The Gilmo Report

November 21, 2021

November 21, 2021 10:19 am ET

The final two trading days of the week featured a notable divergence away from the broader market as money piled into big-stock NASDAQ 100 names, driving that index to all-time highs on Thursday and Friday. The big gamma unclench on Friday, featuring the expiration of the second highest number of stock, index, and ETF options ever, produced a very mixed market as the S&P 500 and Dow Indexes sold off on higher options expiration volume.

Meanwhile, the NASDAQ 100 pile-in put enough wind into the NASDAQ Composite Index’s sales to send it to all-time highs as well. While the index posted a new high, it stalled on surprisingly lighter, but not necessarily unusual, options expiration volume

 

 

The NASDAQ Advance-Decline line shows the stark divergence in breadth as both the NASDAQ and NASDAQ 100 streak to new highs. Stellar index performance has been accompanied by a two-week decline in breadth. Certainly not a bullish development, but in this market sometimes a preponderance of steadily declining dogs sets the stage for a visit from the Ugly Duckling, who is known for his characteristic bad breadth, pun intended.

 

 

The broader market, as represented by the NYSE Composite and Russell 2000 Indexes (as represented by the iShares Russell 2000 ETF (IWM)) remains substantially less ebullient as both indexes made lower lows on Friday. Along with the advance-decline statistics, this also better reflects the situation with respect to individual stocks, which at this market moment remains quite mixed to negative.

 

 

The 10-Year Treasury Yield ($TNX) ended the week a little bit soft at 1.536% which appeared to weigh on precious metals. However, we should keep in mind that both the Sprott Physical Gold Trust (PHYS) and the Sprott Physical Silver Trust (PSLV) are in extended positions where pullbacks to their 20-demas or even as far as the 50-dma for PSLV can be watched for.

 

 

Apple (AAPL) continued to move higher as rumors of an electric iCar surfaced in a Bloomberg article which offered a great deal of speculation, including an alleged production date of 2025, but little in the way of specifics. Not a single word about any of this was forthcoming from or confirmed by the company, but the rumors in print were enough to send the stock on a clean breakout to new highs following Wednesday’s pocket pivot/trendline breakout.

Stuff like this brings the Retail FOMO Force into focus as money piles into AAPL, which technically remains within buying range of this current base breakout. For my money, however, I think the pocket pivot on Wednesday was the better entry, so would also have worked as an initial entry with Thursday’s breakout being a smaller add point.

 

 

With NASDAQ 100 names leading the market, from a practical standpoint one doesn’t have to venture too far outside this circle of big-stocks for actionable trading vehicles. If the NASDAQ 100 rolls over and tops, then these names will work just as well as short-sale targets as they do long targets when the market is going higher. When an actionable set-up in any of these names presents itself, just pull the trigger, as would have been the case with AAPL this past week.

Of course, we must also keep in mind that actionable long entries don’t occur exclusively on breakouts. Amazon.com (AMZN) posted an actionable long entry set-up at the 200-day moving average in early November and on Thursday finally cleared double-top resistance as it now tests the prior all-time highs. On Friday an attempt to clear to new highs failed and reversed as AMZN retreated from new-high price territory.

It did not quite exceed the absolute peak on the left side of this big cup formation at 3773.08 on Friday before reversing back to the downside. It is possible that AMZN may develop into a short sale target from here, but we would have to see confirmation on a break below the 10-day moving average.

 

 

Tesla (TSLA) continues to work as a moving average undercut & rally (MAU&R) long entry at the 20-dema and is now pushing further above its 10-day moving average. I would not be surprised to see this continue moving higher if the general market continues moving higher. But for now, only a pullback to that line would offer lower risk entries from here. Otherwise, any break back below the 20-dema would potentially trigger the stock as a short sale entry if it occurred.

 

 

Meta Platforms (FB) remains above its 50-day moving average after a brief test of the 20-dema on Thursday. The test of the 20-day line seemed logical given the steep move off the lows last week and was followed by a stalling pocket pivot at the 50-day moving average on Friday. Technically this remains in a buyable position here along the 50-day line which then becomes a tight selling guide with the alternative of using the 20-dema as a slightly wider selling guide.

 

 

Netflix (NFLX) continues to roll back from the $700 Century Mark where it was shortable on Wednesday as it stalled at that price level. The stock pulled an outside reversal on Friday and headed lower as it now looks set to test its 10-day moving average. If short the stock from the $700 Century Mark, then the 10-day line could serve as a near-term covering guide looking for any kind of bounce back up into the Century Mark as a possible short-sale reentry.

Keep in mind that given the sharp move off the lows of over two weeks ago this pullback from what is also double-top resistance appears normal despite allowing for a quick scalp on the short side based on the Century Mark failure. However, a clean break below the 20-dema would constitute a secondary short-sale entry trigger where the 20-day line then becomes your covering guide.

 

 

Nvidia (NVDA) has so far played out as a buyable gap-up using the 313.21 intraday low on Thursday as your selling guide. Despite a lot of intraday volatility on Thursday that was playable in both directions, the stock held the BGU low on Friday and pressed to all-time highs. It is now extended, but any pullbacks closer to the 313.21 BGU intraday low could potentially offer lower-risk long entries from here.

 

 

Advanced Micro Devices (AMD) Continues to track higher along its rising 10-day moving average but is stalling at the prior highs of early November. For now, this remains in a position where some sideways consolidation would be normal and so I would not assume that it is suddenly going to break to the downside.

If we were looking for that then we would want to see a break below the 10-dma followed by a move below the 20-dema. Of course, any break below the 10-day line could simply set up a test of the 20-dema and a potential lower risk long entry.

 

 

Elsewhere in Semiconductor Land, Applied Materials (AMAT) reported earnings Thursday after the close and promptly tanked. Interestingly, this did not cause other big-stock semiconductor equipment makers like Lam Research (LRCX) to move lower in sympathy. LRCX in fact move higher but is now approaching prior highs farther to the left on the daily chart below and out view.

AMAT triggered a short sale entry at the 10-day moving average on Friday and broke further to the downside. It now looks set to test the 20-dema as it comes within 1% of the line. LRCX meanwhile is testing prior highs where it stalled on Friday, so I would not be looking to buy this stock here as I would need to see a constructive test of and pullback to the 10-day moving average first.

 

 

While I have seen fit to stick with semiconductor leaders like AMD and NVDA as they continue to trend higher, AMAT and LRCX to some extent illustrate the flare-ups and flare-outs that seem to pepper the group from time to time. Another flare-up/flare-out semiconductor pair is seen in Micron Technology (MU) and Western Digital (WDC). MU was the flare-up on Friday thanks to an analyst’s upgrade, while WDC is now a flare-out after flaring up the prior week.

MU’s move on Friday was in fact playable as a buyable gap-up (BGU) using the 78.93 intraday low as selling guide. In fact, MU opened at 78.93 and never looked back. Once it cleared the 200-day line, one could have tightened things up by using the line as an alternative selling guide.

WDC had its own flare-up at the end of the prior week but has since flared out as it now breaks below the 50-day moving average. The stock was in fact shortable at the 10-dma and 50-dma on Friday and then closed just below the 50-day line. Depending on how it develops from here, it may remain shortable below the 50-dma which then becomes a tight covering guide. Keep in mind that it has already come down sharply from the highs of six trading days ago, so may spend some time consolidating.

 

 

As I noted in my last report, Booking.com (BKNG) was breaking down into Undercut & Rally Land as it moved lower following a clean breakout-failure and short-sale entry at the 20-dema the prior week. It was unable to hold a U&R at the prior October lows but on Friday undercut three prior September lows and the 200-day moving average before rallying back above the line.

That triggers both a price and moving average U&R where the 200-day line would then be used as a selling guide. In this case I would look for a swing trade up to the 50-day moving average if I can get it, at which point the stock may be shortable again as close to the 50-dma as possible depending on how this rally plays out.

 

 

American Airlines (AAL), Delta Airlines (DAL), and United Airlines (UAL) have made for beautiful short sale targets over the past two weeks in typical flare-up/flare-out moves. Like BKNG they are also all now down in U&R Land. Only UAL has triggered a bona fide long entry after undercutting and rallying back above the prior 45.44 low of October 28th.

That may be good for a quick upside scalp from here given how oversold these airline names are. One might also assume that, since the group tends to correlate almost exactly, a U&R in any one of them can likely be applied to the others.

UAL also triggered a short-sale entry on Thursday as it broke below the 50-day moving average, following the 50-dma breaches in AAL and DAL earlier in the week, but all three of these names are now quite extended to the downside. Thus, I would tend to lean toward looking for rallies, on U&Rs or otherwise, back up toward the 50-day moving averages as possible short sale reentries depending on how they play out.

 

 

It is starting to become apparent that the $200 Century Mark doesn’t hold much significance at support or resistance for Airbnb (ABNB) as the stock moves in a price range that is 10% above and 10% below the $200 level. After again failing to hold the $200 price level on Friday, the stock found support at the 20-dema and the prior 85.94 BGU intraday low and bounced to close just below the 10-day moving average.

In this position it appears that the stock is buyable on pullbacks to the 20-day line, which then serves as a tight selling guide. Meanwhile, if the $200 Century Mark is indeed going to develop into meaningful resistance, then it will likely do so in concert with the 10-day moving average which now sits one nickel below the $200 price level.

In general, ABNB remains a BGU in force given that it has yet to break below the prior 85.94 BGU low. At the same time, it remains volatile within a 20% wide price range. This makes it quite tradeable as a long or a short depending on where it is in this price range, at least so far.

 

 

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. At this point, of course the stock is way extended on the upside but does demonstrate the power of the metaverse theme currently.

 

 

Shopify (SHOP) is sitting at all-time weekly highs but failed on an attempt at higher highs on Friday as it reversed and retreated from new-high price territory. The prior new-high breakout remains in force, but I would sit back and watch for any constructive test of the 10-day moving average as a more opportunistic and lower risk long entry.

 

 

Bill.com (BILL) has gone absolutely nowhere since posting a buyable gap-up (BGU) and base breakout after earnings two weeks ago. it is again testing the 315.30 intraday low of the BGU day and the 20-dema. This looks a bit precarious and given that many other cloud leaders are starting to waver should be watched for any break below the 20-dema as a possible, late-stage, failed-base, short-sale entry trigger.

Otherwise, if BILL can hold support here at the 20-dema, this may offer a lower risk long entry opportunity where the 20-day line serves as a tight selling guide. Generally, stocks posting BGUs should begin moving higher within six days, and in cases where the stock just sits there the potential for failure obviously increases and should be watched for.

 

 

CloudFlare (NET) remains in a firm uptrend as it climbs higher along its rising 10-day moving average. It is again stalling along the prior highs near the $220 price level and looks susceptible to a pullback from here. Given the extent of the prior run since the U&R back in early October along the $115 price level, some sort of pullback and consolidation would be normal, and I would look for the 20-dema to serve as more reliable near-term support as the stock remains extended.

 

 

When I look at charts of cloud leaders like BILL and NET, even SHOP, I ponder whether they could begin to waver and break down as we’ve seen other big-stock cloud leaders start to do lately. Below we see CrowdStrike (CRWD), DocuSign (DOCU), and ServiceNow (NOW) all triggering short-sale entries on Friday. CRWD did so on a reversal at the 20-dema on Thursday and then again on a reversal at the 50-dma on Friday.

DOCU triggered a short-sale entry at the confluence of it 20-dema and 50-dma and Friday, while NOW triggered short-sale entries at its 10-dma and 20-dema on Friday. These all look like potential shorts on any bumps back up into near-term moving average resistance from here. Keep in mind also that CRWD is expected to report earnings on November 1st and DOCU on November 2nd.

 

 

Among other big-stock cloud names discussed in recent reports, Salesforce.com (CRM), and Workday (WDAY) are also showing signs of wavering. CRM, which is expected to report earnings on November 30th is again testing its 20-dema and the $300 Century Mark, closing Friday at 301.17. Any break below the 20-day line and the $300 level could set it up for a short-sale entry and scalp ahead of earnings next week.

WDAY reported earnings on Thursday after the close and gapped down on Friday morning. It printed 287.51 at the open, immediately broke lower to post an intraday low at 279.81 within the first ten minutes of the trading day. From there it turned and rallied over the next hour before reaching an intraday high of 297.50.

That brought WDAY within 1% of the $300 Century Mark where it encountered resistance and then drifted lower all day, busting the 10-dma and 20-dema along the way to trigger additional short-sale entries before closing at 286.60. It remains in a shortable position just below the 20-dema which then serves as a tight selling guide, Keep in mind that the 20-dema was the third short-sale trigger point on the way down Friday.

 

 

Snowflake (SNOW) has run into resistance along the $400 Century Mark for three days in a row and remains a short along the $400 level. This remains a short-sale target using the $400 level as a covering guide unless and until the stock can decisively clear the Century Mark, at which point it could trigger a long entry based on Livermore’s Century Mark Rule for the long side.

Currently Livermore’s Rule in Reverse for the short side is in force, but the situation remains quite fluid. It is possible that SNOW doesn’t do much either way given that earnings are expected on December 1st. However, if an actionable set-up along the $400 Century Mark in either direction presents itself, I have no issue acting on it with the idea of catching a quick swing-trade/scalp ahead of earnings.

 

 

The House may have passed an infrastructure bill, including provisions for propping up the electric vehicle industry, but industrial metals names continue to slump. Iron and steel for roads, rails and bridges, aluminum and copper for electric vehicle chassis and batteries, all would seem to be favored by the bill.

Unfortunately, the stocks are treating this as a sell-the-news event. We’ve seen upside moves, call them flare-ups, in big-stock aluminum Alcoa (AA), iron ore producer Cleveland-Cliffs (CLF), copper producer Freeport-McMoRan (FCX) and steel producers Nucor (NUE), Steel Dynamics (STLD), and U.S. Steel (X) over the past couple of weeks, but nothing has stuck.

Instead, we have the typical flare-ups followed by flare-outs as AA triggers short-sale entries along its 50-dma and CLF attempts to recover its 50-day moving average. FCX triggered a short-sale entry at its 20-dema on Friday. Steel names NUE, STLD, and X are all sitting at near-term support and could resolve in either direction.

I suppose one could sift through these charts and pick out long and short entry possibilities depending on whether the stocks are breaking support or holding support. But overall, it demonstrates that the new infrastructure bill isn’t that big of a deal for these names based on the subsequent price action. At best, you could be looking at some reaction bounces off moving average support while the overall action remains choppy and sloppy.

 

 

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. On Friday 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. Meanwhile, CCJ’s smaller uranium cousin Energy Fuels (UUUU) is correlating with its own break below the 20-dema, which can be treated in the same exact manner as CCJ.

 

 

Fertilizer names all came down on Friday in a correlated move, but as noted in recent reports CF Industries (CF) has remained the new-high leader while Mosaic (MOS) and Nutrien (NTR) trundle along the lows of their current chart patterns. NTR did post a pocket pivot at its 50-day moving average on Thursday and held support at the line on Friday, which may keep it in a buyable position using the line as a selling guide.

For now, NTR remains in a bear flag or L-formation where it could resolve in either direction. Meanwhile, MOS is far below its own 50-day moving average as it tests the prior 35.78 low from over a week ago. It is quite interesting to see that the only current beneficiary of perceived fertilizer shortages is CF. I tend to think that the fertilizer shortage will run its course as other shortages have. For that reason, I might key on any breach of the 10-day line by CF as an aggressive short sale entry.

 

 

The AAPL iCar rumors got the lithium names percolating on Friday. Albemarle (ALB), Lithium Americas (LAC), Livent Corp. (LTHM), and Piedmont Lithium (PLL) were all up, with LAC leading the way with a big-volume pocket pivot off its 10-day moving average. ALB posted a new closing high on increased but not heavy volume.

LTHM posted a pocket pivot at its 20-dema, which is potentially actionable using the 20-dema as a selling guide. PLL is in an interesting Ugly Duckling position, posting both a price U&R and a moving average U&R at the 50-day line on Friday. This is potentially actionable using the 50-day line or the prior 58.28 low as a selling guide.

 

 

While big-stock NASDAQ names push the NASDAQ Composite and S&P 500 up to or past prior highs, the market is replete with negative price action in a broad number of groups. This past week saw the oils give up the ghost as many broke sharply to the downside.

 

 

Financials have also come apart, with big-stock names in the group like Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), and Morgan Stanley (MS) triggering short-sale entries earlier in the week before breaking sharply lower into Friday. This strikes me as quite cautionary.

 

 

Some are citing a potential collapse in oil demand as a result of economic slowing as a reason for oil stocks breaking down the way they have. Meanwhile financials are coming off as interest rates back off slightly but remain near recent highs. I also notice that payment stocks continue to breakdown which does not strike me as a positive economic indicator.

Some cite the movement toward buy-now-pay-later purchasing options as a reason for the decline in credit card names like MasterCard (MA) and Visa (V), as this would impinge on their interest-charging business models. However, we can also see that purely transactional services like PayPal (PYPL) and Square (SQ) are also breaking down, which seems to have economic implications.

 

 

While one can ponder the economic implications of these various group breakdowns, it all nevertheless points to one basic reality about the current market environment. And that is that there are plenty of stocks and groups presenting themselves as primary short-sale targets even as the big-three indexes, the S&P 500, the Dow, and the NASDAQ Composite have pushed into or near new-high price territory.

For this reason, I consider it far too simplistic to declare that this is a “market in confirmed uptrend” when there is so much contradictory, negative price action occurring in a large swath of individual stocks and groups. This market defies labels, and I would caution against trying to determine future price action by the application of mindless labels as some like to do.

In my world there is only one truth and that is the individual stock set-ups as they occur in real time. For now, this should be sufficient to keep us on the right side of the market on a stock-by-stock basis even though you may find yourself making decent profits on the short side while the major market indexes continued to flirt with new highs.

Administrative Note: due to the short Thanksgiving Holiday trading week, the mid-week report will be published on Tuesday of this coming week instead of the usual Wednesday.

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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