that we maintain a 360-degree approach to individual stock set-ups, and then let the set-ups push us in the right direction. If the current selling is a one-off, then long set-ups will succeed and naturally push us more to the long side, while the opposite would be true for the short side. 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 a position in SLV, 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.