The Gilmo Report

November 24, 2020

November 24, 2020 6:36 pm ET

The Dow Jones Industrials have taken the lead by pushing to new highs this morning as the NASDAQ Composite and S&P 500 Indexes mostly chop sideways but not too far from all-time highs. What could be termed an “everything rallyis reflected in the daily chart of the broad NYSE Composite Index which has also broken out to new highs as buyers have jumped on the end-of-the-virus trade in spite of all the hyperbole about a dark winter to come.

 

 

Despite all the extreme bullish sentiment out there, as I pointed out over the weekend, it is often the case that where you see some froth, there is always the potential for there to be a lot more froth. As I learned back in late 1999, when I went from up 30% or so to up over 1,000% in a mere two months during the infamous dot-com bubble, do not underestimate the Power of the Froth!

Even though you’re seeing everything from airlines to financials to oils running up, the real heat in this market has come from the entire EV-related space. This was topped off with a huge follow-on move in EV battery-related names that went what I call “instant parabolic,” several of which I discussed in my video report of two Mondays ago before the froth began to ooze this week.

Chinese EV names led the charge on Monday, with Xpeng (XPEV) in the pole position. Li Auto (LI) and Nio (NIO) streaked higher along with XPEV yesterday, but all three turned south today on heavy selling volume. Niu Technologies (NIU), the one that makes E-scooters, is locked in a volatile range just above its prior base where it has been buyable along the 20-dema.

 

 

Then there were the U.S.-based EV names, including Fisker (FSR), Nikola (NKLA), Tesla (TSLA), and Workhorse (WKHS). FSR has been consolidating its prior sharp move where I would look for a pullback to the 20-dema as the lower-risk, opportunistic option for an entry. NKLA and WKHS, both prior victims of short-sellers disguised as research analysts panning the stocks, both launched from bottom-fishing pocket pivots they posted last week, as I discussed over the weekend.

WKHS is finding resistance along the left-side peak of its big cup formation along the $30 price level, while NKLA posted another pocket pivot at the 200-dma yesterday. They are both quite extended at this point.

TSLA, meanwhile, has cleared the $500 level, which would equate to the $2500 level pre-split. One could have also treated this as a Century Mark buy set-up yesterday per Livermore’s Century Mark Rule on the long side. It is also extended.

 

 

There were others going nuts on the upside as well, some less parabolic as they shot up off of recent lows, like Canadian-based Greenpower Motor Company (GP) and Chinese-based Kandi Technologies Group (KNDI), not shown.

In the EV battery space, both Blink Charging (BLNK) and Ballard Power (BLDP) have gone parabolic along with others in the group like Plug Power (PLUG) and Fuelcell Energy (FCEL). All these names were streaking higher yesterday in near-term climactic type moves. Today they ran into heavy as they backed off. Now it’s just a matter of seeing whether they can set up again or whether this is a short-lived move.

 

 

Lithium-related names have been relatively quiet despite the mania in other EV-related stocks. Chinese lithium producer CBAK Energy Technology (CBAT) is heading back toward its 20-dema as volume declines sharply. On its face, it strikes me as a junky stock, but we can watch to see how it tests the 20-dema from here as a possible lower-risk entry.

Livent (LTHM) was buyable at its 10-dma on Thursday and is again extended. It’s heading back toward the 10-dma so can be watched for a lower-risk entry at the line with the idea of using it as a tight selling guide. Lithium Americas Corp. (LAC) looked strong earlier today but reversed at its 50-dma on higher volume – not very impressive action, to be frank.

Lithium (PLL) posted a pocket pivot yesterday at its 10-dma and 20-dema and held support today at the two moving averages as volume dried up. That keeps it within buying range here using the 10-dma/20-dema confluence as your selling guide.

 

 

Near-term, the EV-related froth appears to have run its course, and it’s now a matter of seeing how they set up again from here, if at all. There is no need to chase stocks that are looking at least near-term climactic, so sticking with the lower-risk set-ups in names like PLL, for example, is advisable for now.

After holding support at the 20-dema last week, Yalla Group (YALA) executed a re-breakout move today on strong volume. The move stalled near the prior highs, which makes sense given that there is likely some overhead from breakout buyers who got burned the first time around. In this position, the stock is extended and would need to meet up with the 10-dma before a reasonable lower-risk entry opportunity can be found.

 

 

Jumia Technologies (JMIA) has run up sharply since its cup-with-handle breakout last week, even more so from the U&R OWL entry along the lows eight days ago on the chart. It is now quite extended but exemplifies the price moves we’ve seen over the past few days in certain names, this being one of them.

 

 

Amid all this Dow 30,000 hoopla and froth, the divergence between stocks and precious metals has been stark. But it was not the one I was looking for, which was to see the metals rise as the market corrected. Instead, what we have currently is the exact opposite, which highlights the fact that what you think may happen often does not, and the only way to keep your head clear is to focus on the technicals.

Neither the SPDR Gold Shares (GLD) or the iShares Silver Trust (SLV) have been able to hold above their early-August lows. Various fits and starts since then have gone nowhere, which is why there has been nothing to do but sit back and see how the current pullbacks play out. The GLD is now testing its 200-dma on the daily and the 40-week moving average on the weekly chart below.

With so much else of a strong thematic nature to play on the long side in this market, fixating on the metals hasn’t been my cup of tea, frankly, since the thematics have diminished as I’ve discussed in recent reports. It will, however, be of interest to see how well the GLD can hold the 200-day/40-week lines from here as this could present an opportunistic entry if it can.

 

 

The SLV, meanwhile, remains well above its own 200-day/40-week lines and appears set to test the lows in its current base at 20.45 and 21.27. I would be watching for possible undercuts of these lows which could potentially set the stage for U&Rs, but for now this has yet to play out.

 

 

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) were all trading down earlier in the day. By the end of the day, however, Dow 30,000 was just too much to overlook and these names began to find a bid.

AAPL rallied up into its 50-dma as volume on lighter volume which may put it in a short-sale entry position using the line as a covering guide. The other names all traded lighter volume. AMZN remains in a tight trading range just below its 50-dma, and it remains to be seen whether this resolves as a bear flag or whether the stock can soon regain the 50-day line.

FB and MSFT both found support at their 50-day moving averages over the past two days, but only MSFT traded significant volume today as it posted a five-day pocket pivot. GOOG found support along its 20-dema yesterday and traded up today on lighter volume. GOOG remains within range of its early-November base breakout through the $1700 level, with the idea of using the 20-dema as a tight selling guide.

 

 

Netflix (NFLX) was again a short on Monday at the 20-dema and is now back at the lows of the current month-long bear flag. I continue to look at this as a short on rallies up to the 20-dema, or the 50-dma if it manages to push beyond the 20-dema.

 

 

Industrial names I discussed in the weekend report aren’t anywhere near as exciting as the EV-mania, but Caterpillar (CAT), Cummins (CMI), CSX Corp. (CSX), and Deere (DE) have all edged higher from their buyable positions at their respective 10-day moving averages as I noted over the weekend. They may remain buyable at their 10-day lines on any small pullbacks from here.

One thing to note is that CSX and DE both rallied today on very heavy volume but churned around in tight ranges, which seems a bit suspect. In any case, pullbacks to the 10-dma can be watched for possible failures if today’s action turns out to be meaningful.

 

 

You know you’re in a frothy market when U.S. Steel (X) goes nuts on the upside, despite continuing losses expected for 2021 and beyond. X got a boost from an analyst upgrade and a $17.30 price target. It would appear to me that this analyst is looking for a serious turnaround for X that is currently not accounted for by analysts’ estimates. It was good enough to trigger a massive FOMO move in the stock today.

 

 

Cloud names are experiencing a bifurcation of sorts as some names in this area of the market were hit with selling today while others rallied. Salesforce.com (CRM), CrowdStrike (CRWD), DocuSign (DOCU) and Okta (OKTA) are all expected to report earnings next week, and they reflect the variance in price action among leading names in the group.

All four names had run up last week, with DOCU filling its prior early-November gap-down falling window and gapping to the downside on Monday. OKTA reversed last week as its prior early-November peak and tested the 50-dma yesterday where it found support.

CRM ran into some resistance as it approaches its prior early-November high but found support at the 10-dma yesterday. CRWD moved past its early-November high last Thursday and has been able to continue rallying. The action in these four stocks is interesting, but there is nothing to do ahead of next week’s earnings reports.

 

 

In the second cloud group chart, I note that Zoom Video Communications (ZM) is expected to report earnings this coming Monday after the close, while ZScaler (ZS) is expected to report next Wednesday after the close. Both names will be given top billing on my Earnings Watch List for next week, along with the four names above as names to watch for potentially actionable, high-velocity set-ups after earnings are reported.

DataDog (DDOG) and Shopify (SHOP) both strike me as 360-degree situations right here. Note that DDOG is trying to hold up on a sloppy U&R from two weeks ago while it also remains below the 20-dema which has served as near-term resistance. I think if the market continues higher then watch for this to potentially move through the 20-dema. Thus this pullback to the 10-dma is buyable using the 10-dma as a tight selling guide.

If DDOG continues to run into resistance along the 20-dema, then it may be more of a short entry at the line. That would most likely occur in a situation where the market pulls back, and cloud names come under general pressure again. Play it as it lies.

SHOP was a short at the 50-dma last week, and it has since pulled back two days in a row. However, note that the pullback has come right into the 20-dema as volume has dried up sharply to -49.6% below average today. That creates a possible long entry here using the 20-dema as a selling guide with the idea that a breach of the 20-dema would trigger a short-sale entry at that point if it occurred.

These are sloppy patterns, but the fact that they look so ugly and generally unappetizing makes me think that in any continued market rally I want to be open to any Ugly Duckling long set-ups along their recent lows. As with DDOG, play it as it lies.

 

 

I’m not so sure that this end-of-the-virus trade where money has come out of clouds because we are about to return to business-as-usual necessarily means the clouds are down and out for the count. Thus, I remain open to Ugly Duckling set-ups in any former broken-down big-stock leaders in the group.

The action in names like DDOG and SHOP reminds me also of what I’m seeing in Fastly (FSLY), which posted a sloppy U&R a couple of weeks ago and has slowly rallied up to near-term resistance at its 50-dma. Note how it’s now pulling back into the confluence of the 10-dma and 20-dema as volume declined to -51.7% below average.

This may put the stock in a buyable position here based on today’s voodoo pullback to the 10-dma and 20-dema. One would then use the two moving averages as tight selling guides. Otherwise, if the 50-dma remains as solid overhead resistance, rallies up into the line could have the potential to transpose the stock back into a short-sale target if it fails. 360-degrees, please.

 

 

The strongest cloud names among those that I’ve discussed in recent reports, and which populate the next cloud group chart, continue to hold up well. Better-acting clouds that I’ve discussed in recent reports, Appian (APPN)  and The Trade Desk (TTD) remain extended but note that TTD is in a double-top type of position which may necessitate a pullback to the 10-dma to correct the low-volume wedging type of action on this latest rally off the 10-dma.

Hubspot (HUBS) and CloudFlare (NET) are both sitting at their 10-day moving averages, with the main difference being that HUBS was slammed into its 10-dma today on above-average volume but held the line while NET is holding tight along its 10-dma with volume drying up. That would make NET more attractive as a potential lower-risk entry along the 10-dma which would also serve as your selling guide.

HUBS, on the other hand, can be watched to see how well it can hold its 10-dma. If it can, then this pullback could very well offer a lower-risk entry spot using the 10-dma as a tight selling guide. If HUBS and/or NET break below their 10-day lines, however, this could also trigger them as short-sale targets at that point if they did so. Play ‘em as they lie.

 

 

In semiconductor land, Advanced Micro Devices (AMD) and Marvell Technology Group (MRVL) both remain buyable on pullbacks to their 10-day moving averages. AMD tested the line today and held but is now extended from the 10-dma. MRVL tested the line last Thursday and is now extended from the line but can be watched for further pullbacks to the line.

 

 

Qualcomm (QCOM) and Qorvo (QRVO) both confirm to me why I lean toward using the 20-dema as a primary pullback buying zone vs. the 10-day line. QCOM pulled right into the 20-dema this morning where it offered a lower-risk entry and then bounced to close just below its 10-dma. In this position just below the 10-dma, I would still lean toward looking for pullbacks to the 20-dema as the best lower-risk entry possibilities.

QRVO found support at its 20-dema as volume declined last week and this week has so far posted two five-day pocket pivots in a row at the 10-dma. It’s now slightly extended from the 10-dma, and if one desired to buy shares of QRVO, last week’s pullback to the 20-dema was the ticket. Now you’re looking for any constructive test of the 10-dma as a secondary entry from here.

 

 

Nvidia (NVDA) is one of the primary leading semiconductors in the market, but continues to have issues along its 50-dma. It failed to hold a rally back above the line yesterday and reversed, triggering a short-sale entry at that point. The stock moved lower today on a low-volume buyer’s boycott and can be watched for weak rallies back into the 50-dma as possible short-sale entries from here.

 

 

Snap (SNAP) failed to hold a breakout to 52-week highs yesterday and has backed down slightly as volume declined today. I’d watch for pullbacks into the 10-dma as your best lower-risk entry possibilities. Meanwhile, Twitter (TWTR) posted a single five-day pocket pivot at the 50-dma last Friday and has held the 50-dma over the past two days as volume dried up to -55.9% below average today.

One could initially treat this as a lower-risk long entry position using the 50-dma or the lower 20-dema, where it has held support over the past two days, as your selling guide. Otherwise, wholesale failure at the 50-day line could trigger this as a short-sale target at that point if it occurs. Play it as it lies.

 

 

Iridium Communications (IRDM) is extended from its recent breakout but posted a continuation pocket pivot at the 10-dma yesterday. It is again extended from the line but can be watched for pullbacks to the 10-dma where one could get long while using the line as a selling guide.

Maxar Technologies (MAXR) continues to hold support along the 50-dma as it continues to dip below the line intraday where it has found support each time at the slightly lower 20-dema. This keeps the stock in a buyable position using the 20-dema as your selling guide.

Virgin Galactic (SPCE), not shown, continues to rally to higher highs since its pocket pivot off the 50-day line over two week ago. It closed today at 24.96, and only pullbacks closer to the 10-dma at 22.79 would offer lower-risk entries from here.

 

 

Sonos (SONO) is a recent buyable gap-up move after earnings that is holding tight sideways as volume declines. The company makes multi-room audio products (e.g., speaker systems) for private residences, and is seeing some strong earnings and sales growth which led to last Thursday’s BGU. The intraday low of that BGU day was 20.20, and SONO closed today at 21.40, a little over 5% higher.

I’d watch for any pullbacks closer to that 20.20 low as potentially lower-risk entries using the low as your selling guide. Otherwise, if you can handle the slightly higher risk, you can take shares here and use the 20.20 low as your maximum selling guide.

 

 

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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.

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It is often said that the market climbs a wall of worry. Well, based on current sentiment indicators, nearly all of which indicate extreme complacency as they are at or near historically contrarian bearish levels, there doesn’t seem to be much worry out there. Instead, the market chooses to climb the proverbial Wall of WTF, as I like to call it.

Certainly, the moves in EV-related names would elicit cries of “WTF!!!,” but only if you’re not wise to playing them on the long side and letting the WTF work for you. I sometimes think the most optimal strategy is to look around and try and figure out where the Robinhood trading app crowd, which has served as the primary portal through which the latest wave of frenetic, euphoric retail buying has flowed, is going to go next.

The only way to do that is to stick with the set-ups you see in real-time and letting them play out. It’s the only way I know of to put yourself in the position of being able to get lucky and catch some of the moves we’ve seen in these hot groups recently. If indeed all this froth is signaling an imminent market top then I am confident that the set-ups will begin to tilt in that direction, but for now I take every set-up on its face, long or short, with zero bullish or bearish bias. You do the same.

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.