The Gilmo Report

November 24, 2019

November 23, 2019 2:32 pm ET

The indexes stabilized along their 10-dmas after starting the week off with some distribution off the peak. The swirling trade news flow has kept the indexes bouncing around within a short three-day range. The NASDAQ Composite Index chart below serves as an accurate proxy for all the Big-Three market indexes as it finds support along the 10-dma while volume declines.

The index trend, while running into some turbulence along the recent highs over the past three days, remains to the upside. Under the market’s surface, however, the day-to-day action in individual stocks remains mixed. The news volatility also tends to favor a more opportunistic approach, whether on the long or short sides of individual stocks.

 

 

The SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) are testing their recent undercut & rally (U&R) lows at 137.80 and 15.83, respectively. The GLD closed Friday at 137.74, just below the 137.80 prior low, while the SLV closed at 15.90, just above its own prior 15.83 low.

Note that selling volume has been drying up on this pullback and retest of the prior lows. The situation with the metals remains fluid, however, and it will likely take some sort of catalyst to trigger more meaningful action. It is around the lows, however, where I prefer to stalk the metals for the most opportunistic entries.

 

 

Gold-related names discussed in my recent reports are correlating to the slight downside in the yellow metal. Franco-Nevada (FNV) closed just four cents below its 20-dema on Friday, while Kirkland Lake Gold (KL) pulled into its own 10-dma. Selling volume in both stocks dried up sharply to -43.4% below average in FNV and -36.3% in KL on Friday, mimicking the low-volume selling in the GLD and SLV.

Both FNV and KL can be viewed as being in lower-risk entry positions with the idea of exiting quickly if they fail to hold within a reasonable range of near-term support at the 20-dema and 10-dma, respectively. As with the GLD and the SLV, an opportunistic approach generally works best with gold-related stocks.

 

 

Semiconductors came further unglued on Thursday and Friday. As I noted in my last report on Wednesday, I had tweeted on Monday that, “the semiconductors were looking a bit on the piggy side, and thus vulnerable to a possible pullback based on my indicators.” Proving that I’d rather be lucky than good, UBS Securities came out with a big assist Thursday morning and downgraded Applied Materials (AMAT), sending the group spinning to the downside.

AMAT gapped down and busted its 20-dema but could have been viewed as a short entry at the 10-dma. It then proceeded lower and closed below the 20-dema, and then ran into resistance at the 20-dema on Friday as it reversed to post a lower closing low. As I wrote on Wednesday, I figured AMAT could easily fill the prior gap, I just didn’t figure it would happen that fast.

 

 

AMAT’s cousin, KLA-Tencor (KLAC) also blew apart on the downgrade, gapping and sliding right through its 50-dma. It briefly attempted to undercut & rally back up through the prior 160.40 low of October 31st but failed to hold that low on Friday as it made lower lows.

For KLAC, a month’s worth of price gains evaporated in two days, something not uncommon when we observe that many stocks in this market will take the escalator up but the elevator down. KLAC was already wobbling on Wednesday as it closed below its 10-dma, but the gap-down break through the 20-dema on Thursday morning would have caught most longs by surprise.

 

 

Advanced Micro Devices (AMD) turned out to be near-term climactic as I discussed it might be in my Wednesday report. The stock broke lower on Thursday and found support at its 10-dma, and then retested the 10-dma on Friday, closing above the line as volume declined.

In this position, AMD is in a lower-risk entry zone using the 10-dma as a tight selling guide. Given the prior climactic action, I might expect AMD to spend a little more time backing and filling as it fully digests those gains. If it does, then look for the 20-dema as a potential area of opportunistic entry should AMD eventually test that moving average.

 

 

Micron Technology (MU) busted its 50-dma on Tuesday and spent Wednesday and Thursday making lower lows. It attempted to rally on Friday but ran into resistance at its 50-dma. For now, it is stuck between U&R Land, just above the prior 45.77 low of November 14th and its 50-dma.

I’m inclined to view this as a short on rallies up into the 50-dma, as it was on Friday. However, the U&R through the 45.77 low is still in play based on MU’s Friday close of 45.87. That doesn’t allow for much wiggle room on the downside. But a breach of the 45.77 low would certainly indicate a failed U&R attempt and could perhaps also be used as a reference for a short-sale entry, so play it as it lies.

 

 

My view on Nvidia (NVDA) remains the same as discussed on Wednesday.  One could attempt to buy it here while using the 10-dma as a selling guide, but a breach of the 20-dema combined with more general market selling would trigger this as a short-sale target at that point.

 

 

Big-stock NASDAQ names have slowed down as they pull in off their recent peaks. Apple (AAPL) has closed below its 10-dma for the first time since late September. If I’m looking to buy the stock, I prefer to look for a more opportunistic pullback to the 20-dema.

Amazon.com (AMZN) was last shortable up at its 50-dma at 1763.19, and I would tend to view any further weak rallies into the 50-dma as potential short-sale entries from here.

Alphabet (GOOG) is still holding along its 20-dema, which offers a lower-risk entry using the 20-dema as a tight selling guide. Microsoft (MSFT) is holding support at the 10-dma, but as with AAPL I would prefer a more opportunistic entry on a pullback to the 20-dema.

 

 

Netflix (NFLX) doesn’t seem to want to roll over as it pushes to higher highs and looks like it wants to make a run for its 200-dma. The action over the past two days has been constructive, and there is no evidence of a short-sale set-up here. Had the stock reversed near the mid-October highs it might have triggered as a double-top type of short, but the action so far argues for more upside.

If the general market keeps rallying then look for NFLX to move higher. One way to play this as a long is to enter here and use the prior mid-October peak at 308.75 as a tight selling guide. Otherwise, I’d love to see how this acts on any pullback to the 10-dma which would of course be the more opportunistic approach.

 

 

Facebook (FB) continues to act well as it holds tight near its recent highs with volume declining. I would look at pullbacks to the 10-dma as your best lower-risk entry opportunities from here. As I’ve discussed before, FB has alt-currency characteristics as an established social-networking juggernaut, and that is why money continues to flow into the stock.

 

 

Well, I indicated in my Wednesday report that if one was looking to buy shares of Tesla (TSLA), my preferred approach would be to look for an opportunistic and deeper pullback into the 20-dema as a lower-risk entry. After unveiling its “Cyber-Truck” on Thursday night, the stock did exactly that, holding support at the line in the face of a big-volume, gap-down move.

Investors were apparently not impressed by the demonstration of the Cyber-Truck’s “unbreakable windows” when a steel ball thrown at the windows easily broke them. That sent TSLA gapping down, but it held support at the 20-dema. If it holds here, and we see selling volume diminish sharply, then this may be the opportunistic entry at the 20-dema I was looking for, using the line as a tight selling guide.

 

 

Disney (DIS) is holding up quite well as it finds support right at its new-high breakout point. I would like to see a pullback to the 10-dma as a lower-risk entry opportunity, but so far, no luck. The stock strikes me as a prime alt-currency type of play with the addition of a new product, the Disney+ streaming service.

If one wanted to value DIS as a streaming service like NFLX, then we might consider that NFLX is expected to earn $5.49 in 2020, while DIS is expected to earn $5.47 in 2020, and then $6.25 in 2021. Thus, why shouldn’t DIS be valued at 100 times trailing earnings like NFLX instead of 25 times trailing earnings if the company has the potential to grow their streaming service in a similar manner?

These are the questions that keep me up at night.  My best answer is that DIS could see a PE-expansion from here as a result of this new product and its potential. Therefore, I would certainly view any pullback into near-term support at the 10-dma as buyable using the line as a tight selling guide.

 

 

DataDog (DDOG) is one dog that can hunt, but the trick is to buy it on weakness. Thursday’s pullback into the 10-dma offered a lower-risk entry and the stock launched higher from there. A second breakout attempt stalled on Friday. From here, watch for pullbacks to the 10-dma at 38.91 as lower-risk entry opportunities.

 

 

Ping Identity (PING) is also trying to break out to new highs, but a move to new highs on Thursday stalled as the stock pulled back on Friday. The last lower-risk entry occurred on Tuesday as the stock tested the buyable gap-up low at 18.25, so the stock is still extended in this position.

If you can get it, I would watch for any pullback closer to the rising 10-dma as a lower-risk entry. Otherwise, PING is a little to extended on the upside for my tastes as I prefer to take the more opportunistic route

 

 

Lyft (LYFT) got some lift on Thursday after pulling into the confluence of its 10-dma, 20-dema, and 50-dma on Wednesday. The stock posted a strong-volume pocket pivot as it cleared to higher highs since working its way up off the absolute lows of early October.

As I wrote on Wednesday, LYFT was in a buyable position at that time, and it performed well on Thursday after lingering at the 10-dma early in the day. It is now extended.

 

 

Uber (UBER) has also been moving over the past three days. I discussed its strong bottom-fishing pocket pivot at the 10-dma in my Wednesday report, and the stock followed through on Thursday with another pocket pivot, this time coming up through the 20-dema.

UBER then moved higher on Friday before stalling near its 50-dma. If you check the weekly chart, not shown, you will also notice that the stock ran right into resistance at its 10-week moving average, coming within nine cents of the line. The stock is now extended, but resistance at the 50-dma opens the possibility of a tactical short-sale using the 50-dma at 30.45 as a tight covering guide.

 

 

Fastly (FSLY) has also gotten extended after a nice move off the lows over the past two weeks. The original bottom-fishing pocket pivot is something I picked up last week, and the stock was buyable as it held tight and consolidated along its 10-dma.

FSLY cleared the 50-dma on Friday on light volume, so is extended at this point. We now want to see whether it can consolidate constructively along the 50-dma, setting up another potentially lower-risk entry point, so that is something to watch for at this stage.

 

 

Both Guidewire Software (GWRE) and Keysight Technologies (KEYS) are on my Earnings Watch List for now. GWRE continues to hold support along its 10-dma, but KEYS showed a meaningful change of character on Friday. The stock closed below the 10-dma on Thursday and then slashed through its 20-dema on Friday as volume picked up to above-average levels.

Technically, this would trigger the stock as a short-sale at the 20-dema. In this position, however, I would watch for any weak rallies into the 20-dema or 10-dma as potential short-sale entries. This is tricky, however, since the stock remains above its mid-October breakout point and the 50-dma.

KEYS is expected to report earnings this Tuesday after the close, so we’ll see whether this sudden change of character indicates a potential flaw in their upcoming earnings report. Meanwhile, GWRE is expected to report the following week on December 5th.

 

 

RingCentral (RNG) is back down at its 20-dema after running into resistance along its prior October high and reversing to close in the red both Wednesday and Thursday. This puts it in a lower-risk entry position using the 20-dema as a tight selling guide.

 

 

DocuSign (DOCU) is expected to report earnings on December 5th, which made me think it would likely continue to track sideways ahead of its earnings report. But an analyst’s upgrade and $75 price target sent the stock gapping higher on a base breakout Thursday. That gap-up move stalled but held above the breakout point.

Obviously, if one bought the stock while it was consolidating along the 10-dma, then one would have participated in Thursday’s analyst-induced, gap-up move. In this position, however, I’m not that interested in buying a breakout ahead of earnings which are expected two Thursdays from today.

 

 

Chinese names that I have discussed in recent reports are flailing badly, and the action is at best uneven. Both JD.com (JD) and Baozun (BZUN) have come apart after reporting earnings, with BZUN blowing up badly on Thursday after reporting before the open.

Meanwhile, Momo (MOMO) is expected to report earnings on Tuesday before the open. The stock posted an undercut & rally move through its prior 36.55 low of last week on Friday in a move back above its 20-dema. This would also qualify Friday’s action as a moving-average undercut & rally (MAU&R), but with earnings coming up on Tuesday there is nothing to do until then.

 

 

Alibaba (BABA) held support at its 20-dema on Wednesday and rallied off the line on Thursday and Friday. Volume has been light on the two-day rebound off the line, however. The shifting news flow regarding the U.S.-China Phase One trade deal has likely been responsible for the volatile action among Chinese names.

However, if there were to be a Phase One deal announced, BABA could react very favorably. However, in this position, I would only be interested in buying the stock on a pullback to the 20-dema. The 360-degree view, of course, also indicates that a breach of the 20-dema would trigger this as a short-sale entry at that point, should that occur. Play it as it lies.

 

 

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.

On an individual stock basis, I continue to see constructive action that makes for actionable long set-ups, and not-so-constructive action that makes for actionable short-sale set-ups. This is typical of the bifurcated state that I noted in my Wednesday report, some of which is due to the typical rotational action that tends to characterize this market.

Currently we are seeing the semiconductors, which as of two weeks ago were the #1 ranked industry group, pull off in a manner that is typical of a highly rotational market. In their stead, clouds have been rallying, and we’ve seen several names that I’ve discussed in recent written and video reports continue to rally, such as Coupa Software (COUP), Okta (OKTA), ServiceNow (NOW), and ZenDesk (ZEN), among others.

All of these have posted certain bottom-fishing long entry signals along the way. Others in the space are showing similar types of action, such as Alteryx (AYX), below. Here we can see a pocket pivot at the 50-dma followed by two days of constructive action along the line as volume declines. This puts AYX in a lower-risk entry position using the 50-dma as a tight selling guide.

 

 

I will discuss more clouds in my weekend video report, but AYX provides further evidence of a turn in the beaten-down clouds. And, incidentally, in typical rotational fashion, this is occurring as the leading semiconductors start to falter.

My view of this market remains unchanged. The bifurcated action makes for actionable set-ups on either side of the market, arguing for a continued 360-degreee approach. Just continue to go with the set-ups at hand without developing a rigidly bearish or bullish macro-view, and let the set-ups push you in the right direction, or rather directions. 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 a position in SLV, though positions are subject to change at any time and without notice.

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