The Gilmo Report

November 20, 2022

November 20, 2022 4:01 pm ET

A Wall Street Journal article published Thursday claimed that the CBOE Equity Put/Call Ratio had reached 1.46 recently, allegedly its highest level in history. A line chart of what I believe to be the same ratio does not corroborate as it shows a significantly higher peak in March of 2020, but it is still at relatively high levels.


I am not so much interested in the alleged news of all-time highs for the CBOE Equity Put/Call Ratio as I am the current spike in the face of a one-month market rally off the mid-October lows. I find that interesting for the sole reason that typically Put/Call Ratios will tend to spike amid a spike in fear as an extended downtrend begins to accelerate lower.

This does remind me of something I have seen before where the Put/Call Ratios spike into a rally, after which the market heads lower. Whenever I saw this I surmised that it was probably institutional hedging in anticipation of a downside move. Whatever it means, it certainly did not trigger a massive market rally on options expiration Friday but remains an interesting oddity.

We can certainly speculate as to what the current spike in the CBOE Equity Put/Call Ratio is expressing as it occurs into a market rally, but as usual it all comes back to what individual stocks are doing. What we know for certain is that earlier in the week we picked up some short-sale entries among stocks that had rallied into moving average or price resistance, including clouds, lithiums, and fertilizers, among others, and the set-ups worked well.

What we saw on the individual stock charts ended up correlating to a small pullback in the major market indexes on Wednesday and Thursday that saw the NASDAQ Composite find support near its 50-day moving average while the leading Dow Jones Industrials pulled back to its 10-day moving average. A low-volume options expiration on Friday ended what was a relatively quiet week on the index surface while individual stocks created their own waves below.



Put/Call Ratios aside, I am more interested in where the U.S. Dollar and market-based interest rates are headed. Fedheads out on the speaking circuit this past week all confirmed that they remain intent on raising rates until they get to somewhere between 5% to 7%.

Unless the market knows something that the Fed does not, it is hard to see how this is bullish for stocks which have been rallying since mid-October on hopes of a Fed pivot. As the rally in stocks has inversely correlated to a decline in the dollar and interest rates since mid-October, then any recovery in the dollar and interest rates from current lows would be your first clue.

The U.S. Dollar as represented by its proxy, the Invesco US Dollar Index Bullish (UUP) ETF, is holding tight sideways within a six-day ear flag. While it looks like it wants to test the 200-day moving average it has not done so just yet but at the same time has shown no desire to rebound sharply after a sharp break off the highs of two weeks ago.



The 10-Year Treasury Yield ($TNX) still sits below the 50-day moving average and well below the 4.00% level. It ended the week at 3.818%, 12.6 basis points above Wednesday’s low and remains in a downtrend off the late October high at 4.333%.



As interest rates and the dollar move sideways, precious metals pull back from strong moves over the prior two weeks. The Sprott Physical Gold Trust (PHYS) has pulled into and closed right at its 10-day moving average which would serve as a potential long entry spot using the 10-dma as a selling guide.

The Sprott Physical Silver Trust (PSLV) ran into resistance at its 200-day moving average earlier in the week and is now pulling into the 20-dema. It closed Friday three cents above the 20-day line as volume dried up to -63% below average. This puts it in a lower-risk entry voodoo entry spot using the 20-dema as a tight selling guide.



Gold miners AngloGold Ashanti (AU) and Gold Fields (GFI) look to be pulling back in orderly fashion as they consolidate the high-velocity 35% and 55% gains they logged, respectively, after the Consumer Price Index was reported three Thursdays ago. The price action has been very tight in both stocks as they pull into near-term moving average support.

AU closed Friday just below its 200-day line and just above the 10-day line as volume declined to -35.4% below average. That would put it in a lower-risk entry position using the 10-dma as a selling guide.

GFI closed Friday one penny above its 200-dma as it pulled into the line in a typical voodoo-style as volume dried up to -47.3% below average. That puts it in a lower-risk long entry position using the 200-dma as a selling guide.

Both stocks make my point from last weekend that sitting back and waiting for them to set up again was the best course of action after torrid upside runs over the prior week. Just because they both posted low-volume pullbacks into moving average support does not mean that they are going to run again, but it does indicate constructive consolidation which is always the required precursor to fresh long set-ups and moves higher.



I am down to three favored silver miners as Pan-American Silver (PAAS) continues to flounder after selling off in response to its announced joint buyout of Yamana Gold (AUY). Meanwhile, the other three, First Majestic Silver (AG), Compania Minas Buenaventura (BVN), and MAG Silver (MAG), like the gold miners, work on consolidating their own gains from the prior week following the CPI number.

They also add additional support to the idea that taking a patient, opportunistic approach is the proper approach. AG, for example, has pulled down to its 20-dema where it offers an opportunistic entry using the line as a tight selling guide. BVN does the same thing at the 200-dma which is then used as a tight selling guide.

MAG is extended from its 200-dma and so is coming into the higher 20-dema where it found support on Thursday.



While earnings season has certainly wound down significantly, there have still been a few stocks of interest that reported this past week. In Thursday night’s video report, I discussed two names that had just issued earnings reports after the close yesterday. Both offered actionable set-ups not only on their own charts, but also on the charts of related names as they posted sympathy moves Friday morning.

We can start with Palo Alto Networks (PANW) which gapped up after reporting earnings on Thursday after the close. On Friday morning it double-topped along the $72 price level coincident with the pre-open high on the five-minute 620-chart. At the same time, it came within 1% of the 200-day moving average.

In a situation like this one does not even have to bother with the MACD since just focusing on the price action on the 620- and daily charts alone is sufficient for a short entry using the high of the day as a covering guide. Once it reversed along the $172 level for the final time it bounced its way lower as pirouetted around the blue 20-period exponential moving average without even getting back above the $171 level.



As I discussed in Thursday’s video report, we also wanted to watch for sympathy rallies in the other three cyber-security names I have discussed in recent reports, CrowdStrike (CRWD), CyberArk Software (CYBR) and Fortinet (FTNT). These names help to make an important point that often it is the stocks moving in sympathy to a particular earnings report, in this case PANW’s report, that will work as much softer short-sale targets.

And so, they were. CRWD reversed at its 20-dema to trigger a short-sale entry at that point on Friday. triggering a short-sale entry at the 20-dema. CYBR and FTNT both flipped out and reversed at their 10-dma and 20-dema. All three, CRWD, CYBR, and FTNT all reversed right at the open just like PANW, a bit like the proverbial shooting of fish in a barrel.

Of the four, only CYBR is in a short entry position just below its 50-day moving average. It sits less than 1% from the underside of the 50-dma so is within short-sale range using the 50-day line as a covering guide.



The other big-name earnings report on Thursday after the close came from big-stock semiconductor equipment manufacturer Applied Materials (AMAT). Opened at 109.21 and printed 110.00 on the nose within the first few seconds of the trading day before skidding directly lower over the next 15 minutes.



Conveniently, Applied Materials (AMAT) is the first chart in the nine-stock chart mosaic of big-stock semiconductor names that I have discussed in recent reports including Advanced Micro Devices (AMD), Intel (INTC)KLA Corp. (KLAC), Microchip Technology (MCHP), Qualcomm (QCOM), Qorvo (QRVO), Skyworks Solutions (SWKS), and Texas Instruments (TXN), below.

Most of these were up on Friday, like AMAT, but they all stalled and churned while AMAT reversed hard off the intraday highs. Among these I note that MU and NVDA could have been treated as short-sale entries just below their respective 10-dma which would then be used as tight covering guides.



AMAT’s cousin, semiconductor equipment manufacturer Lam Research (LRCX), also rallied in sympathy to AMAT’s earnings report. It also stalled and reversed at its 200-day moving average where it was shortable using the line as a covering guide. Any small rally back up close to the line would bring it into optimal short-sale range so can be watched for.



Clouds names that were short-sale entries earlier in the week, (BILL), (CRM), CrowdStrike (CRWD), DataDog (DDOG), DocuSign (DOCU), Cloudflare (NET), Okta (OKTA), Snowflake (SNOW), and Workday (WDAY) continued lower right into the end of the week.

A number of these also posted secondary short-sale entries at their 20-day exponential moving averages on Thursday and/or Friday. If you study the group chart below you should be able to easily pick them out. They are BILL, CRM, CRWD, DDOG, DOCU, and NET, while WDAY was a short at its 50-day moving average on Friday.

Overall, a good group of cloud stocks to target on the short side this past week, but now extended on the downside. Watch for rallies in any of these back up into moving average resistance, either at the 20-dema or 50-dma, which might bring them back into short-sale range once again.



Industrials metals names that I have focused on in recent reports all performed as advertised in my last report. I was looking for potentially buyable pullbacks in all four, including aluminum producer Alcoa (AA), copper producer Freeport McMoRan (FCX) and steel producers Nucor Corp. (NUE) and Steel Dynamics (STLD).

AA, NUE, and STLD all pulled into their 10-day moving averages on Thursday where they were buyable. FCX shook out along its 200-day moving average on Thursday and then held tight at the line on Friday as volume dried up to -46.4% below average.

AA, NUE, and STLD are all extended from the 10-day moving averages but any additional pullbacks to the line could present lower-risk entries using the 10-day as your selling guide. Meanwhile, FCX is buyable along the 200-day line but any reversal at the line could trigger it as a short-sale entry.



Uranium producer Cameco (CCJ) gave shorts a reasonably clean entry opportunity at the 200-day moving average on Tuesday as the stock then broke below its 20-dema on Wednesday. On Friday CCJ recovered slightly as it pushed back up toward the 20-dema, which brings it back into short-sale range using the 20-dema as a covering guide.



While they were recently touted as market leaders by those who want you to believe we are in a confirmed market rally the lithiums were the biggest dogs this past week. Outright breakout failures in Albemarle (ALB) and Piedmont Lithium (PLL) and reversals at double-top resistance in Lithium Americas (LAC) and Livent Corp. (LTHM) as discussed in last weekend’s report sent these names on four- and/or five-day declines this past week.

As I discussed in my Wednesday report, these all also triggered additional short-sale entries on the way down and for the most part of extended on the downside. ALB, however, did close just below its 50-day line where it could be treated as a short-sale entry using the line as a covering guide. PLL is in a similar position just below its 200-dma and can be treated the same way.

LAC and LTHM are now dangling down in No Man’s Land, and you will notice the U&R cover point in LTHM on Thursday. Rallies back up towards the 20-dema in either stock would bring them back into short-sale range whereupon the 20-day lines serve as tight covering guides.



Lithium leader but now potential late-stage failed-base (LSFB) short-sale set-up in progress, Sigma Lithium (SGML) rewarded shorts with a 17.25% drop after it triggered an entry at the 20-dema on Tuesday. A small rally off the $28 price level on Friday came on light volume and as it approaches the underside of the 50-day moving average brings the stock back into short-sale range again using the 50-day as a covering guide.



Big-stock fertilizers have  also served as reasonable short-sale targets this past week. CF Industries (CF) again recovered back up to its 50-day moving average on Friday after breaking lower earlier in the day. This keeps it in a short-sale position just below the 50-day line which is then used as a tight covering guide.

Mosaic (MOS) was last shortable at the confluence of its 10-dma, 20-dema, and 50-dma on Wednesday and is now dangling down in No Man’s Land. Rallies back up into the moving average confluence would bring it back into short-sale range so can be watched for.

Nutrien (NTR) has been the steadiest of the three as it moves sideways within a range just below its 20-dema. On Friday it was again shortable at 20-dema resistance and then turned negative, so further rallies into the 20-day line can be watched for as potential short-sale entry opportunities where the line then serves as a covering guide.



Big-stock NASDAQ names Apple (AAPL), (AMZN), Alphabet (GOOG) and Microsoft (MSFT) reflect the subdued nature of the indexes seen this past week, for the most part, at least. Of these, GOOG may be a short here just below the 50-day line which is then used as a covering guide. Conversely, MSFT may be a long entry here as it moves tight sideways along its 50-dma which is then used as a selling guide.

AAPL is in a little double-top position here as it pushes up towards the 200-day line while AMZN, which was a short at the 20-dema on Tuesday has now drifted below its 10-dma. Technically, that would serve as a secondary short-sale entry trigger using the 10-day line as a covering guide.



Tesla (TSLA), not shown, continues to drift lower so for now I am just watching for rallies into moving average resistance as possible short-sale entries. Netflix (NFLX) on the other hand has played out nicely as a double-top short-sale entry on Wednesday as it dropped back below the late October left-side peak of its little cup formation at 305.63.

NFLX headed lower on Friday as it now appears set for a test of the 10-day moving average. I would view this as an initial cover point with the idea of re-shorting the stock on any break below the 10-dma and 20-dema which would trigger a short-sale entry at that point.



Sunrun (RUN) and SunPower (SPWR) both played out as little double-top short-sale entries on Friday as they reversed at recent price range highs. RUN reversed at the 32.53 high of four days ago on the chart after reaching an intraday high of 32.52 on Friday. The 10-day line now serves as a reference for moving average support.

SPWR reversed at the 23.74 high of six days ago on the chart on Friday and closed lower on light volume. Like RUN, near-term moving average support lies at the 10-day line as it pushes above the 50-dma.



Solar power storage cousins Enphase (ENPH) and SolarEdge (SEDG) were a mixed bag on Friday. SEDG cruised to higher highs on average volume and is currently extended after being buyable at the 200-dma on Thursday. ENPH, meanwhile triggered a little double-top price resistance type of short entry when it reversed at its current base highs at 319.49.

Volume was heavy on Friday, likely due to options expiration. From a percentage standpoint the movement was not that great, and the respective 10-day and 200-day lines for ENPH and SEDG would still serve as references for buyable pullbacks. Any break below these moving averages by either, however, would trigger a potential late-stage base-failure short-sale set-up and so can be watched for.



First Solar (FSLR) posted fresh 52-week highs on Friday as volume remains low. This makes the stock vulnerable to a pullback whereupon we would look for the 10-dma to hold up as the first line of moving average support. The 20-dema lies just below, and if I were interested in buying the stock, I would seek an opportunistic entry on any pullback to the 20-day if I can get it.

At the same time and given that FSLR has not made a huge amount of progress from the late October breakout, any failure to hold 20-dema support would bring it into play as a potential LSFB short-sale set-up. It is still a long way from that currently, but it is still useful to understand what to look for if indeed this breakout fails as many others have in this market.



Vertex Pharmaceuticals (VRTX) strikes me as similar to FSLR in that it, too is a recent late October breakout that has made almost no progress since. While it has found sloppy support along the 20-dema repeatedly over the past four weeks, it has remained in a choppy range over that same time period.

Believe it or not, VRTX posted a new closing high on Friday when it printed 314.63 at the close. This exceeds by 43 cents the prior November 1st closing high at 314.20 of November 1st. Technically, it is still within buying range of the prior base breakout with the idea that any break below the 20-dema that sticks would trigger a possible late-stage failed-base type of short-sale set-up entry.



Perhaps we can make more sense of our old POD pal, Wolfspeed (WOLF), which blew up after earnings in perfect Punchbowl of Death style. After bottoming in early November, the stock has since been in recovery mode, likely helped along by the general market as it continued to rally off its mid-October lows. WOLF is now stalling around its 40-week moving average on the weekly chart.



Wolfspeed’s (WOLF) daily chart is little more subtle, however. We can see the shortable gap-down after earnings were reported back in October and the eventual recovery off the early November lows. That has been a very rapid recovery of about 30% off the lows, so far.

On Thursday WOLF posted a pocket pivot at its 20-dema, but remains below its 200-day moving average, correlating to the 40-week line on the weekly chart above. It also stalled at the 200-day line as well. On Friday the stock rallied into the 200-day line on weak volume and churned around.

This may therefore be actionable here as a short-sale entry using the 200-day line as a covering guide. That said, there is always the possibility that it continues to hold support at the 20-dema from which it may attempt to launch back above the 200-dma, so maintain a 360-degree awareness here since I am sure many are frothing at the mouth to short after watching it blow apart after earnings in October.



This past week offered some interesting swing-trading action as the indexes did little more than move sideways despite various magnitudes of intraday volatility on a day-to-day basis. In many ways this is still a very messy market, and it is clear to me that nobody is making big money following big trends.

It is possible, however, to make money trading the shorter trends if  one maintains an opportunistic 360-degree approach. That is, go with long set-ups when you see them, and hit the short set-ups as we have over the past few days as lithiums tried to break out and failed, or clouds have rolled over at their 20-demas and 50-dma, or AMAT and PANW reversed on earnings.

As I have warned many times before, however, recognize that this is a difficult market. That said, those willing to do the work and endure the volatility can be rewarded with the type of downside moves we saw in the lithiums this week and the upside moves we saw in gold miners the prior week.

From a general perspective, we observe that while on the one hand we have a spike in the Put/Call Ratio after an extended rally there is no massive, short-squeeze as a result. On the other we have the usual parade of Fedheads assuring us, some even forcefully so, that more rate hikes are coming as inflation is far from beaten and yet the market does not break down.

My guess is that unless we see a fresh leg to the downside in a potentially ongoing bear market soon, we could be stuck in a stubborn, choppy market until at least year-end. In an environment like that we can expect to see set-ups appear in both directions but be of limited duration; in other words, a typical swing-trading environment.

A short Thanksgiving holiday trading week may see the market settle into a state of repose, or maybe not. I have certainly seen my share of cacophonous Thanksgiving holiday weeks in my day. And in an age where unintended consequences and unknown unknowns have the ability to spawn major and minor Black Swans one cannot assume anything, as we know, and so we don’t.

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


Explanatory Notes

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 unique requirements for a U&R other than the price action. It is 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.

Note #3: The “620-Chart” is a five-minute intraday chart with an orange six-period exponential moving average and a blue 20-period exponential moving average. The MACD settings are (6,20,9,C,false,true) on eSignal. Consult your own data provider for details on how to create a five-minute intraday chart with these settings.