The Gilmo Report

November 6, 2019

November 6, 2019

Each of the Big Three market indexes, the NASDAQ Composite Index, the S&P 500 Index, and now the Dow have all now stepped into all-time high price territory. As the indexes move into new high ground, however, there has been noticeable churning with successively higher volume, as can be seen on the daily chart of the NASDAQ Composite below. Today the indexes pulled in to fill Monday’s gap on slightly lighter, but above-average volume.

 

 

Despite the moves to new highs in the Big Three, I’m still finding that the short side remains more than viable as former leading stocks continue to break down. Not only that, but I find myself in a familiar position, where the indexes are again at all-time highs but there is very little that I find all that appetizing on the long side.

The action is also unstable, and it is difficult to gauge what has the potential to lead this market much higher, if at all. Again, we’ve seen mostly established big stocks with poor or tepid fundamentals lead this market. And that makes things tough for growth investors seeking out dynamic new companies with great products and services. But swing-trading set-ups in either direction still abound, so it’s a matter of playing things as they lie and perhaps not expecting too much.

Meanwhile, we can see that the NASDAQ 100 Index has been leading the market as big-stock techs and semiconductors have led the market higher. Small-caps continue to lag in an environment as leadership concentrates among larger-cap, established companies.

 

 

Meanwhile, precious metals have taken a hit this week, all premised on the idea of a strong economy combined with an impending Phase 1 trade deal between the U.S. and China. News today that a deal would not be signed until at least late December, if at all, put the lie to prior news that a deal was imminent as both sides were looking at rolling back tariffs. Perhaps to its credit, the market didn’t fall apart on that news today.

Both the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) gapped down on Monday on what was deemed positive trade news and a “strong” jobs number last Friday. Both recovered today as the GLD posted a U&R move through last week’s 139.55 low. If it cannot hold that low, then the 138.91 low of October 11th could come into play, and after that the 137.80 low of October 1st.

 

 

The iShares Silver Trust (SLV) has undercut last week’s low at 16.44 and closed just above it today at 16.47. If that doesn’t hold, then the 16.15 low of October 16th comes into play. The final low in the pattern as a reference low for a possible U&R would be the 15.83 low of September 30th. I much prefer to try and take advantage of these pullbacks into U&R land as the more opportunistic way to buy into precious metals.

 

 

In the realm of big-stock NASDAQ alt-currency names, Apple (AAPL) remains way extended as buying interest starts to taper off. However, the stock has held tight so far this week as volume declines. I would certainly not be surprised to see a pullback to the 10-dma at any point.

 

 

Alphabet (GOOG) is still within range of its recent base breakout, but I have viewed the pullbacks into the 10-dma as better, lower-risk entries.

 

 

In the group chart below, we see a mixed bag among the other big-stock NASDAQ names I’ve discussed in recent reports. Amazon.com (AMZN), which didn’t really impress me over the weekend as I noted, has failed at its 200-dma.

Facebook (FB), which got slightly extended to the upside, is heading toward its 10-dma as volume dries up sharply. It may become buyable at the 10-dma once it gets there, assuming it does so constructively, so watch for that.

Netflix (NFLX) is holding tight sideways as volume dries up sharply, which may put it in a buyable position. However, I would prefer to take the opportunistic route of looking for a pullback to the 50-dma as the better, lower-risk entry point.

Tesla (TSLA) found support at its 10-dma and bounced, something I was looking for per my discussion of the stock over the weekend. The company announced that it will unveil its “Cyber-Truck,” essentially an electric pick-up truck, on November 20th. With the 10-dma catching up to the stock this week, it has provided ready near-term support for the stock and a decent reference for lower-risk long entries.

 

 

In general, if I’m looking to get long any of these big-stock NASDAQ names, I want to do it on weakness and pullbacks to logical areas of support. TSLA is one example of the 10-dma offering a reference for such pullback support. This remains the case with just about anything else I would consider as a long.

Applied Materials (AMAT) again pulled into its 10-dmna today and dipped below the line before closing just above. Selling volume was light. If I’m looking to be long this stock, however, I’d prefer the opportunistic route of looking for a pullback to the 20-dema as the lower-risk option.

 

 

Micron Technology (MU) throw up an exhaustion gap on Monday on weak volume in a double-top type of maneuver. That led to two days of steep downside with a gap and break through the 10-dma and down to the 20-dema today. But MU illustrates the idea that if one is truly jones-ing to own the stock, the more opportunistic route of buying on this pullback to the 20-dema and then using the line as a tight selling guide is best in my book.

 

 

Advanced Micro Devices (AMD) went on what I colorfully describe as a “pile-driver” as buyers kept pounding the stock higher yesterday, the fifth up day in a row. But that fell short as the stock’s extended position finally came into play and it reversed on heavy volume.

Technically, AMD is within range of Monday’s breakout, but my preference given the extended move over the past several days would be to look for a pullback to the rising 10-dma.

 

 

Guidewire Software (GWRE) does a nice job of illustrating an opportunistic entry as it pulls into the 10-dma and down toward the 20-dema. This coincides with the top of the prior base following a breakout last week. Thus, this is in a lower-risk entry spot using the 20-dema as a tight selling guide.

 

 

Keysight Technologies (KEYS) acts somewhat like it’s GWRE’s technical twin. It broke out nearly three weeks ago, but has not gone anywhere. Meanwhile, pullbacks into the 20-dema and the top of the base have offered lower-risk entries, if not wildly profitable ones. It remains in a lower-risk entry position using the 20-dema as a tight selling guide.

KEYS is expected to report earnings on November 26th. So, it’s possible that it continues to bide its time until earnings are released near the end of the month.

 

 

Coupa Software (COUP) gave way on Monday and breached its 50-dma on Monday, triggering a short-sale entry at that point. If one were trying to test a long position along the 50-dma, then one was quickly stopped out, with the option of flipping to the short side. In essence, a bearish resolution to a bullish attempt to clear the 50-dma last week.

COUP is now back at its prior base lows but has yet to undercut the low of late October. From here, a test of the 200-dma might be likely, but if I were looking to short this on any rally, the 20-dema would be my first reference point for overhead resistance and thus a lower-risk entry spot on the short side.

 

 

ServiceNow (NOW) worked out as a short on Monday right at the confluence of the 50-dma and 200-dma. A move above the two moving averages within the context of a market rally would have been bullish, but the rally into the 50-dma last Friday resolved bearishly.

 

 

DocuSign (DOCU) tried to break out on Monday but failed miserably, busting its 10-dma yesterday. It started the day out today by moving lower and below its 20-dema but rallied to close back above the 20-dema but just below the 10-dma on light volume.

DOCU is sitting firmly on the fence here. There are two ways to look at this. The first is as an initial breach of the 10-dma following a failed breakout. In this case, one could short the stock here and use the 10-dma as a very tight covering guide.

The other way to look at this is as a moving-average undercut & rally (MAU&R) move at the 20-dema. In this case, one could take the long side of the argument right here and use the 20-dema as a tight selling guide. Should DOCU fail to hold the 20-dema, then it would fully trigger as a late-stage failed-base (LSFB) short-sale at that point, so play it as it lies.

 

 

RingCentral (RNG) shows how a shortable gap-up can provide a nice swing trade to the downside, but once it hits support it can flip the other way. RNG opened up yesterday at 171 after reporting earnings Monday after the close. It never went higher and instead streaked lower to close at 161.96, making for a nice short-sale scalp after it held support at the 20-dma.

The interesting wrinkle here is that yesterday’s shortable gap-up (SGU), which was a valid short-sale set-up that worked, albeit for one day, was also a stalling pocket pivot at the 10-dma and 20-dema! RNG again tested the 10-dma today and held on another pocket pivot.

This is classic 360-degree action, where a stock can be viewed first as a short and then as a long depending on where it is on its chart and how it acts in real-time. RNG may want to go higher from here, but I think looking for lower-risk pullbacks to the 10-dma as opportunistic entries is the correct approach. If it then busts the 10-dma and 20-dema, it triggers as a short-sale entry.

 

 

Over the weekend, I took the view that Alibaba (BABA) might very well be buyable on Friday’s reversal and pullback down toward the 10-dma. That turned out to be accurate as the stock gapped up on Monday morning and has continued to futz its way higher in a wedging, stalling rally. BABA stalled today at the prior September highs which might be an area to stalk the stock on the short side as a possible double-top reversal.

That sort of short-side stalking has to be finessed using the five-minute 620-chart and it’s not clear whether the stock will immediately give it up. I do know for certain, however, that I don’t want to buy the stock in this extended position. But stepping into weakness last week, despite how ugly it may have looked, would have at least worked as a long swing trade.

 

 

Momo (MOMO) posted a pocket pivot at four moving averages on Friday, as I discussed in the weekend report. It then gapped up slightly on Monday morning and streaked higher from there as it posted a higher high, breaking out through the two-month range it has been in since early September.

It’s not often I see a pocket pivot work so well after the fact. But MOMO showed some mo-mo on Monday and bounced off its intraday lows nicely today in a bullish show of support off those lows. The stock is now extended, and one would have to wait for the 10-dma to catch up to the stock at this point where it would serve as a reference for support and hence a lower-risk entry.

 

 

Payments stocks gave up on their bullish action of last week and turned bearish this week, helping to further illustrate the highly bifurcated nature of this current market environment even as the Big-Three market indexes move to new highs.

Global Payments (GPN) failed to hold last week’s buyable gap-up attempt after earnings, failing yesterday as it streaked down to its 10-dma, 20-dema, and 50-dma. Of course, last Thursday’s move was a test of the prior September high and thus was a bit of a double-top move. The ensuing pullback has come on light volume, so it could turn out that GPN is buyable in here along the 20-dema while using it as a tight selling guide.

Meanwhile, MasterCard (MA) slashed through its 50-dma yesterday as it triggered a short-sale entry at the line. Now I’m looking at any rally up into the 20-dema up to the 50-dma as a possible lower-risk short-sale entry.

PayPal (PYPL) looked like it might want to rally per my discussion over the weekend, but I also noted that a breach of the 10-dma/20-dema confluence would return it to short-sale status. That’s what we saw on Monday as the stock reversed at the 200-dma and headed lower from there. Thus, another payments stock goes from looking bullish to acting bearishly, and rallies back up into the 20-dema up to the 50-dma can be watched for possible lower-risk, short-sale entries from here.

Visa (V) has also participated in the group weakness among payments stocks this week. It attempted to make a higher high on Monday but reversed hard in an ugly downside outside reversal (the dreaded “DOR”) as it continued lower and below its 50-day yesterday. A brief rally attempt today closed back below the 50-dma, so for now this is a short right here using the 10-dma at 178.26 as a tight covering guide.

 

 

As Twitter (TWTR), not shown, fails to hold a deep, down and dirty U&R attempt, (SNAP) was in fact a textbook short at the 50-dma, as I discussed over the weekend. The stock added its weight to the idea of a bifurcated market where the short side can be as profitable, even more profitable than the long side.

SNAP was stalling along its 50-dma last Friday, as I noted in my weekend report, and broke back below the line on Monday as selling volume picked up slightly. Selling volume expanded a bit more today as the stock slid right through its 10-dma and 20-dema.

It is now extended on the downside, and I would look for a weak rally back up toward the 50-dma as the most opportunistic short-sale entry. However, the precise entry opportunity came and went on Monday, so you had to be on it at that point.

 

 

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.

Despite the move to new highs in the Big Three market indexes, I continue to view this as a 360-degree market. I can find excellent swing-trading opportunities long or short, but for the most part strongly-trending situations are far and few between. Stocks like AAPL are rare exceptions in this environment.

Big stocks may continue to lead this market higher, so I would maintain an opportunistic approach on the long side of ideas I’ve discussed like NFLX, FB, TSLA, or GOOG. If these all start to give way, however, then this likely will have implications for the broader market.

Meanwhile, the trend may not necessarily be your friend if you’re in the wrong stock at the wrong time. I would offer Roku (ROKU) as one example as it breaks 20 points lower this afternoon following its earnings report. Other examples of stocks where the trend is certainly not their friend can be found in HUBS, MCHP, SHAK, or SEDG as some choice examples.

So, my advice remains the same. If you’re an investor looking for a longer-term trend to ride, this is not your kind of market. If you’re a swing trader with a good sense of what the market will give you and when based on individual stock set-ups, then I think there’s plenty of fodder to be had. 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 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. ©2008-2019 Gil Morales & Company, LLC. All rights reserved.