The Gilmo Report

October 30, 2019

October 30, 2019

The S&P 500 Index set all-time highs on Monday and held those highs on Tuesday ahead of today’s Fed announcement. Today the S&P posted an all-time closing high on higher volume.

 

 

The NASDAQ Composite Index traded up today on higher volume, but remains about 34 points, less than ½% below its all-time high of 8339.64. While the action of individual stocks has remained a mixed bag, from an index standpoint the market is for now in a short-term uptrend extending back to the lows of early October.

 

 

The Fed meeting was most interesting to me in the moves it produced in financials, interest rates, and precious metals, or rather lack of them. The Financial Select Sector SPDR Fund (XLF) closed flat, indicating that it isn’t really sure where the Fed is headed from here. It’s clear to me, however, that the Fed isn’t going to be raising rates any time soon, and only forward data will determine their next move.

Thus, financials take a pause here, and we’ll see where the next signal in the chart occurs. A breach of the 10-dma would bring me in on the short side, using an inverse ETF like the Direxion Financial Bear ETF (FAZ). Otherwise, if you believe that financials will move higher, one can view this as a breakout that can be bought using the 10-dma as a tight selling guide.

 

 

Precious metals certainly weren’t fazed by the Fed’s idea that it is done lowering rates for now.  Both the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) found small volume support off their intraday lows with both posting five-day pocket pivots. I show only the daily chart of the GLD here but both charts look similar.

Therefore, I would view both the GLD and the SLV as buyable here using the 10-dma/20-dema confluence as a selling guide.

 

 

The main event after the close today is of course Apple (AAPL) earnings, with Facebook’s (FB) report perhaps coming in a close second. As I write in the after-hours, AAPL is only up a couple of percent. Recall my video report over the weekend where I theorized that all the good news was already priced into AAPL.

That turned out to be somewhat accurate, as sellers came in on Monday and knocked AAPL down off its peak on heavy selling volume. After-hours the stock is trading up around 247-248, which is far short of a blistering upside move. This could be interesting tomorrow, since if this becomes a sell-the-news situation it could have implications for the general market.

 

 

Facebook (FB) is also not running wild in the after-hours, although as I write it is trading around 194-195, just above the highs of the price range it has formed since early August. Yesterday FB ran into solid resistance along these highs and reversed hard, finding support at the 20-dema today.

With the stock trading just above the range highs in after-hours trade, it will be interesting to see whether it holds above those range highs tomorrow. If not, it could easily morph into a short-sale at that point. If it holds, however, it may set-up as a buyable gap-up.

The interesting thing with both FB and AAPL is that they don’t seem to be putting on some big moves after-hours, which may bode ill for them tomorrow. However, before rushing to judgment, we can just wait to see how they develop tomorrow once trading commences, with the idea of simply playing them as they lie.

 

 

Reports of the demise of Netflix (NFLX) are apparently greatly exaggerated. I was looking for a weak rally into the 50-dma as a potentially opportunistic short entry opportunity, but the stock instead powered right through the 50-dma on strong volume. Today’s move qualified as a five-day pocket pivot, but I want to see a cluster of five-day pocket pivots in lieu of a single ten-day pocket pivot.

Therefore, it’s now a matter of seeing how well NFLX can hold the 50-dma. A low-volume pullback to the 50-dma would put it in a lower-risk long entry position, while a breach of the 50-dma would trigger a short-sale entry at that point. Play it as it lies.

 

 

Watch Amazon.com (AMZN) here as it holds tight and finds support along its 20-dema. The stock is mostly flipping around between three moving averages, including the 10-dma and 50-dma, and closed above the 50-dma today. In this position, AMZM could go either way.

Based on the huge-volume support it picked up off the lows last Friday, I would initially treat this as a long entry position using the 20-dema as a tight selling guide, or the 50-dma as a tighter selling guide.

 

 

I tweeted on Monday that I felt it was time to sell into the third day up for Tesla (TSLA) after it reported its earnings. Monday was the second day up from Thursday’s buyable gap-up (BGU) move and the third day of a sharp upside move. My general rule is to sell on the third day up, and now TSLA is indeed pulling back.

Three days up has been followed by three days down as volume declines. I’m looking for a possible buyable pullback here as it retraces about half of its prior move from the BGU low at 289.20. One way to attempt to catch this would be to come in here and use today’s intraday low at 309.97 as a selling guide.

Barring that, one would have to wait for a closer test of the 289.20 BGU low or the rapidly rising 10-dma as more coherent, identifiable, and lower-risk entry points.

 

 

The market is again plagued by the two-sides-of-the-mouth blather coming from the Trump Administration on the alleged Phase 1 trade deal with China. On Monday, we were told that the “final text” of the agreement was being finalized, and then yesterday we learn that the final agreement won’t be ready for signing as planned in late November.

Techs, especially semiconductors, tend to be most sensitive to the trade news, and extended names in the group that I follow have pulled back as a result. Applied Materials (AMAT) has pulled back over the past two days but remains well above its 10-dma and the prior base breakout point at around 53. If you like the stock, I think the most intelligent entry would come on an orderly pullback to the 10-dma.

A breach of the 10-dma, however, would trigger this as a possible base-failure type of short-sale set-up. For now, the long set-up holds sway until further evidence presents itself, namely in the form of a 10-dma break, but it is always useful to maintain full 360-degree awareness of how a stock could play out under varying scenarios.

 

 

After filling its prior late-September gap-down falling window and then some, Micron Technology (MU) has now fallen back into the gap after getting quite extended on the upside. The stock is perhaps in no-man’s land, and if one is bullish on the stock the only lower-risk entry would occur on a pullback to the 10-dma or 50-dma.

On the other hand, if MU cannot get above near-term resistance at the highs of the gap-down falling window at 48.13 it could potentially morph into a short within the context of a market pullback. For now, the indexes are trending higher, so this very much remains an open question.

 

 

Advanced Micro Devices (AMD) reported earnings yesterday after the close and spun around in after-hours trade before settling just below its closing price. It opened today at 32.93 and bobbed around for a while before finding some nice volume support off the 10-dma.

Yesterday’s volume as shown on the chart includes after-hours volume, so it’s possible that this qualifies as a pocket pivot if we were to compare regular session volume levels for today and yesterday. My assumption is that volume during the regular session today was higher than yesterday’s.

Therefore, I can call this a supporting pocket pivot at the 10-dma. In this position, however, AMD is extended, such that only an orderly pullback to the 10-dma would offer a lower-risk entry from here. Otherwise, a breach of the 10-dma would trigger this as a short-sale, should that occur.

 

 

Most beaten-down cloud names have been engaged in oversold rallies, some of greater extent and duration than others. While any undercut & rally (U&R) set-ups in these names from last week are playable on the long side until they aren’t, I’m also watching for possible short-sale entries into the rallies.

Coupa Software (COUP) was one such cloud name that triggered a U&R long entry signal last week, and it has since rallied right up into and just beyond its 50-dma. The rally over the past four days has come on extremely light volume, so I would be alert to the possibility of a reversal back through the 50-dma as triggering a potential short-sale entry.

Otherwise, if the general market keeps rallying, and COUP can hold tight along its 50-dma, it then becomes more of a long entry here. In that case, one would use the 50-dma as a tight selling guide. COUP has already shown a strong tendency to break down sharply and then slowly rally right back up through the 50-dma and back toward its prior highs, so play it as it lies!

 

 

From a purely objective technical standpoint, the action in DocuSign (DOCU) can only be viewed as bullish. The stock is holding very tight along its 10-dma here as volume dries up to extreme voodoo levels over the past four days.

Thus, we can view DOCU as buyable here or on any orderly pullback to the 10-dma, using the line as a tight selling guide. Otherwise, if the stock suddenly breaches the 10-dma on increased selling volume, it would trigger as a short-sale at that point.

 

 

My focus list of Chinese names isn’t showing much in the way of a strong trend either way. Alibaba (BABA), Baozun (BZUN), JD.com (JD) and Momo (MOMO) are all chopping around with little to show for their efforts. BABA posted a five-day pocket pivot off the 10-dma today but is extended in this position.

BZUN seems to be running into resistance along its 50-dma, which makes it look to me like it’s more a short here using the 50-dma as a tight covering guide. JD is extended from last Friday’s pocket pivot at the 50-dma, so is not in buying range.

Last, but not least, MOMO rallied back up to its prior October highs on Monday and promptly reversed on Tuesday. It is now back to its 200-dma and just below its 50-dma. I would tend to view this as a short on any rally back up into the 50-dma at 34.06 while using the line as a tight covering guide.

In general, the Chinese names are acting tentatively because of mixed messages regarding the status of the so-called Phase 1 trade agreement between the U.S. and China. As long as that remains the case, they will likely continue to chop around, becoming shortable along their highs and buyable along their lows, but for not much more than quick scalps and swing-trades.

 

 

Payments stocks, after getting decimated last week, have all slashed back above their 50-dmas on extreme, v-shaped moves. Global Payments (GPN) is expected to report earnings tomorrow before the open, so we’ll whether any sympathy moves in other payments’ names materialize tomorrow morning.

Meanwhile, Mastercard (MA), PayPal (PYPL), and Visa (V) are all sitting above their 50-dmas after finding support at the line today on an intraday basis. While all of these could have been bought on the pullbacks to their 50-dma today, I’m not really interested in these as long entries in their current positions.

I’d need to see another pullback to the 50-dma to bring them back into a lower-risk entry zone, and on light volume. Otherwise, remember that the last time GPN, MA, and V all cleared their 50-dmas two weeks ago, they all blew apart and broke to the downside. Therefore, should they again breach their 50-dmas, then they would immediately trigger as short-sale entries at that point.

 

 

Twitter (TWTR), not shown, continues to move lower. Meanwhile, Snap (SNAP) continues to rally after bouncing off its 200-dma last week. Volume has been declining as it approaches its 50-dma.

I’m watching this for a possible short-sale entry once it gets to the 50-dma at 15.28. That’s not too far from today’s close at 14.86, and if we see the market continue rallying tomorrow, SNAP could make it that far, at which point I’d be looking to short it while using the 50-dma as a tight covering guide.

 

 

Guidewire Software (GWRE) continues to act well, finding support near its 10-dma today on a slight increase in volume. Overall, however, this is not my preferred entry position, to be frank. I like the stock’s action but would prefer to see an opportunistic pullback into the 20-dema as the lowest-risk entry for my tastes.

 

 

The same assessment would apply to Keysight Technologies (KEYS). However, the major difference here is that KEYS is sitting right on top of its prior breakout point and above the 10-dma. Thus, it could be viewed as being in a buyable position here using the 10-dma as a tight selling guide.

Otherwise, my preference is, as usual, to take a more opportunistic route and look for a pullback to the 20-dema as the lowest of the lower-risk entry spots.

 

 

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.

Even as the indexes move to or toward all-time highs, the action among individual stocks remains something of a piecemeal affair. There are set-ups here and there, on either side of the market. Some are more profitable than others, but the basic idea of maintaining a 360-degree view and looking to play individual set-ups on a stock-by-stock basis remains my essential strategy.

The Fed policy announcement appeared to me to signal that whether the Fed lowers rates again or not, it is certainly not looking to raise rates any time soon. This means that the pool of liquidity sloshing around in this market has not diminished, which means anything is possible. So, continue to respect the set-ups and let things play out as they will, without getting yourself in position too rigidly in one direction or the other.

Meanwhile, we remain in the thick of earnings season, and we’ve already seen a number of high velocity high time-value situations materialize on either side of the market. For now, this remains the main thrust of my current strategy as I look to take advantage of post-earnings moves in individual stocks, independent of what the major market indexes may be doing. 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

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.