The Gilmo Report

September 18, 2013

September 18, 2013

Investors were stunned today when the Fed decided to go “taperless” as the board voted to refrain from cutting back on its $85 billion monthly bond purchases and maintain the status quo. Once again, the crowd was fooled, and with the QE spigots remaining on full blast the market had nothing else to do but blast higher itself, as we can see on the NASDAQ Composite daily chart, below.




The S&P 500 Index is now in a confirmed rally of its own as it took advantage of the Fed’s decision to go taperless to launch to a new high as it broke out of a cup formation on heavy volume.




Precious metals, which had been languishing in anticipation of the start of QE tapering, reversed course on the news and pocket-pivoted back to the upside as the SPDR Gold Shares (GLD) and iShares Silver Trust (SLV), both shown below on daily charts, blew through their 50-day and 10-day moving averages. For those who can deal with the volatility of the metals, these are buy signals for both the yellow and white metals.






Facebook (FB) endured some heavy selling on Monday, only to come roaring back with what was essentially a continuation pocket pivot buy point on Tuesday, as we can see on its daily chart, below. FB held up in a tight range today despite the market moving sharply to the upside. Yesterday’s move is, however, an actionable buy point, using the 20-day moving average as your selling guide should the stock falter.




The rest of the “Four Horsemen” have been taking a break lately as they continue to back and fill following recent moves to new highs. LinkedIn (LNKD), shown below on a daily chart, continues to hold support along its 20-day exponential moving average, the green line on the chart, as volume remains relatively light. As I wrote over the weekend, near-term demand for the stock might have been absorbed on the 5.38 million share secondary offering of a couple of weeks ago, but so far the stock is acting normally as it likely digests this increased supply before moving higher. Aside from the pocket pivot buy point of ten days ago on the chart, no new buy points have emerged, although as the stock flutters about its 10-day moving average the potential for a continuation pocket pivot is always something to keep an eye out for.




Netflix (NFLX) is also backing and filling as it moves in a six-day flag after staging a marginal buyable gap-up move seven days ago, as we can see on the daily chart below. NFLX is holding tight along the 10-day moving average and so far has not moved below the 296.81 intra-day low of that gap-up move. Aside from that, no new buy points have shown up yet, but the stock continues to act well.




Tesla Motors (TSLA) is moving tightly along its 10-day moving average currently as volume dries up, and so far has held recent pullbacks to its 20-day moving average, as we can see on the daily chart below. On the weekly chart, not shown, TSLA is simply holding tight sideways as it is likely setting up to move higher. My view is that with the indexes all pushing higher, and the S&P 500 now joining the party at new highs, the “Four Horsemen” will likely move higher with the market, despite the fact that they may not have had huge price moves today as money moved into smaller stocks.




Yelp (YELP), shown below on a daily chart, was one of those smaller stocks, as it continues to move higher on strong volume. The stock found ready support at the 10-day moving average yesterday and then launched higher today on volume that was 51% above average that also qualified as a pocket pivot volume signature. As I wrote over the weekend, the stock was pulling down into buyable range at around the 10-day line and the top of its prior base breakout just below the 60 price level. YELP emerged from a high, tight flag formation about two weeks ago, and we were on to this one well before the crowd saw it as it was flashing pocket pivots along the 10-day moving average and the 53-54 price level.




Trulia (TRLA) has been straddling breakout territory and today was able to “re-breakout” on volume that was 59% above average. Following the low-volume pullback towards the 10-day line yesterday, I think this “re-breakout” is actually buyable with the idea that it should hold the breakout this time, but one could give it a little more room down to the 10-day moving average, currently at 47.




Five Below (FIVE) was looking good as it headed back to its prior highs before the company came out and announced a 7.1 million share secondary offering yesterday after the close. This had the net effect of sending the stock below the 46.01 intra-day low of last week’s buyable gap-up move. That sent the stock reeling to the downside where it found support at the 10-day moving average on heavy volume. Insiders are selling stock on the offering, and no proceeds from the offering will actually go to the company. This bothers me somewhat, but I would still watch to see how the stock acts once the offering is completed. FIVE has shown strong institutional interest as sponsorship grew steadily while the stock was building its prior base before gapping up last week after announcing earnings. FIVE closed at 45.99 today, two pennies below the 46.01 intra-day low of last week’s buyable gap-up move. Technically the stock remained within 2-3% of that low all day today as it bounced right off the 10-day moving average.




Splunk (SPLK) has pulled back to its 10-day moving average after moving higher following its buyable gap-up move of not quite three weeks ago, as we see in the daily chart below. I would watch for a retest of yesterday’s low on light volume as a potential buying opportunity.




Infoblox (BLOX), which ran up in similar fashion to SPLK following its buyable gap-up move of nine days ago on the daily chart, below, has also pulled back to its 10-day moving average. Like SPLK, the stock isn’t showing a huge amount of “spring” off the 10-day line, but that is not really an issue as the stock may need a little time to back and fill along the 10-day line. However, for those who are looking to add to positions in BLOX or SPLK, an initial pullback to the 10-day line offers that opportunity, with the idea that the stocks will hold the line, more or less. The other option in either case is to wait for a continuation pocket pivot off the 10-day line to add.




YY, Inc. (YY) is holding its recent pullback to the 10-day moving average and the prior trendline breakout, as we can see on the daily chart below. YY broke out last week before pulling back to the 10-day moving average, where I considered it buyable per my report of last Wednesday, September 11th. Today YY staged a “re-breakout” maneuver as it poked its head out of the base once again on volume that was only 9% above average. YY is a volatile stock, so I would continue to view it buyable primarily on pullbacks to logical areas of support.




In my report of this past weekend I noted that members should keep an eye out for a possible “bottom-fishing” pocket pivot in solar leader Sunpower (SPWR), and lo and behold the stock followed through on Monday with just that. As we can see on the daily chart, below, SPWR moved above the 50-day moving average on a pocket pivot volume signature, pulled back into the line yesterday on light volume, and then today moved to a higher high on what was also a pocket pivot volume signature. SPWR had a nice move from April to July of this year as it roughly doubled in price, so correcting and forming a new base is something it is certainly entitled to. Selling volume has dried up as the stock has started to round out the lows of this new base and begin moving up the right side, which is constructive. I would look for this to continue moving up the right side as long as it can hold the 50-day line on any pullbacks from here.




I’m also keeping my eye on other names in the group as they attempt to build new bases. SolarCity (SCTY), for example, is trying to come back to life after a huge-volume pocket pivot type move off the lows last week, as we can see on its daily chart, below. This pocket pivot move came after a downtrend in the stock, so it is a bit premature to call this an actionable buy signal. Notice, however, that the stock has moved tight sideways over the past week or so as it consolidates this strong move. Selling volume is drying up it moves from left to right in this short, six-day flag. SCTY is still below its 50-day moving average, so a confirming move from here would be some sort of “bottom-fishing” pocket pivot coming up through the 50-day moving average, so this might be something to watch for. You might also notice that SCTY is so far trying to form what looks like a big double-bottom formation. My view, however, is that if SPWR can make a bid for its old highs as it rounds out a new base, the other names in the group might do so as well. Canadian Solar (CSIQ), not shown here on a chart, is also trying to come up the right side of a small cup formation. Meanwhile, First Solar (FSLR), also not shown, is bouncing along its 200-day moving average. I would keep an eye on the group, but for now I think SPWR is the most viable. SCTY is a more risky second choice that is still in its early stages of trying to come up the right side of a potential new base.




In my report of September 8th, I noted that the “bottom-fishing” pocket pivot in U.S. Silica Holdings (SLCA) on September 6th, nine days ago on the daily chart, below, “might be the harbinger of higher prices to come for the stock.” So far, that has proven to be the case, and SLCA flashed another pocket pivot today along the 10-day moving average. Right now there is a lot of talk of increased fracking, the process by which oil and gas is extracted from shale deposits, in countries beyond the U.S. Many other countries such as Russia and China have rich shale deposits, and while it is more expensive to tap these deposits compared to those in the U.S., it is expected that on the margin fracking will continue to grow in other countries. As a supplier of the sand used in fracking, perhaps SLCA is positioned to benefit from such a trend. In any case, the price/volume action continues to tell us that this stock wants to go higher. If you bought the first pocket pivot coming up off the 50-day line nine days ago, then this latest pocket pivot today is an add point.




There were several actionable buy signals today in leading bio-tech stocks. Others that I’ve discussed, such as ACAD, BIIB, and REGN, have continued higher and remain extended, but Alexion Pharmaceuticals (ALXN) flashed a pocket pivot buy point today along its 10-day moving average as it reversed to the upside and closed up on the day. Notice that the stock made a similar maneuver six days ago on the daily chart, below, as it came up through its 10-day moving average after finding support at around the 20-day line. This looks like it wants to go higher, and today’s pocket pivot is actionable, with the idea that it should hold the 20-day line on any pullback from here.




Celgene (CELG), shown below on a daily chart, also flashed a pocket pivot buy point along its 10-day moving average today, as we see on its daily chart, below. CELG had an initial “bottom-fishing” pocket pivot on August 28th, which I discussed in my September 1st report, and the stock has trudged higher from there, now forming a little “mini-cup-with-handle” on its daily chart. Notice also the “ants” on the chart, those little black triangles that show up when a stock has been up 12 out of 15 days in a row or better. That is constructive to see, and within the context of today’s pocket pivot buy point, likely indicates that the stock is headed for new highs soon enough.




In similar fashion, Gilead Sciences (GILD) also flashed a pocket pivot buy point today as it moved to new highs, as we can see on its daily chart, below. I discussed the stock in detail in my report of September 1st after it flashed a “bottom-fishing” pocket pivot on August 28th. Alert members might notice that GILD and CELG appear to be acting like twins as they flash buy points on the same days as they move up the right sides of these little cup-with-handle formations each has built on its daily chart. This buy point in GILD, like CELG’s, is actionable.




It strikes me as very constructive to see three big-stock NASDAQ names (perhaps we could call them the “Three Horsemen”) showing strong technical action as they turn with the market. Below I show the charts of (PCLN), (AMZN), and Google (GOOG) in three different states of turning back to the upside. At the top is PCLN, which initially flashed a pocket pivot buy point along its 10-day moving average nine days ago on the chart, as I discussed in my report of September 8th. PCLN followed up on that by breaking out to all-time highs today on a pocket pivot volume signature.




AMZN, below, flashed a pocket pivot buy point yesterday as it moved up and off of its 10-day moving average yesterday, and then followed up on that with a pocket pivot breakout as it made an all-time closing high today.




GOOG, meanwhile, is trying to come up the right side of a new base as it flashed a pocket pivot buy point today as it came up and off of its 10-day moving average. A “triptych” of constructive action among three big-stock NASDAQ names.




There was a lot of excitement in the market today, thanks to the Fed’s move, or rather lack of it, and this sparked constructive action in a number of stocks. A number are extended, but for the most part I’ve tried to focus on what I consider actionable buy points and/or pullbacks in stocks I’ve been following since this market rally began in early September when I called the turn in my report of September 4th. At that time a number of leading stocks were springing to life, well before it became obvious that the market was again in a “confirmed uptrend.”

In the end, it’s all about the stocks themselves, and in this market focusing on the market as a market of stocks and not necessarily as a stock market has been a constructive way to approach this QE environment. And so the QE drumbeat goes on. As long as leading stocks continue to act well, and we see breadth expand as more names join the party, buying stocks will be the best way to make money for now. I would also point out that if you own a stock that wasn’t moving today, or wasn’t moving as fast as other names in the market, don’t fret as they will likely catch up to today’s action soon enough. For example, while two of the “Four Horsemen,” LNKD and TSLA, didn’t take off today like the “Rocket Man” YELP, my guess is that if the market goes higher these stocks will go higher as well. In the meantime, the trend is your friend, so just watch your stocks and watch your stops.


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 positions in LNKD, SPWR, TSLA, YELP and YY, though positions are subject to change at any time and without notice.

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