The Gilmo Report

November 22, 2020

November 21, 2020 7:57 pm ET

The major market indexes continue to track sideways as Wednesday’s bearish action did not pan out into anything more serious. The NASDAQ Composite Index reflects the general look of the indexes as it tracks along its 10-day moving average. Volume was heavy on Friday due to options expiration and slightly higher than Thursday’s levels as the Big Three major market indexes all posted distribution days.

 

 

The action in individual stocks has certainly overshadowed anything we’re seeing in the indexes, as many of the newer thematic names I’ve discussed in my written and video reports have had some crazy moves recently. This perhaps speaks to a certain speculative froth which becomes more apparent when we see the American Association of Individual Investors (AAII) percentage of investors bullish number peak near its prior extreme January 2018 high.

 

 

AAII’s measure of the percentage of investors that are bearish has also plummeted to historically low levels, making the Bullish/Bearish spread (percent bullish minus percent bearish) between the two indicators extremely high on a historical basis.

 

 

Of course, froth is what this market has been about for some time. We can make the argument that a persistently low CBOE Put/Call Ratio ($CPCE) is a contrarian/bearish indication, but the fact is that it has been at these levels since early June. So, yes, there is an increased level of complacency for some time as measured by the $CPCE for some time, but guess what, it hasn’t mattered!

 

 

All this froth in individual stocks along with extremely complacent sentiment as measured by historical indicators may indicate a top or more severe correction is coming, so staying alert to this strikes me as prudent. On a more practical level, however, just staying with and acting upon the set-ups, long or short, that you see in real-time is more prudent.

As examples of the thematic froth that is this market, some of the biggest and craziest moves this past week occurred in a handful of battery-related names I discussed in Monday’s video report, such as Ballard Power Systems (BLDP) and Blink Charging Co. (BLNK). When I discussed these set-ups on Monday, I did not expect these types of moves, but they took off as different types of cousin-plays to the overall EV theme.

BLDP’s move was a bit slower in getting going, but I noted the pocket pivot on Monday at the confluence of the 10-dma, 20-dema, and 50-dma. It had a polite 20% move from there. BLNK, on the other hand, was the raucous one as it doubled in four days after flashing a strong pocket pivot and trendline breakout on Monday. Yow!!!

 

 

Even electric semi-truck Nikola Corporation (NKLA), previously shunned as a “fraud,” has made a comeback of sorts by posting a pocket pivot at its 50-dma on Wednesday. I was happy to see one Gilmo member mention on my Blog Comments page that they had picked this up on the move. It’s now holding tight sideways as it snuggles up to the underside of its 200-day moving average, and we can watch for pullbacks to the 50-dma as potentially lower-risk entries from here.

 

 

I’ve preferred to campaign electric delivery-truck maker Workhorse Group (WKHS) myself, and it has had a little more spring in its step since posting a bottom-fishing pocket pivot at the 10-dma over two weeks ago. Note that this pocket pivot came just a few days before a similar pocket pivot at the 10-dma in NKLA, above.

WKHS powered through the 50-dma earlier this week and pushed higher again today. Incidentally, like NKLA, WKHS has also been attacked by short-sellers masquerading as research outfits, but both stocks are starting to round out the lows of potential new bases where we have already seen actionable long entry signals.

 

 

U.S. EV player Fisker (FSR) met up with its 10-dma on Friday as volume edged above average. This looks like it could be treated as a lower-risk entry at the 10-dma while using it as a tight selling guide. But I might hold out for a deeper, more opportunistic pull back to the 20-dema from here if I can get it.

FSR is another high-flyer of the past two weeks that I first discussed in my video reports two weeks ago when it was sitting at the 10-dma in a Wyckoffian Retest type of OWL set-up. As with BLNK, for example, the set-up was reasonable, but the ensuing move was insane.

Someone asked me recently what the “expected outcome” of a pocket pivot or other OWL long set-up was. Frankly, I don’t deal in the realm of expected outcomes because I’m always hunting for that one thematic play with the juice, often where you don’t expect it. And when you get the juice, as was the case two weeks ago with FSR and this week with BLNK, that is the unexpected outcome that you’re looking for.

 

 

Tesla (TSLA) finally ran out of momentum on Friday after posting a trendline breakout on Wednesday after it was announced that the company would soon join the S&P 500 Index. As the 10-dma moves higher and the stock eventually tests the line, we’ll get a chance to see whether this is just a fleeting bout of buying from funds weighted to the S&P 500 or something with longer-term legs.

 

 

Xpeng (XPEV) outshone the rest of its Chinese EV peers on Friday when it unveiled its P-7 Wing model at the Auto Guangzhou car show. The stock sprouted its own wings on the unveiling news and took off on another huge daily price run, this time to the tune of 12%.

Note, however, that XPEV along with fellow EV automaker Nio (NIO) and smart E-scooter maker Niu Technologies (NIU) all found support at their 10-day moving averages on Thursday and then moved higher from there. All three were certainly quite buyable at the 10-day lines on Thursday morning with the idea of using the 10-dma as a tight selling guide. Ka-Ching. They are all extended now.

Meanwhile, Li Auto (LI) has pushed up back to the highs of the big red price range it posted two Fridays ago after reporting earnings that morning. This is extended, and as is also the case with the rest of my Chinese EV favorites, we can only watch for future pullbacks to their 10-day lines as possible lower-risk entries from here.

 

 

In the lithium space, Chinese lithium producer CBAK Energy Technology (CBAT) bounced back smartly after pulling down toward its 10-dma on Wednesday. This likely needs some time to set up again given how extended it is, so I’d look for the stock to try and set up along the 10-dma at which point we might get a better idea of whether this stock which was a mere penny-stock two months ago is for real.

Livent (LTHM) was buyable at is 10-dma on Thursday and is again extended. Lithium Americas Corp. (LAC) dipped below its 50-dma on Friday as volume dried up. Piedmont Lithium (PLL) has pulled right into its 10-dma and 20-dema with volume drying up to -81.6% below average. This represents some extreme voodoo action which puts the stock in a buyable position using the 10-dma and 20-dema as tight selling guides.

 

 

Now, before we write off Lithium Americas Corp. (LAC) given that it dropped below its 50-dma on Friday, let us consider the fact that the 65-day exponential moving average is really where final support lies. On the daily chart below, we can see that the stock is now pulling down toward the 65-dema where it has held support since the end of October.

Therefore, we can watch as it approaches the 65-dema for a lower-risk entry. Volume dried up on Friday to -46.7 below average, which is what I want to see on a pullback like this. The closer to the 65-dema we can buy it, the better, while using the line as a tight selling guide.

 

 

Space play favorite Virgin Galactic (SPCE) finally ran out of gas at its prior October price high, which makes perfect sense. The stock was last buyable near its 10-dma and 20-dema earlier in the week. We can now watch for a test of the 10-dma or even deeper to the 20-dema as potential lower-risk entries on pullbacks from here.

 

 

Elsewhere in the final frontier (which all you old Star Trekkies will know as outer space), Iridium Communications (IRDM) remains extended but can be watched for pullbacks to the 20-dema which is now roughly at the same level as the top of its prior base just below the $30 price level.

Maxar Technologies (MAXR) dipped just below its 50-dma on Friday as volume came in at above average. This brings it into a lower-risk entry zone where we can also use the 20-dema as a reference for near-term support. Given the steep trajectory of MAXR’s move since the DBOV day two weeks ago, I would not necessarily be surprised by a pullback to the 20-dema or even the lower 10-dma. This in light of the fact that this would not represent an excessive retracement of the prior move.

 

 

MENA social-networking concern Yalla Group (YALA) is finding support along its 20-dema. My thinking here is that if the market remains in an uptrend, then this is probably buyable along the 20-dema while using the line as a tight selling guide. If the market corrects and this moves lower, then I’m looking for a possible U&R along the lows of the base, keeping in mind the key price levels at 7.50, 7.88, and 8.27.

The market, however, does not give you what you want. YALA has held support along the 20-dema this past week as selling volume continues to abate. At the same time, after Friday’s close, it’s now sitting in a vague re-breakout zone after the first, very impressive-looking breakout blew up.

The growth rates all around look decent to me, and the 27x trailing P/E would seem to allow for some reasonable expansion, given the growth rates. Comparable examples, while not accounting for any regional risk, assuming there is any, would be TWTR selling at over 40x next year’s earnings and SNAP which continues to sell at an infinite P/E.

 

 

My other MENA-themed name, Jumia Technologies (JMIA) has continued higher after posting a trendline cup-with-handle breakout on Wednesday as I discussed at that time. However, note the Ugly Duckling OWL set-up that occurred as the stock was Down Big on Volume two weeks ago when it met up with its 50-dma.

Four days later it posted a U&R through the late October low and has kept moving higher since then. Again, we see this phenomenon of Down Big on Volume = Buy Signal where an OWL-style Ugly Duckling set-up (in this case the U&R at the October 30th low) gives us a concrete long entry well before the breakout. Now we’re watching as the 10-dma rises rapidly where it may eventually provide a solid reference for a buyable pullback now that JMIA is extended.

 

 

Amid all the more speculative froth in the hot names I’ve discussed above, the venerable S&P Five, Apple (AAPL), Amazon.com (AMZN), Facebook (FB), Alphabet (GOOG) and Microsoft (MSFT) don’t look all that inspiring. At least what we know for sure is that these names have not been where the real juice in this market has been as they just track more or less sideways in slumping patterns.

MSFT joined AMZN below its 50-dma on Friday, while FB is testing its own 50-dma. AAPL is testing its 20-dema, while GOOG reversed at its 10-dma on Friday. Again, these all need to be watched carefully as the patterns look slightly bearish, and instances where one of these breaches support at a key moving average, as MSFT did at the 50-dma on Friday, can trigger short-sale entries.

 

 

Netflix (NFLX) remains a short-sale target on rallies up to the 20-dema or as far as the 50-dma. On Friday he rallied above the 20-dema but didn’t quite make it as far as the 50-dma before stalling to close below the 20-dema. Thus, it was shortable on the move toward the 50-dma and remains so on any further rallies like we saw on Friday.

 

 

With these big-stock NASDAQ names looking slightly less than appetizing, perhaps we can put the rotation-into-cyclicals theory to the test. Below I show four big-stock industrial/cyclical names, Caterpillar (CAT), Cummins (CMI), CSX Corp. (CSX), and Deere (DE) all hanging tight as they meet up with their 10-dmas.

So, if you’re hot to buy industrials/cyclicals, CAT, CSX, and DE are in position along their 10-dmas while CMI is sitting at its 20-dema. In each case, the moving average would serve as a tight selling guide. Good luck!

 

 

With respect to the four semiconductors I’m focused on currently, Advanced Micro Devices (AMD) and Marvell Technology Group (MRVL) both rallied on Thursday, with AMD finding support at its deeper 20-dema while MRVL pushed up and off of its 10-dma.

Both stocks are now extended within sloppy patterns. But I view these as buyable on pullbacks to near-term support with the 360-degree idea that breaks below support could trigger short-sale entries within the context of more general market downside.

 

 

Qualcomm (QCOM) and Qorvo (QRVO) continue to flop around within sloppy-looking bases that they have formed since their post-earnings buyable gap-ups (BGUs) nearly three weeks ago. QCOM reversed off its highs on Wednesday and on Friday pulled right back to the 10-dma. Technically this offers a lower-risk long entry using the 10-dma as a selling guide.

QRVO meanwhile found support at the 20-dema on Thursday and bounced hard before stalling near the prior highs on Friday. These are looking a bit dicey here, and with both closing just above their 10-dmas on Friday I’m watching for possible short-sale triggers at the line if we see the general market come down this week.

Otherwise, the sloppy patterns aren’t really setting up the way I’d like to see if they’re going to play out as long situations from here. Both stocks show stalling along the highs, so within the context of a general market correction I would not be surprised to see them breach near-term support at their 10-dmas.

 

 

Nvidia (NVDA) opened Thursday just below its 50-dma after reporting earnings on Wednesday after the close. It then turned back to the upside as the general market, led by tech names, rallied on Thursday and regained the 50-day line on strong volume. That move didn’t last long as NVDA reversed back below its 50-dma on Friday as volume declined significantly.

I view NVDA as a potential short on any rally back up into the 50-day line with the idea of using the line as a covering guide. Note, however, that NVDA tends to find resistance along the price highs just above $540 and the 10-dma/20-deam confluence. So, if it does rally past the 50-dma, then we might consider that short entries along the 10-dma/20-dema and price resistance just above $540 might be the better option.

 

 

Cloud names for the most part have been all over the place. Salesforce.com (CRM), CrowdStrike (CRWD), DocuSign (DOCU) and Okta (OKTA) are all expected to report earnings the week after this week, so for now they all go on my Earnings Watch List. Cloud names rallied sharply on Thursday, and these four participated in the group move that day, only to stall and/or reverse near prior price highs on Friday.

DOCU is a slight exception since it filled a prior gap and stalled at the highs of the gap-down falling window. This creates a tantalizing short-sale trade possibility here using the high of the gap-down window which I’ve delineated with a dotted line as a covering guide. Of course, I would consider any short-sale shots taken here on any of these to be scalps if I can get ‘em given that earnings are just around the corner.

 

 

In the second cloud group chart, we can toss ZScaler (ZS) onto the Earnings Watch List as it is expected to report the week after Thanksgiving as well. It rallied back above its 50-dma on Friday but volume was weak, which makes me wonder whether it would be worth my while to come after the stock as a quick short-sale scalp if it were to reverse back below the line before earnings come out.

Perhaps DataDog (DDOG) and Shopify (SHOP) might work better as short-sale targets. DDOG continues to stall at its 20-dema where it can be shorted using the line as a covering guide while SHOP has pushed right into the underside of its 50-dma where it can be tested as a short using the 50-dma as a tight covering guide.

Zoom Video Communications (ZM) down in the lower left rallied up into its 20-dema on Friday on a five-day pocket pivot off the 10-dma. This creates a situation where it can be tested as a short here just below the 20-dema while using the line as a tight selling guide.

 

 

The better-acting clouds that I’ve discussed in recent reports, Appian (APPN), Hubspot (HUBS), CloudFlare (NET), and The Trade Desk (TTD), are all extended with APPN running well past the $100 Century Mark after clearing it on Monday for a 25% gain by the end of the week. No doubt, Jesse Livermore would have appreciated this Century Mark trade that produced 25 points “in a jiffy,” as Livermore used to look for with this type of set-up.

The other three were buyable earlier in the week along their 10-day moving averages but are extended now. I’m watching HUBS and TTD as they move up near their prior highs for possible opportunistic short-sale entries. In the case of HUB, a move back near the prior November high and close to the $400 Century Mark might be the set-up to look for.

TTD is approaching its prior November high and can be watched for any type of double-top reversal that can be identified on an intraday basis using the 620-chart as a short-sale entry timing tool. In this market, double-top formations have often worked well as short-sale set-ups when they occur within the context of a general market decline. So keep this in mind when considering whether or not to test something like this on the short side.

 

 

Uber (UBER) and Lyft (LYFT) are starting to show price action that fits into what I was talking about in my Wednesday report when I wrote, “Neither one has given up any ground just yet, but if the general market continues to sell off, be alert to any breaches of the 10-dma which could trigger these as short-sale targets within the context of a more bearish general market.”

On Friday, LYFT closed just below its 10-dma which, given how extended the stock is on the upside, I consider to be a potential short-sale trigger using the 10-day line as a covering guide. UBER closed just above its 10-dma on Friday after pulling an outside reversal off the latest highs. It can be watched for a similar breach of the 10-dma as a short-sale trigger.

 

 

Snap (SNAP) rallied back up to its prior highs on a re-breakout move on light volume Friday. It was last buyable along the 20-dema where it found support earlier in the week. Volume has been light, so I’m also inclined to watch this for any signs of a double-top type of set-up as it approaches the recent November failed-breakout high of two weeks ago.

Twitter (TWTR) just barely cleared its 50-dma on Friday as volume contracted. This move doesn’t strike me as all that impressive, and I’m inclined to watch this for a possible reversal back below the 50-day line as a short-sale trigger.

 

 

Precious metals continue to chop around. The bottom line is that with no stimulus deal so far, the Fed does not have the merchandise in the form of Treasury debt that it needs to buy in order to pump more QE into the system. That’s why the Fed was not pleased with Treasury Secretary Mnuchin’s decision not to extend several pandemic emergency-loan programs set up with the Fed beyond their December 31st expiration date.

Thus, precious metals continue to languish, but remain within long consolidations formed since they peaked in early August. The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) were stop-outs earlier in the week after failing to hold near-term support, and for now I’m just sitting back waiting to see how things develop.

 

 

___________________________________________________________

Note #1 for newer members: 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 for newer members: 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 similar to Wyckoff’s Spring. A MAU&R, or a moving average undercut & rally, is essentially 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.

____________________________________________________________

 

Anybody making serious money over the past couple of weeks has likely been playing the hot stocks in the EV space and their cousins in related areas. For the most part, the big-stock names, whether in tech or otherwise, are mostly chopping around or consolidating in mostly trendless action. In some cases, the swings have been very wide, which caters to an aggressive swing-trading approach.

This characterizes the seat-of-the-pants environment we find ourselves in, but it is not bereft of opportunity. If you’re in the right stock on the right day, regardless of what the market is doing and regardless of whether the specific set-up is long or short, you can certainly be having yourself quite a bit of fun.

With the Thanksgiving holiday week ahead of us I would not assume that things will slow down. Last year we saw some strong upside leading into the Thursday holiday followed by a sell-off on Friday. With all the apparent speculative froth as measured by a variety of indicators, I would remain vigilant and alert to any changes that may signal an impending market correction.

Again, it all comes down to what we’re seeing on the charts and the set-ups that present themselves to those open-minded enough to see them. At the same time, risk-management should be kept as tight as possible when taking new positions, and one should review their selling guides on a daily basis if the market’s twists and turns suddenly necessitate playing a strong defense. Take it from there.

Administrative Note: Because of the truncated holiday trading week, the mid-week written report will be published on Tuesday instead of the usual Wednesday. Also, I’ll be covering some oddball ideas in this weekend’s video report, including some recent IPOs. Be there!

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. ©2008-2020 Gil Morales & Company, LLC. All rights reserved.