The Gilmo Report

October 11, 2017

October 11, 2017

Until Monday, I had forgotten what the color red on my quote screen looked like. That was the first day I’ve seen all the major market indexes that I track down for the day in some time, at least to my memory. Let’s be frank, the situation has reached a point where we can always expect that the moon will orbit the earth, the birds will fly south for the winter, the sun will rise in the east, and the market will make a new high today.

And so, all was again right with the world today as the NASDAQ Composite Index posted a new all-time closing high on higher volume as shown on my eSignal® chart below. I have noticed that other sources will show varying volume levels, but all I can tell you for certain is that on this chart, NASDAQ volume was higher today.

 

GR101117-$COMPQ

 

As would be easy to guess, the S&P 500 Index also posted a new all-time closing high on higher volume, according to my eSignal® chart below. The indexes remain in a relentless grind higher, but I notice fewer and fewer stocks coming through my long screens. This may or may not be a problem, but could be an indication that things are getting a little stretched here. However, one could argue that things have been getting stretched for a while now, so this doesn’t necessarily have any strong implications one way or the other, as I see it. Just watch the set-ups.

 

GR101117-$SPX

 

The Fed released its latest meeting minutes, and there was nothing that I would call revelatory. Another interest rate hike is expected in December, and then what happens after that is anyone’s guess. Financials held their ground, with the Financial Select Sector SPDR Fund (XLF) pulling into its 10-dma today on light volume.

Tomorrow morning, we will hear from J.P. Morgan which is slated to report earnings at 8:30 a.m. on the East Coast. That will likely have some effect on the XLF, so we’ll see what transpires following the report. Meanwhile, Citigroup (C) pulled into its 10-dma today on heavy selling volume. It will likely move in sympathy to JPM’s earnings report tomorrow morning.

 

GR101117-XLF

 

Precious metals seemed relieved at the prospect of one more interest rate increase from the Fed, and don’t appear to be discounting much more than that. In fact, the SPDR Gold Shares ETF (GLD) seemed to be looking past an expected December rate rise as it rallied off its intraday lows right after the Fed minutes were released.

The GLD then closed up on the day and back above its 20-dema. This looks like an orderly test of the line, as well as a nice consolidation of the prior move it had following the undercut & rally (U&R) long set-up that occurred last Friday. The 50-dma lies just above today’s close, and that represents the next hurdle for the yellow metal ETF to clear. Watch for a possible pocket pivot move back up through the line in the next few days. This would serve as confirmation of the current uptrend following last Friday’s U&R move.

 

GR101117-GLD

 

With gold holding up today, so did the gold mining stocks. The Vaneck Vectors Gold Miners ETF (GDX), which represents the group, and Franco Nevada (FNV), which represents one of my two favorite gold mining stocks, both held support at their 50-day moving averages today. This also keeps both in buyable positions. In each case the 10-dma would serve as a reasonable selling guide given that both pulled down as low as their 10-dmas before rallying after the Fed meeting minutes were released.

Kirkland Lake Gold, Ltd. (KL) has been the hot property among gold miners, and is now up over 10% from last Tuesday’s pocket pivot, which I alerted members to in a blog post that day. Today KL pulled back closer to the top of the base before turning back to the upside, in sync with gold itself. This is now extended with earnings expected near the end of the month.

 

GR101117-KL

 

Big-Stock NASDAQ Names:

When it comes to the big-stock NASDAQ names, it’s a continuing story of what’s hot and what’s not. Nvidia (NVDA) turned into a bit of a heater on Tuesday as it rallied to the upside on a day when all the major market indexes were down Monday.

On Tuesday, the company unveiled its Drive PX Pegasus AI hardware that enables fully autonomous driving, something that was hailed by some commentators as helping to summon forth the age of robo-taxis. Exciting stuff, no doubt, and it sent NVDA gapping above the 190 price level and into new-high price ground at the open. It quickly reached a peak at 192.95 and closed near the lows of the day and below 190.

Today NVDA regained the 190 price level on light volume, but is acting well as it holds most of yesterday’s gap-up gains. Earnings aren’t expected until November 9th, so the stock has plenty of time to do what it wants to do. From here, only a pullback to the 10-dma at 182.10 would constitute a reference for a potential lower-risk entry.

 

GR101117-NVDA

 

Netflix (NFLX) also remains somewhat hot, but has cooled off a bit following last Thursday’s cup-with-handle base breakout. As I see it, the base breakout point is the high of the handle at 189.95, and the pullback today into 194.95, about 2.5% higher, brings the stock back into buying range of that prior breakout point.

The question here is whether one wants to hold the stock through earnings, which are expected next week on October 16th. That, of course, depends on whether one bought the breakout or the MAU&R as the stock regained the 50-dma seven trading days ago, as I tweeted at the time. Early in this market  is always better, and those who only buy breakouts are depriving themselves of the advantage of early entries using my OWL™ methods.

 

GR101117-NFLX

 

Intel (INTC) is finally approaching its 10-dma as it pulls back here, but the stock is still quite extended after an extended upside move since early September. Earnings are expected on October 26th, so it’s not clear how much more upside is in the stock ahead of earnings.

Tesla (TSLA) can’t decide whether it is hot or cold, breaking below its 50-dma on Monday on above-average volume and then rallying back above the line yesterday on above-average volume. Today TSLA closed just above its 50-dma as volume declined, so it could be considered a long here using the 50-dma as a selling guide. However, one consideration is that earnings are expected on October 25th, so trying to buy or even short the stock (should it breach the 50-dma) would mean one is looking for a quick trade unless they want to play earnings roulette later in the month.

 

GR101117-TSLA

 

Apple (AAPL) ran into its 50-dma yesterday, which could have been viewed as a short-sale entry at that point. It ended the day in the lower part of its trading range, making any such short-sale entry at the 50-dma successful, at least for the day. Selling volume was light.

The stock found some minor support today at the 20-dema as volume increased slightly over yesterday’s levels, but the action was nothing spectacular. If one wants to anticipate a move back up through the 50-dma then it would be possible to go long here and then use the 20-dema as a tight selling guide. I’m not so sure that is a likely outcome ahead of earnings on November 2nd, but stranger things have happened in this market.

 

GR101117-AAPL

 

Amazon.com (AMZN) is consolidating last week’s move back above the 50-dma, and so far, this is occurring in orderly fashion. Lower-risk entries would occur on pullbacks to the 10-dma, now at 974.31. Earnings are expected on October 26th.

Facebook (FB) failed on a Monday breakout attempt, and continued lower yesterday on a test of the confluence of the 10-dma, 20-dema, and 50-dma. The stock was up slightly today on roughly even volume, holding support at the moving average confluence.

If you like the stock, then it appears that pullbacks to the 10-dma are your best, lower-risk entries. Whether the stock can do something more convincing in terms of a clean base breakout remains to be seen ahead of earnings, which are expected on November 1st, but it certainly has plenty of time to do so.

 

GR101117-FB

 

Alphabet (GOOGL) cleared the $1,00 price level today on above-average volume, which is also an odd cup-without-handle pattern breakout. In this case, the $1,000 price level can be used as a tight selling guide if the breakout fails. Earnings are expected on October 26th.

 

GR101117-GOOGL

 

Semiconductors:

Micron (MU) continues to see money piling into the stock as it moves higher. It likely needs to spend some time consolidating, and unless one entered on the buyable gap-up (BGU) which I first discussed in my September 28th report, it would be best to wait for such a consolidation before deciding when and where to add shares.

Broadcom (AVGO) did what I thought it might per my discussion of the stock over the weekend. Namely, that was a move back up through the 50-dma, which occurred today on a pocket pivot move. This was buyable at the 50-dma, using it as a tight selling guide.

One of the things that does bother me about AVGO is the erratic movement it has shown since late July. For that reason, if I were going to take a shot at the stock here on this pocket pivot, I’d definitely be using the 50-dma as a tight stop. Earnings are not expected until December 7th.

 

GR101117-AVGO

 

Skyworks Solutions (SWKS) remains in play as an MAU&R long set-up right here, using the 50-dma as a tight selling guide.

Universal Display (OLED) is still holding along the confluence of its 10-dma and 20-dema as volume dries up. The stock tried to get going on Monday, but reversed yesterday to close back at the moving average confluence. Today it held support at the confluence and closed up on the day, so remains buyable here using the 10-dma at 128.46 as a selling guide. Earnings are expected on November 2nd.

 

Telecom-Related Names:

Arista Networks (ANET) is tucking back into its 10-dma as volume dries up to new highs on Friday on below-average volume. However, Friday’s volume still represented a big spike from Thursday’s extreme voodoo volume levels. I had previously discussed the stock as buyable along the 10-dma in my Wednesday report.

Lumentum Holdings (LITE) is pulling back down toward its 50-dma, but remains well above the line. I would watch for constructive pullbacks closer to the confluence of the 10-dma, 20-dema, and 50-dma, around the 56.40 price level, as potential lower-risk entry opportunities.

 

GR101117-LITE

 

Bio-Tech/Medical Names:

Alexion Pharmaceuticals (ALXN) just keeps chopping back and forth, which makes it less and less tantalizing as a long idea with earnings expected on October 26th. If one were buying it here along the confluence of its 10-dma and 20-dema then one would have to see a strong upside move ahead of earnings to sit through the report.

Vertex Pharmaceuticals (VRTX) is displaying the same sort of go-nowhere action as it, too, keeps chopping back and forth. To its credit, however, it was able to rally and close back above its 50-dma today on above-average volume, so could be considered buyable here using the 10-dma as a maximum downside selling guide. However, it would need to get moving soon since earnings are expected on October 24th. Thus, one faces the same earnings roulette quandary as with ALXN.

Bioverativ (BIVV) has shown a little more upside spunk in the past few days since posting a pocket pivot at the 50-dma last Friday, but it remains out of buying range. As with VRTX and ALXN, an approaching earnings report, expected on October 26th, makes this somewhat irrelevant as a current long idea.

The easiest thing to play when it comes to bio-techs has remained the iShares NASDAQ Biotechnology Index Fund (IBB). It is now sitting right at its 10-dma on a very low-volume pullback and is buyable here using the 10-dma or the 20-dema as tight selling guides.

 

GR101117-IBB

 

Chinese Names:

Alibaba (BABA) is extended from any lower-risk entry point as it continues to crawl higher. Earnings aren’t expected until November 2nd, so the stock has plenty of time to keep moving higher, and for now the 10-dma would serve as a reference for potentially buyable pullbacks.

Sina (SINA) broke below its 20-dema yesterday on heavy selling volume, but in this market, that’s a buy signal! Today SINA quickly found its feet and rallied back above the 20-dema on lighter volume. I was looking for a possible undercut of the prior 109.78 low of September 25th as a possible U&R long set-up if the stock was able to rally back above the low. But that didn’t happen today as SINA closed just above the 20-dema. This might, however, be something to watch for going forward.

Weibo (WB) is starting to flop around the confluence of its 10-dma and 20-dema as volume declines, but so far hasn’t shown any desire to move higher with any authority. It closed today just below the confluence of its 10-dma and 20-dema on light volume.

WB and SINA, which owns part of WB, are both expected to report earnings on November 20th. Therefore, I would simply use the two short-term moving averages as references for possible MAU&R long set-up triggers if WB can push back up through both moving averages.

 

GR101117-WB

 

Cyber-Security:

Palo Alto Networks (PANW) gapped to higher high yesterday on strong volume, but remains extended. Today it pulled back on lower, but above-average volume. It may fill the gap, where it could become buyable along the lows of the gap-up “rising window,” or it could pull down as far as the 10-dma at 145.66. At this point, it’s a matter of seeing how the stock sets up again.

Fortinet (FTNT) is currently extended but is consolidating last week’s big move back up through its 200-dma and 50-dma on strong volume in normal fashion. Earnings are expected on October 26th, so the stock may simply continue to consolidate. The time to buy it was based on my discussion in my report of October 1st where I told members to watch for a possible U&R move after it had undercut the prior early August lows in the pattern.

 

Cloud Software Names:

Salesforce.com (CRM) pulled into the confluence of its 10-dma and 20-dema today and held as volume increased slightly. This remains buyable on pullbacks to the two short-term moving averages while using them as your selling guides.

ServiceNow (NOW) pulled into its 10-dma today, where it was buyable at the line. It remains in a buyable position, albeit slightly extended while using the 10-dma as a tight selling guide.

 

GR101117-NOW

 

Square (SQ) is very much like the major market indexes as it just keeps pushing higher, closing today at 32. It is, quite obviously, even more extended than it was at the time of my last report. Earnings aren’t expected until November 8th.

Tableau Software (DATA) tested its 20-dema today, which brought it into a lower-risk entry position, and then closed back above the 10-dma. This remains buyable along the two moving averages whenever it pulls back into the lines.

Workday (WDAY) pulled into the confluence of its rising 10-dma and 20-dema and found support on above-average volume, closing positive on the day. Today’s action also constitutes a pocket pivot at the 10-dma. This remains buyable on pullbacks to the 10-dma and 20-dema.

 

GR101117-WDAY

 

Internet Related:

Yelp (YELP) closed today below its 20-dema and has fallen back into its prior base. Volume wasn’t heavy, so this could set up an Ugly Duckling type of entry using the 50-dma down at 42.55 as a maximum selling guide.

 

GR101117-YELP

 

Solar Names:

First Solar (FSLR) is hanging at its 10-dma but just below its 20-dema and 50-dma as volume dries up sharply. This could be in an Ugly Duckling position where it’s getting set to rally back above the 50-dma. Today’s volume, which came in at -46% below-average, would constitute a voodoo pullback to the 10-dma, and hence makes the stock buyable here using the 10-dma as a tight selling guide.

Given that FSLR closed precisely at the 10-dma, using the 10-dma as a selling guide is perhaps too tight, so one could then add a couple of percent on the downside or the 46.76 intraday low of today as tight selling guides.

 

GR101117-FSLR

 

SolarEdge Technologies (SEDG) is in a lower-risk entry position right here at the 10-dma with volume drying up in the extreme today. Volume certainly met the requirements for a “voodoo” pullback to the 10-dma as it evaporated to -62% below-average. This is buyable here on the basis of the voodoo action, using the 20-dema at 28.16 as a maximum selling guide.

 

GR101117-SEDG

 

Video-Gaming Names:

The video-gamers have gotten a bit messy after the group was downgraded on Monday. Take-Two Interactive (TTWO) has, however, been able to hold above its 10-dma after gapping down from all-time highs on Monday. Volume dried up sharply today, so technically the stock is buyable here using the 10-dma or 20-dema as tight selling guides.

Activision Blizzard (ATVI), which was already sitting below its 50-dma, gapped down on a downgrade Monday and remains near its gap-down lows. This looks pretty ugly, and in any other market environment I wouldn’t touch this thing with a ten-foot pole. However, take careful note of the fact that Monday’s gap-down move took the stock below the prior 61.32 low of September 25th.

Today, ATVI rallied back above that low, closing at 61.36. This would then trigger an undercut & rally (U&R) long entry here using the 61.32 price level as a tight selling guide. It may not work, but the bottom line is that the U&R is objectively in play here, and a long entry also has the added benefit of a very tight selling guide at the 61.32 price level for those with the courage to take the shot.

 

GR101117-ATVI

 

Electronic Arts (EA) didn’t gap down on Monday when the group was downgraded, but instead waited until yesterday to breach its 50-dma. Today the stock moved lower on heavy selling volume, and for now cannot be considered to be in a buyable position.

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).

I can’t say that I see a lot of strong upside action out there, although I do find some actionable set-ups on the long side, as this report shows. Aside from names like NFLX and NVDA, most leading stocks are just chopping back and forth within bases, such as FB or AVGO, or consolidating prior breakouts, such as SEDG.

As well, as we move into the heart of earnings season over the next week or so, it is not necessarily feasible to get aggressively long a stock that is about to report earnings. As the indexes continue to crawl forward like a World War 1 tank (not a World War 2 tank, which moved much faster!) they become vulnerable to a pullback, no doubt. But when and where that occurs cannot be known, all you can do is watch the stocks.

For now, I think your best bet is to go with the set-ups you see in stocks that aren’t expected to release earnings for at least 2-3 weeks. This at least gives you some time to a nice upside move, after which you can decided if your profit cushion, if any, is sufficient to risk playing earnings roulette. So, 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. ©2008-2018 Gil Morales & Company, LLC. All rights reserved.