The Gilmo Report

November 23, 2021

November 23, 2021 7:00 pm ET

The week got off to a raucous open when the Biden Administration confirmed the renomination of the Reverse Repo Man himself, current Fed Chair Jerome “Jay” Powell. The NASDAQ 100 Index was leading the pack early in the day but eventually lost traction and reversed into the red, leaving the Dow at the head of the pack by mid-morning.

By the end of the day, the S&P 500 and NASDAQ Composite Index had both pulled ugly outside reversals to the downside, with the NASDAQ’s reversal looking particularly nasty. Powell’s comments about dealing with inflation during his acceptance speech were cited as the catalyst for the sell-off. Based on the look of things over the weekend, however, the market was already flashing warning signs.

The situation didn’t get any better today as the NASDAQ again broke to the downside but found support at its 20-dema. While the action on the indexes was contained on the downside today, a broad number of individual stocks and groups have suffered serious carnage over the past few days. In some cases, these appear quite oversold but as we know what is oversold can often become much more oversold.

 

 

Interest rates spiked on the inflation tough talk from Powell on Tuesday with the 10-Year Treasury Yield ($TNX) pushing back above 1.6% and ending today at 1.667%, less than 10 basis points away from its 2021 highs. I would not be surprised to see the $TNX soon clear the 1.75% level, which could have deleterious effects for stocks.

 

 

Higher interest rates have pushed the U.S. dollar higher which in turn has turn sent gold and silver careening lower. The Sprott Physical Gold Trust (PHYS) gapped below its 20-dema yesterday and followed that up today with a gap-down break below the 200-day moving average.

The Sprott Physical Silver Trust (PSLV) sliced through its 20-dema as well yesterday and today gapped just below the 50-day moving average. These were clear sell signals on the 20-dema breaks yesterday, and both the PHYS and PSLV are currently attempting to hold support at their respective 50-day moving averages.

One could treat these as extremely opportunistic long entries using the 50-day lines as selling guides. I would keep a tight trigger finger here, however, since if interest rates continue to rise it could keep a lid on gold and silver.

 

 

The uptick in interest rates sent higher-PE and PE-expansion tech names plummeting yesterday, particularly among cloud names that I follow. Of course, as I’ve noted in recent reports, more and more of these cloud leaders have been falling by the wayside, one by one, and more of that continued today.

Shopify (SHOP) is a recent new-high breakout among the clouds that has now failed, breaking below its 10-day moving average yesterday and then the 20-dema earlier today. It was able to clamber back above the 20-dema by the close and hold above the prior trendline breakout. Personally, I would not have been buying the new-high breakout and you see why since it has now failed but the trendline breakout is holding.

This puts the stock in a critical position, since the pullback to and shakeout at the 20-dema sets up a possible lower-risk long entry. If it busts the 20-dema again, however, it could trigger a short-sale entry as a potential late-stage failed-base short-sale situation. Thus, we can take a 360-degree approach here and play it as it lies over the next few days.

 

 

Bill.com (BILL) triggered short-sale entries at its 20-dema yesterday and its 50-dma today. In between those triggers it also gave short-sellers an opportunity to hit an early rally up toward the 20-dema that then reversed badly. It busted the 50-day line early today and attempted to regain the line, but fell short, closing 18 cents lower.

In this position the stock could be considered a short here using the 50-day line as a covering guide, but the optimal short entry occurred yesterday when BILL busted the 20-dema. If it can regain the 50-dma, then I’d watch for a weak rally back up into the 20-dema as a possible opportunistic short-sale entry as close to the line as possible.

 

 

Snowflake (SNOW) has also split wide open after triggering a short-sale entry at the $400 Century Mark as discussed in my last two reports. Yesterday it triggered two short-sale entries, the first at the 10-dma and the second at the 20-dema, before running into the 50-day moving average where it has found support, for now.

At this stage, the best short-sale entries have already occurred. So, in this position I would look for any weak rally back up into the 20-dema as a possible short-sale entry/reentry into the rally. Of course, if it simply busts the 50-day line from here then that would become the fourth short-sale entry trigger on the way down from the $400 Century Mark.

 

 

Salesforce.com (CRM), CrowdStrike (CRWD), DataDog (DDOG), Cloudflare (NET), ServiceNow (NOW), and Workday (WDAY) have all triggered short-sale entries over the past few days. CRM, DDOG, NET, NOW, and WDAY all triggered entries at their 10-day, 20-day, and even 50-day lines over the past three days as they have broken down from recent highs.

CRWD started breaking apart last week and was again a short entry at the 50-day line last Friday before busting the 200-day line today. These names appear quite oversold at this point, so one could watch for rallies back up into potential moving average resistance as short entries from here.

 

 

Even in cases where broken cloud leaders have been trending lower for several weeks now we are seeing further downside. Coupa Software (COUP) and DocuSign (DOCU) have been trending lower for well over a month, but both have triggered short-sale entries over the past three days as they make lower lows.

I’m not going to clutter up the charts with annotations since the short-sale entries as key moving averages, e.g., the 10-day, 20-day, and 50-day lines, are fairly obvious if one studies the charts. Looking at Okta (OKTA) you should be able to quickly pick out four short-sale entries over the past three days, with three entries at the 10-dma, 20-dema, and 50-dma occurring last Friday alone as OKTA plummets to lower lows.

ZScaler (ZS) has been a more persistent leader on the upside but over the past two days has finally broken down. For aggressive short-sellers, the break below the 10-day line yesterday was an initial short-sale entry trigger, and today’s break below the 20-dema would constitute a second short-sale entry trigger. Boom, boom! Out go the lights!

 

 

Among big-stock techs, Apple (AAPL), which still hasn’t made any comment regarding last week’s EV rumors, has run into some selling but still holds above its recent new-high base breakout. For my money, however, the proper entry occurred on the trendline pocket pivot breakout five days ago and at this point the stock is quite extended.

Those who subscribe to the religion of buying new-high breakouts would consider this to be within range of the new-high breakout so one can take their chances accordingly. You know where I stand on this sort of thing.

 

 

Amazon.com (AMZN) is playing out as a double-top, short-sale set-up but today found support at the 20-dema and closed back above the 10-day line. In my view, if one was going to look for an opportunistic entry then the place to do it was at the 20-dema earlier today, although it’s not clear one would have had the courage to do so.

The close back above the 10-day may be constructive, so one could treat it as a long entry using the line as a selling guide. However, if AMZN reverses back through the line, then it would trigger a secondary short-sale entry at that point.

 

 

I said over the weekend that I wouldn’t be surprised to see Tesla (TSLA) continue moving higher, so I wasn’t when it did yesterday before stalling at the $1200 Century Mark. The stock had triggered a Century Mark short-sale entry early in November when it failed at the $1200 level, and yesterday’s rally took it right up to an intraday peak at 1201.95 before it headed south.

That would have presented a viable short-sale entry based on Jesse Livermore’s Century Mark Rule in Reverse, and TSLA then streaked lower today before finding support at the 10-dma and 20-dema confluence. It can hold support here that might present a possible lower-risk entry opportunity. If it busts the moving averages, then you could very well have another short-sale entry trigger on your hands.

 

 

Meta Platforms (FB) has been dancing around its 50-day moving average which has made it problematic as a reference for support or resistance. What I do note on the chart is that the range highs over the past seven trading days have presented clear price resistance for the stock. Today FB closed right between its 50-day moving average above and the 20-dema below.

Thus, this is a classic 360-degree position where a break below the 20-dema could trigger a short-sale entry while a move back above the 50-dma could trigger a long entry. Aside from that, this is a difficult chart to figure out, and for that reason likely requires one to play dance partner until it resolves one way or the other.

 

 

As noted over the weekend, Netflix (NFLX) was continuing to come down after triggering a double-top, Century Mark, short-sale entry at the $700 level last week. The stock then triggered a pair of short-sale entries yesterday as it breached the 10-dma and 20-dema in one fell swoop. Today it headed lower and appears set for a test of the 50-dma.

In this position, rallies up into the 20-dema could present short-sale entries from here. At the same time, we can watch to see how NFLX handles support at or near the 50-day line. If it busts the line, then that would constitute the fourth short-sale entry trigger in just a few days.

 

 

My two favorite leading semiconductors Advanced Micro Devices (AMD) and Nvidia (NVDA) have also started to run into some selling after getting quite extended on the upside. Both stocks came in today and held near-term support at their 10-day moving averages. While one could look to buy these pullbacks using the 10-day lines as selling guides, my preference, if looking to buy shares of these stocks at this point, would be to look for opportunistic pullbacks to the 20-demas instead.

 

 

Applied Materials (AMAT) held a pullback to its prior base breakout point today and managed to close back above its 20-day exponential moving average. This could be viewed as a lower-risk long entry using the 20-dema as a very tight selling guide of the top of the prior base around $145 as a wider selling guide. Otherwise, if AMAT decisively busts the 20-dema and the prior breakout point along the $145 price level, it would trigger as a late-stage, failed-base, short-sale entry.

 

 

Microchip Technology (MCHP) acts well here as it tracks tight sideways along its 10-day moving average. This is occurring after a prior breakout that went nowhere. Now the stock is posting a pocket pivot at the 10-day line and right along the prior breakout point. This can be viewed as a long entry using the 10-day line as a selling guide, or the 20-dema as a wider selling guide.

 

 

Micron Technology (MU) and Western Digital (WDC) were also running up today. MU looks like it’s starting to lose momentum where one could consider shorting it here or near the intraday highs of the past two days on either side of 87.70 which would then serve as a covering guide.

WDC had flared out last week following a strong upside move but suddenly gapped up off its 50-day line. This chart position has a definite 360-degree aspect to it in that one could first view this as a buyable gap-up (BGU) using the 59.07 intraday low as a selling guide. It is also a little V-shaped double-top where it could potentially be stalked on the short side as it approaches the prior highs just above $62.

 

 

Booking.com (BKNG) remains a U&R long entry set-up in force as it holds support along its 200-dma. The stock was previously a short-sale entry at the 20-dema nearly two weeks ago after which it broke lower. The cover point for me is on this move down to the 200-dma that coincides with a U&R along the prior September lows.

However, it could still resolve bearishly if it busts the 200-day line at which point a fresh short-sale entry trigger would occur. Otherwise, this remains a U&R using the line as a maximum selling guide with the idea of catching a swing-trade back up to the 50-day line, at which point BKNG could become shortable again.

 

 

Airlines remain weak, which may not bode well for BKNG. Here we see American Airlines (AAL) offer shorts a nice entry today at the confluence of the 10-dma and 20-dema. Delta Airlines (DAL) didn’t make it that far before reversing with AAL, while United Airlines (UAL), the only one of the three to have posted a clean U&R last Friday, also rallied in feeble fashion before stalling out and reversing today.

As was the case with AAL, I still view rallies in any of these names up into moving average resistance as potentially shortable. They are, however, quite oversold at this point and way down from their peaks of three weeks ago, so it’s not clear just how much quick and dirty downside is left from here.

 

 

I note that as techs and growth names get slammed this week, industrial metals names have been rallying. Alcoa (AA) has regained its 50-dma but stalled today so that a reversal back below the line could trigger a short-sale entry from here. Iron ore producer Cleveland-Cliffs (CLF) looks somewhat similar as it stalls on moves higher over the past two days.

Freeport-McMoRan (FCX) was a more concrete short entry at the 10-day moving average today as it stalled out but still held above the 20-dema. A break below the 20-dema, however, would constitute another short-sale entry trigger and can be watched for.

Steel producers Nucor (NUE) and Steel Dynamics (STLD) have had some of the stronger moves this week with NUE back up through prior price highs where it could be watched for a typical double-top reversal at the prior 119.32 high of two weeks ago. STLD is right at prior price highs where it could encounter price resistance.

U.S. Steel (X) is stalling as it sits right on top of the 10-day line. Thus, I would watch for any break below the 10-day line as a short-sale entry trigger if it occurred. Otherwise, these industrial metals names are mostly just chopping around within their patterns without any substantial resolution either way.

 

 

Uranium producer Cameco (CCJ) triggered a short-sale entry last Friday as it broke below its 20-dema on increased selling volume. That led to a test of the 50-day line yesterday and then a bounce back up to the 10-dma and 20-dema today. That bounce turned out to be shortable as the stock then reversed to close near its intraday lows.

For now, I continue to see this as a short at the 20-dema unless and until it can regain the line. CCJ could also hold support along the 50-day line where we could watch for possible lower-risk long entries, but a breach of the line would of course trigger another short-sale entry if it happens.

 

 

Aside from Piedmont Lithium (PLL), which triggered a clear short-sale entry at the 200-day moving average yesterday, lithium names have been acting relatively well. However, the past two days have brought signs of wavering in Albemarle (ALB), Lithium Americas (LAC), and Livent Corp. (LTHM), all of which have been strong leaders.

ALB is failing on a short flag breakout but held support at the 10-day line. That might offer a lower-risk entry, but I would be very alert to any break below the line as a possible aggressive short-sale entry.

LAC looked quite robust last week as it posted a strong-volume pocket pivot on Friday but so far that has gone nowhere. The stock has drifted back in toward its 10-day moving average where we can watch for buyable support. A break below the line, however, could trigger an aggressive short-sale entry if it occurs.

LTHM was rallying sharply yesterday but reversed from a double-top, short-sale position to close near its intraday lows. Today it broke below the 10-day line, triggering an aggressive short-sale entry at that point. It did hold support at the 20-dema, which could create a lower-risk entry possibility. I would also be alert to any break below the 20-dema as a secondary short-sale entry coming on the heels of the double-top failure yesterday and the 10-day line break today.

 

 

I see a lot of ugly patterns among individual stocks currently, and many have been coming down for at least a few days. This of course raises the possibility of oversold bounces, but even that isn’t clear at this point. Most of the short-sale set-ups I’ve discussed over the past 2-3 reports have come to fruition this week and last. At this point I’m keying on possible leadership failures in stocks that are holding up well, like the lithium names.

At best, this remains a market for swing traders on both the long and short sides. The short side has certainly been the place to be so far this week and last, and that may have implications for the general market going forward. While we could stabilize around the Thursday Thanksgiving holiday as things slow down a bit, I would not assume anything, as any drifting back to the upside could just bring certain stocks back into shortable range.

As I noted over the weekend, the old bromide about this time of the year being “seasonally favorable” is quite unreliable. But you don’t need me to tell you this, since it’s not hard to see that the charts of many individual stocks currently bear no trace whatsoever of this alleged seasonal favorability. Take it from 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

 

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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