The Gilmo Report

November 21, 2017

November 21, 2017

Two days into the shortened Thanksgiving Holiday trading week and the market just steamrolls higher. The NASDAQ Composite Index enthusiastically gobbled up all sellers and flew to a new high on higher volume. If this breakout holds tomorrow, then investors will certainly have something to be thankful for come Thursday.

 

GR112117-$COMPQ

 

The S&P 500 Index also gapped up and broke out to new highs on higher volume. Both the Dow Jones Industrials and the small-cap Russell 2000 Indexes also broke out to new highs while the broad NYSE Composite Index is lagging but is rapidly approaching its late October highs.

 

GR112117-$SPX

 

Financials:

Strong economic data yesterday brought some life into the financials, but not much. The Financial Select Sector SPDR Fund (XLF) has bounced somewhat tepidly off support near the 50-dma. The move was enough, however, to clear the 20-dema as volume was well below average but slightly higher than yesterday’s levels. Financials didn’t seem to display the enthusiasm seen elsewhere in the market today. As a result, there isn’t much I find tantalizing among individual financial names, and other areas of the market seem to offer better prospects for more upside thrust.

 

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Gold got stuffed yesterday on strong economic news, negating Friday’s strong pocket pivot coming up through the 50-dma. The only good thing here, if there is any, is that the SPDR Gold Shares (GLD) more or less held near-term support at the confluence of its 10-dma and 20-dema. Overall, it appears that you can’t trust any signals in the GLD, as they tend to be more news-oriented, hence subject to failure or reversal once the news flow change. Weak economic news means interest rates stay steady, so gold rallies, while strong economic news sends it the other way.

 

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While gold seems unreliable in terms of generating consistently readable technical action, my favorite gold-related stocks appear to live in their own alternative universe. Franco Nevada (FNV) continues to hold along its 10-dma and a pullback to the 20-dema might provide a more opportunistic entry.

Likewise, Kirkland Lake Gold is pulling into its 20-dema as volume dried up to -52% below average today. That puts the little gold stock in a lower-risk entry position using the 20-dema as a tight selling guide. Notice the lack of correlation between the charts of KL and FNV to GLD. Because of this, the stocks can perhaps be played as they lie, based on their own technical formations.

 

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Big-Stocks:

Apple (AAPL) hopped through its 10-dma today, looking like it might post a pocket pivot as volume mushroomed early in the day. By the close, however, the pace of volume diminished, but the stock held just above the 10-dma on increased, but below-average volume.

 

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Amazon.com (AMZN) rallied off its 10-dma, but remains within what is a roughly two-week price range.

Alphabet’s (GOOGL) has bounced off its 20-dema but remains within a roughly four-week price range as it has essentially gone nowhere since its late October buyable gap-up move after earnings.

Facebook (FB) posted a pocket pivot off its 10-dma after finding support at its 20-dema the day before. The stock was previously buyable along the 20-dma per my prior comments. Technically, it is within buying range of this pocket pivot, using the 20-dema as your maximum selling guide. The move fell just short of hitting new all-time highs, but looks quite constructive nevertheless.

 

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Netflix (NFLX) successfully tested its 50-dma yesterday as volume dried up in the extreme, leading to a nice bounce early in the day back up through the 10-dma and 20-dema. The move stalled out near last Friday’s highs as volume picked up only slightly. Overall, NFLX just remains in what is now a little more than a five-week base.

 

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Nvidia (NVDA) rallied today up to the highs of the current price range it has formed along its 10-dma since posting a buyable gap-up eight trading days ago. This remains one I’d look to buy on pullbacks to the 10-dma, although one could consider it within buying range here, using the 10-dma as a tight selling guide.

Note that today’s gap-up move at the open churned around in a narrow range on light volume, so the action lacked a decisive feel to it. In fact, most of these big-stock NASDAQ leaders are just spinning around in price ranges despite the NASDAQ Composite and the NASDAQ 100 Indexes blasting to new highs today.

 

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An analyst from Morgan Stanley (MS) today stated that Tesla (TSLA) could “spike to 400” and then added in seemingly contradictory fashion that it could then plummet to $200. I’m not sure where this guy bought his crystal ball, but the whole thing strikes me as nonsense. One might question whether a stock secondary offering is coming, and Morgan Stanley is doing its best to goose the stock ahead of announcing such an offering.

This sort of thing generally sets the shorts scampering out of the stock, and is one reason why I rarely hold a short position in TSLA overnight. This current rally could push up through the 200-dma, or it could die right here. I would watch to see how this acts as it approaches the 200-dma, with the idea of shorting a weak rally as close to the line as possible while using it as a tight upside stop.

 

GR112117-TSLA

 

General Motors (GM) is now back up near its prior October highs and is extended from any lower-risk buy zone. It was last buyable, as you all know, at the 50-dma based on my report discussion and blog posts when the stock was sitting right at the line. The rising 20-dema, currently the closest moving average, would serve as a reference for buyable pullbacks from here.

 

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New Merchandise:

Roku (ROKU) is approaching its first test and moment of truth as it drifts down toward its 10-dma. As I discussed over the weekend, this is where we might look for a potentially buyable pullback. Volume dried up a little more today, and it’s now a matter of watching for the twain to meet, as they say, and this might occur as a clean bounce off the line or an undercut below followed by a rally back above the line.

 

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If given a choice between buying into traditionally constructive technical action and Ugly Duckling type ugliness in this market, I think I prefer the latter. MuleSoft (MULE) illustrates this since it failed to hold the “constructive” pullback to the 20-dema last week and blew right down to the 50-dma, where it posted a supporting pocket pivot.

The stock has since rallied, and today posted another pocket as it cleared and held the 10-dma and 20-dema, despite stalling a bit. Volume was heavy, but the spot-on spot to take shares in MULE appears to have been at the 50-dma, which I discussed as a possibility in last Wednesday’s report. Nevertheless, this pocket pivot is actionable using the two short moving averages as tight selling guides.

 

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I currently have an alert set for Switch (SWCH), not shown, in the event it drops below the 18 price level and the prior lows of early November. SWCH’s initial public offering price was $17, and the stock hasn’t seen the light of day since peaking out at 24.90 on its first day of trading. I have my price alert set at the prior 18 lows as I am looking for any possible undercut & rally that might occur at that point. There’s no guarantee that it will, however, but right now that’s the only way this thing could generate any kind of long entry signal in its current chart position.

 

Cloud Names:

ServiceNow (NOW) remains extended after posting another all-time high today. However, it did stall off its highs to close in the lower part of the range, which may mean it will retest its 10-dma or 20-dema over the next few days.

Saleforce.com (CRM) reported earnings today after the close, and as I write is currently trading down a couple of bucks. Keep an eye on this tomorrow morning in case something actionable transpires after what appears will be a gap-down open.

Workday (WDAY) posted its second all-time high in a row today and is now way extended from its last lower-risk entry point back near the 50-dma on the “LUie” turnaround four trading days ago.

Square (SQ) continues to streak higher after being bitten by the Bitcoin bug when it announced it would now allow some users to buy and sell the cryptocurrency on its Cash app. The stock is now up eight out of nine days in a row as heavy buying volume tells you that buyers can’t pile into the stock fast enough.

This is starting to look more like a climax top, and today’s one-day point move, based on prior to close to current close, is in fact the largest one-day point move in the entire price run. If you’re long this, you may want to stay alert here for any kind of reversal, but so far, the stock doesn’t show any desire to slow down, at least not yet.

 

GR112117-SQ

 

Solar Names:

First Solar (FSLR) dipped below its 10-dma, which is more consistent with what I am looking for in the stock. As I discussed over the weekend, I’d like to see a pullback to the 20-dema at 58.30 as an opportunistic entry, assuming it doesn’t occur on heavy selling volume.

The CEO and Chairman of SolarEdge (SEDG) today announced that he is battling cancer, sending the stock to the downside on a test of the 10-dma. That test was successful, and offered buyers a lower-risk entry opportunity, as I discussed it would per my prior comments on the stock. From here, I continue to like pullbacks to the 10-dma as your lower-risk entries, when they occur.

 

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Semiconductors:

Micron (MU) is yet another extended leader getting more extended. In the process, it is leaving the 10-dma, the nearest reference for any kind of lower-risk entry point, further and further behind.

Universal Display (OLED) is also far extended to the upside as it, too, leaves its 10-dma further behind. The last time it was in a buyable position when was it met up with its 10-dma last Wednesday. Since then, it’s been new highs all the way.

 

Telecom-Related Names:

Arista Networks (ANET) has rallied over 15% from the $200 price level, where it was last buyable per Jesse Livermore’s Century Mark buy rule on the long side. The rally has been incredibly steady and relentless, moving within a well-define uptrend channel. ANET did run into some selling today as it reversed off the peak on above-average volume. The 10-dma would serve as the first reference for a potentially buyable pullback from here.

 

GR112117-ANET

 

Over the weekend I blogged about two Ugly Ducklings in the opticals space, Applied Optoelectronics (AAOI) and Lumentum Holdings (LITE). AAOI is having trouble holding support along the 10-dma, but LITE remains in play here as it holds support at the 50-dma.

Note that despite yesterday’s reversal off the intraday highs, the stock closed just above the 50-dma as volume dried up nicely. Today the stock cleared the 20-dema on light volume, and is probably best bought on any pullbacks back below the 59 price level, looking for a “LUie” type of resolution back up to the prior October/November highs.

 

GR112117-LITE

 

Chinese Names:

Alibaba (BABA) posted a new all-time closing high today on volume that was a meager 9% above average. The stock remains in this volatile, choppy range where the lower-risk entry opportunities occur at the lows of the range, near a logical support level like the 20-dema or 50-dma. I would advise maintaining that approach with the stock rather than chasing this move here.

 

GR112117-BABA

 

Weibo (WB) remains well-extended on the upside and only pullbacks to the 10-dma at 112.88 would offer lower-risk entry opportunities from here.

 

Internet Related:

Yelp (YELP) had a funky little spin-out to the confluence of its 10-dma and 20-dema today, but found some volume support at the two lines to close back up in the middle of its daily price range. The key here would have been to pick the stock off as close to the new moving averages as possible, per my comments on the stock over the weekend. That said, if one wishes to act on the stock here, then the 10-dma/20-dema moving average confluence would serve as a relatively tight selling guide.

 

GR112117-YELP

 

Software:

Veeva Systems (VEEV) posted a pocket pivot off its 10-dma yesterday, but there isn’t much to do here ahead of next week’s expected earnings report on Tuesday, November 28th.

Nutanix (NTNX) posted a higher high today but remains extended and not actionable ahead of earnings, which are expected next Wednesday, November 29th.

 

Video-gaming Names:

Take-Two Interactive (TTWO) is sitting right at its 10-dma, which can be considered a lower-risk entry position using the 10-dma as a tight selling guide. It also remains within buying range of its buyable gap-up move (BGU) of two Wednesdays ago. However, that BGU occurred nearly two weeks ago, and the stock has been unable to get any further upside momentum going, so one should remain alert if one chooses to play here.

 

GR112117-TTWO

 

Activision Blizzard (ATVI) is also going nowhere fast as it tracks along the confluence of its 10-dma, 20-dema, and 50-dma. Volume has been light for about the past two weeks, which shows some correlation to the action in TTWO over the past two weeks.

Today the stock gapped up to the highs of its two-week price range, but just churned around in a tight price range on slightly higher volume. While this can be seen as buyable along the three-moving-average confluence, it could also easily morph into a short-sale target if it busts the moving averages on the downside.

 

GR112117-ATVI

 

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 “Turkey Day” approaches we can see that things are far from quieting down. Today’s move showed a great deal of upside ebullience, but the movements in many leading stocks were simply upside jerks within a longer price range. Thu, the breakouts seen in the major market indexes were not mimicked by leading stocks per se.

Perhaps the pivotal point for the market will come early next week when the Senate is scheduled to vote on its own version of so-called tax-reform legislation. With a slow news flow surrounding the latter half of this trading week, we may see things approach a state of suspended animation, but it still all boils down to what is going on with individual stocks.

A lot of names that I’ve discussed in this report are just building bases. This may set them up for strong breakouts and upside movement going into December, and this could be fostered along by an affirmative Senate vote next week. On the other hand, if expected tax reform legislation is not passed by the Senate, the market could spin out to the downside, so stay alert.

I wish you all a happy and delicious Thanksgiving, at least for those subscribers who reside in the U.S. Otherwise, I think we can all take some time to reflect on what we have to be thankful for, because I think that in some way we all do. As I like to tell my teenaged kids, if you think your life stinks, just remember, there are a lot of people whose life stinks a lot more, so be grateful for what you have! 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. ©2008-2017 Gil Morales & Company, LLC. All rights reserved.