The Gilmo Report

September 25, 2019

September 25, 2019

Resistance along the highs last week turned into a big sell-off yesterday as the NASDAQ Composite Indexes slashed through its 50-dma. The S&P 500 and Dow Indexes, however, held support at their 50-day moving averages.

This was due to the fact that President Trump appeared to take a hard line on China trade in his speech to the U.S. General Assembly.

While the news regarding the Democrats’ latest attempt at impeaching the President takes center stage, I think the more important news is coming on the trade front. To that end, another insinuation from the President that a deal with China “could come sooner than you think” got the indexes rallying, but this is likely just more of the same type of hint and insinuation that is of no real substance.



Hints or no hints, today’s reversal off the lows was logical from a technical view based on the fact that the S&P 500 successfully tested and bounced off its 50-dma. Had it busted the 50-dma, then things would have looked quite bearish. For now, the indexes remain within unresolved, choppy, two-week price ranges with the 50-dmas serving as near-term support.



The inflection I was looking for in financials occurred this week as the general market has weakened. We can see this in the daily chart of the Financial Select Sector SPDR Fund (XLF). After reaching its prior late July highs last week, it has sold down to its 20-dema where it bounced today on light volume.

I viewed the break below the 10-dma last Friday and yesterday’s rally up into the 10-dma as short-sale trigger points for the XLF. That remains the case for now, and my vehicle for playing such trigger points in the XLF remains the Direxion Financial Bear ETF (FAZ) with the idea of using the five-minute 620 chart as my guide for intraday entries.



While stocks rallied on the President’s tweet of a China deal coming sooner than we all think, precious metals sold off. Both the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV) dipped below their 10-dmas in the process. Volume was slightly below average for the GLD and slightly above average for the SLV.

I would remain opportunistic here and look for a test of the 50-dma as your best, lower-risk entry opportunity. Overall, the two precious metals ETFs are in consolidations after short-term parabolic moves in early September. Remain patient and opportunistic as they go about the process of digesting those gains.



Big-stock NASDAQ names are a mixed, indecisive bag that reflects the current character of the market itself. Apple (AAPL) can’t decide whether it wants to break out or break down, as it continues to fail on several new-high breakout attempts over the past 2-3 weeks. Today it found low-volume support along its 20-dema.

In general, the action is indecisive and unresolved. This is either setting up to move higher or it’s going to pan out as a late-stage, failed-base (LSFB), short-sale set-up. Which one for now remains a mystery, but I’m ready to key on the stock depending on what it does from here. A breach of the 20-dema would be the short-sale trigger, of course, and the move I think may be more likely given the high-volume reversals off the highs. Play it as it lies.



The group chart of four more big-stock NASDAQ names reflects the same mixed bag of uncertainty. (AMZN) breached its 200-dma yesterday, triggering as a short-sale at that point. It continued lower today but reversed after undercutting prior lows in the pattern. AMZN closed just below its 200-dma today, so can be viewed as a short here using the 200-dma as a covering guide.

Alphabet (GOOG) is sitting at the highs of a cup-with-handle formation, of which you can only see the right side of the cup and the handle area of the pattern. Volume was average, and we have yet to see if the stock can break out.

Netflix (NFLX) continues to plumb lower lows as it got within 20 points of my downside target at its December low of 231.23. Today’s bounce was the first up day over the past six as NFLX remains very extended to the downside.

Microsoft (MSFT) continues to flop indecisively around its 50-dma and shook out at the line today. It closed positive but right at its prior base breakout point. There’s not much here in the way of a set-up either way, but it does illustrate the choppy, indecisive nature of this market.



Among my favorite semiconductor trading vehicles, Applied Materials (AMAT) and Micron (MU) both found support at or around their 20-demas, but only AMAT was able to regain its 10-dma. MU closed just below its 10-dma which could put it in a shortable position using the 10-dma as a tight covering guide.

KLA-Tencor (KLAC), meanwhile, remains above its 10-dma and posted a new closing high on weak volume. This is still extended, and I simply wait and watch for a break below the 10-dma as a possible short-sale trigger.

Advanced Micro Devices (AMD) worked as a nice short on the rally into the 20-dema. It reversed at the line and headed lower in a bear flag breakout to the downside today before reversing on a U&R type of move off the lows. It is now extended such that only rallies back up into the 20-dema would offer lower-risk short entries from here.



Payments stocks that I’ve covered in recent reports all rallied into resistance at their 20-dema or 50-dma yesterday and rolled over. Global Payments (GPN) ran right into its 50-dma and reversed, as did both Mastercard (MA), and Pagseguro (PAGS). Visa (V) ran into resistance at its 20-dema and reversed.

All these reversals occurred yesterday, and only PAGS has been able to rally back up to its 50-dma. This brings it back into a shortable position right here using the 50-dma as a tight covering guide.



Social-networkers all gave themselves up as short-sale targets were hit. Facebook (FB) got the party going early on Monday when it broke down right at its 50-dma and headed lower from there. Only rallies up to the 20-dema would offer lower-risk short-sale entries from here given how extended the stock is on the downside now.



I wrote over the weekend that Twitter (TWTR) “should be watched for a breach of its 20-dema since this would trigger the stock as a short at that point.” That’s precisely what we saw yesterday when the stock slashed below its 20-dema and then broke all the way down to its 50-dma.

A perfect set-up, late-stage, base-failure type of set-up for those watching for it. Today’s low-volume rally off the 50-dma and back up to the 20-dema brings TWTR into a lower-risk short-sale entry point again.



One brokerage analyst gave short-sellers a gift yesterday when he upgraded Snap (SNAP) with a $24 price target. This sent the stock above the $18 price level before it reversed to close in the red. An opportunistic short-selling opportunity based on the idea that with the stock pushing up against its prior highs around 18 it was more likely a double-top type of short than a long.

SNAP found support today at its 20-dema, which is logical, on about average volume. Any move that approaches the $18 price level or a clean breach of the 20-dema could bring SNAP into a shortable position, so watch for this.



In the land of the clouds, several names I discussed over the weekend at short-sale targets have worked famously so far this week. Coupa Software (COUP) took a little time to ripen, however, as it started the week out with a rally up through the 50-dema. At that point, as I noted over the weekend, one could watch for a breach of the 50-dma as a trigger on the short side.

Another way to handle this would have been to short it on the failed re-breakout attempt yesterday. Once it broke below the prior breakout point it was all downhill from there. Now you’re looking at rallies up into 10-dma, 20-dema, or 50-dma as potential short-sale entries from here.



Other cloud names I discussed as short-sale targets over the weekend included those shown on the group chart below. All five of these were in prime short-sale positions on oversold reflex rallies right up into their 50-dma. As you can see, all five, GoDaddy (GDDY), ServiceNow (NOW), Ring Central (RNG) Ring Central (RNG), Splunk (SPLK) and Atlassian (TEAM), all rolled over in nearly identical fashion.

These were all textbook reversals at their 50-dmas, and all five of these worked. You really can’t do much better than that. From here, only rallies into the 50-dma by any of them would offer lower-risk short-sale entries from here. It’s very interesting to see how all of my cloud short-sale ideas from over the weekend worked in textbook fashion. I have to wonder whether this is telling us anything about this market.



Another one that worked out differently was (CRM). Over the weekend I noted that this would remain a short along the range highs. Yesterday morning we saw the stock rally right up into the range highs before peaking at 156.27 and heading lower from there.

It then breached the 50-dma today but held above its intraday lows on a small undercut & rally type of move and then closed above the 50-dma and 200-dma. A reversal back below the 200-dma and then the 50-dma could trigger this as a short-sale from here. However, the most opportunistic entry was yesterday along the range highs.



My comments over the weekend regarding Pinterest (PINS) hit the nail on the head. At that time, the stock had been rallying along the underside of its rising 50-dma. Once the declining 20-dema got down to the 50-dma, it provided added moving average resistance which finally sent the stock to the downside, as I surmised it would.

Notice that PINS is now undercutting its early September low, which could set up a U&R type of move back up into the 10-dma or beyond. While this can theoretically be played as a long swing-trade, it could simply bring PINS back up into shortable resistance at any of the moving averages up higher on the chart.



Shake Shack (SHAK) finally triggered as a short-sale target along the 10-dma and the $100 Century Mark again. It breached the 10-dma yesterday, then bounced this morning before running into resistance at the 10-dma and reversing to close below the 20-dema and the $100 Century Mark.

This is now a Century Mark Rule in Reverse short-sale play using rallies up into the $100 Century Mark or the 10-dma as potential lower-risk short-sale entries. In either case, the 10-dma could serve as a covering guide.



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.

The news flow over the past couple of days illustrates what makes this a difficult market to navigate. The market indexes quickly reverse course based on the latest news, even if it comes in the form of another inane tweet from the President hinting that a trade deal with China “could come sooner than you think.”

This creates volatility that is often difficult to manage, but so far this week the short side has been very profitable for nimble swing-traders. There is nothing out there for trend-followers, and the ever-changing, sometimes contradictory, news flow is what creates this basic market reality, at least for the time being.

But if one can catch the right set-up at the right time, the rewards can be meaningful. Not necessarily easy to come by, because it often requires an alert, nimble, and courageous state of mind to act, but certainly meaningful. And, notably, the best set-ups this week have come on the short side. Whether that is telling us something about the future direction of this market remains to be seen, as the indexes are still holding above their 50-dmas.

No matter, however, since swing-traders and other short-termers can simply continue to act on the basis of whatever set-ups present themselves in real-time. This week has been one for the shorts, so far, and that’s really all we know for sure. Play ‘em as they lie!

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.

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