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Market Lab Report - Final Gilmo Reports Edition 1

For the benefit of VoSI members who have transitioned from Gilmo Report, which is shutting down at the end of August, for good, I will be posting the final four reports that will ever be published over the next week on time intervals of one report later. Enjoy.

August 20, 2023

The market cascaded lower throughout the week following Monday’s NASDAQ Composite rally into 50-day moving average resistance. As I noted on Wednesday that the index rally that day was accompanied by negative breadth as measured by both the NYSE and NASDAQ Advance-Decline lines.

That turned out to be a telling clue as the indexes then broke to the downside for four straight days, gapping down sharply on the Friday options expiration on heavy volume. The action, frankly, is not surprising as we were already seeing individual stocks, particularly in the AI meme group, coming loose as early as three weeks ago.

Note: the following two paragraphs were excerpted from a post this morning on TheOWLMarketFeed.com. They are provided as a courtesy to remaining Gilmo members.

The Global X Robotics & Artificial Intelligence (BOTZETF illustrates a textbook double-top breakout failure followed by a full-blown late-stage failed-base  (LSFB) short-sale set-up that have developed since mid-July. The initial double-top short-sale (DTSS) entry in BOTZ occurred on July 19th, and it has not looked back since then.

BOTZ has been my secret indicator for the AI Meme Stock group as well as the general market, since most of the rally in 2023 has been in these names. By late July it was, in my view, flashing negative signals for the AI meme group and the market as a whole, which is why I felt the odds of a 7-10% intermediate market correction, at least, were increasing.

At its lowest point on options expiration Friday the NASDAQ Composite was 8.9% below its July 19th peak of 14446.55 At that point things were admittedly getting a little piggy on the short side. The index then rallied off the intraday lows from an arguably oversold position to close down -.20% on lighter OpEx volume but still down an even 8.00% from the July highs as it has now pushed into intermediate correction territory.

The 10-Year Treasury Yield ($TNX) closed Thursday at 4.308%, a 15-year closing high and just 2.5 basis points away from the March 2023 peak at 4.333%. It backed off to 4.251% on Friday but is still at a 15-year closing high. Consequently, the dollar continues to rally although the Invesco US Dollar Bullish (UUP) paused slightly on Friday. The trend, however, remains to the upside, for now.

As the dollar rally holds up, spot gold ended the regular session Friday just below the $1900 level. That pushes the SPDR Gold Trust (GLD) further below its 200-day moving average. On Friday it attempt to pull off a U&R along the June 29th low at 175.79 but gave it up as it finished the day at 175.33. So far, there is nothing doing on the long side of gold, that much we know for sure.

Silver has been living below its 200-dma for the past nine days.  The iShares Silver Trust (SLV) remains in a bear flag as it probes the late June lows. So far, however, it has not undercut the late June low at 20.45, so the possibility of a U&R still exists, but underlying conditions do not seem to support the metals at this particular point in time.

While I am always on the alert for possible Ugly Duckling long entries in the precious metals space when they sell off and nobody loves them, I am not necessarily eager to jump in currently. The main issue is that there are really no positive catalysts. Interest rates and the dollar keep rising, and until these basic trends reverse, gold and silver will likely remain near recent lows or may even forge lower lows.

Gold miners Agnico-Eagle Mines (AEM)Alamos Gold (AGI)Equinox Gold (EQX)Gold Fields Ltd. (GFI)Barrick Gold (GOLDand Kinross Gold (KGC) do a reasonable job of illustrating the general environment for precious metals stocks in general. If I were desperate to find anything positive here it would perhaps be that EQX is holding 200-dma support, but for how long? As with gold and silver, there is nothing to do with any of these right here, right now.

The financial sector continues to give off a strange odor, as if something is up somewhere in the system. Big-stock financials like Bank of America (BAC)Citigroup (C)Goldman Sachs (GS)J.P. Morgan (JPM)Morgan Stanley (MS), and Wells Fargo (WFCremain in three to four-week downtrends. On Friday BAC, C, GS, and MS posted lower closing lows.

Regional banks also remain under pressure, as the group chart of twelve regional banks names shows below. Print this chart out, stick it up on the wall (one you can afford to poke holes in) and then throw darts at it. You may be able to pick the next candidate for a regional bank crisis. Either way, the charts of the financials continue to look as if they are hinting at something, but what that is obviously not apparent just yet. Stay tuned.

I have found it quite humorous to read all the tweets from owners of Super Micro Computer (SMCI) trying to promote the stock on a valuation basis. They first showed up when the stock gapped down to $313 after reporting earnings after the close two Tuesdays ago, then again just below $300, and finally at $270 last week.

SMCI closed Friday at 243.55 and could eventually test the lows of late June, but so far there is no technical evidence to support the idea that the stock is now a bargain. Rallies back up into the 50-day moving average from here would bring it back into short-sale range so can be watched for.

Big-stock AI meme names remain mostly weak. Apple (AAPLbroke out of a bear flag on Thursday as it continues to trend lower after a shortable gap-down (SGD) set-up appeared after earnings over two weeks ago. Microsoft (MSFTjust keeps following the 10-dma lower as it makes lower lows, rallies up to the line, and then rolls over to make lower lows again.

Amazon.com (AMZNon Tuesday triggered a short entry along the 139.32 intraday low of its post-earnings buyable gap-up (BGU) move over two weeks ago. On Wednesday it triggered a double-top short-sale (DTSS) entry at the July 14th left-side peak in the pattern at 136.65.

On Thursday it triggered a short-sale entry at the 20-dema and moved lower on Friday to test and hold 50-dma support. Rallies into the 20-dema would bring AMZN into better short-sale using the 20-day line as a covering guide and can be watched for. Otherwise, any break below the 50-dma would trigger a fresh short-sale entry.

Alphabet (GOOGL) started to come loose on Thursday as it reversed from the recent highs along the $132 level and closed below the 10-dma. On Friday it closed below the July 26th post-earnings BGU intraday low at 128.32 and the June 7th left-side peak at 129.04. That triggered a short-sale entry at the 20-day line as well as a DTSS short-sale entry at the 129.04 level on the same day. The 20-dema can be used as a tight covering guide.

Meta Platforms (META) was a short at the 20-dema on Monday and Tuesday as I noted in my last report. It then triggered a short-sale entry at the 50-dma on Wednesday and has since broken lower. Only rallies back up into the 50-dma would bring META back into short-sale range so can be watched for.

Netflix (NFLX) was last a short at the 50-day moving average on Tuesday, as I noted in my Wednesday report, and it has broken lower from there. At this point only rallies up to the confluence of the 10-dma and 20-dema, which have both crossed below the 50-dma, would bring NFLX back into short-sale range so can be watched for.

Tesla (TSLA) gapped down on Friday to lower lows and churned around in a narrow range all day long. The recent break after triggering a short-sale entry at the 50-dma two weeks ago has accelerated to the downside as TSLA continues to trend lower.

Advanced Micro Devices (AMDwas last a clean short entry at the 10-dma and 20-dema on Tuesday, as noted in my Wednesday report. It continues to trend lower and only rallies into the 10-dma/20-dema would bring it back into short-sale range so can be watched for.

Broadcom (AVGO) gapped to lower lows on Friday as it remains in a nearly three-week downtrend since failing at the 10-dma and 20-dema in early August to trigger initial short-sale entries. Friday’s action constituted a U&R cover point at the 818.35 low of June 23rd. If  it holds, look for a rally back up towards 10-dma or just beyond to the 20-dema to bring AVGO back into short-sale range. AVGO is expected to report earnings on August 31st.

Marvell Technologies (MRVL) remains flat on its back after triggering short-sale entries along the 50-dma nearly two weeks ago. A sharp reaction bounce on Monday was immediately sold into and MRVL is again testing the recent chart lows. At this point only rallies into the 10-dma or 20-dema would bring it back into short-sale range so can be watched for. MRVL is expected to report earnings on August 27th.

 Nvidia (NVDAis expected to report earnings Wednesday after the close, which could be the earnings event of the week. A number that is viewed as favorable by the market could help spark reaction rallies in beaten-down AI meme names. A poor number would likely keep AI meme names plumbing lower lows.

The stock is back below the 50-dma, which would have made an opportunistic short-sale entry along the 20-dema on Wednesday good for a few points ahead of this coming Wednesday’s earnings. At this point, I see no reason to play earnings roulette with this one – just wait for earnings to come out and then take it from there depending on what kind of set-ups materialize in NVDA after earnings.

This would include, maybe even more importantly so, sympathy moves in other AI meme names that may turn out to be more tradeable. Thus, NVDA’s earnings could create a very interesting day on Thursday filled with set-ups in a broad range of AI meme names. If you intend to play, do your homework!

Adobe Systems (ADBE) triggered another short sale entry on Thursday along its 10-dma and 20-dema after an early rally reversed to close negative. It held support at the 50-dma on Friday so that any rallies back up into the 10-dma/20-dema confluence would bring it back into short-sale range. Otherwise, any break below the 50-dma would trigger a fresh short-sale entry using the 50-day line as a covering guide.

Arista Networks (ANETremains impervious to the general market action as it has held tight sideways the whole time the indexes have been correcting in August. As I wrote on Wednesday, because it shows no tendency to act decisively around the recent base breakout point and left-side double-top peak at 178.36, I am looking for any break below the 20-dema as a potentially more reliable short-sale entry trigger, so will wait for it.

CrowdStrike (CRWD) was a convenient short entry on Wednesday along the 20-dema, 50-dma, and finally the 10-dma as it reversed at all three moving averages. It then broke lower on Friday but rallied off the intraday lows and back up through last week’s low in a mini-U&R attempt that served as a cover signal.

CRWD rallied strongly into the close as it  moves up closer to the 10-dma and the 20-dema/50-dma confluence just above. As it approaches the moving averages it comes back into short-sale range again, so this can be watched for. CRWD is expected to report earnings on August 29th.

Cloudflare (NETlast gave short-sellers an easy entry when it rallied into the 10-dma and 20-dema on Monday before it cut loose to the downside. On Friday it finally kissed the 200-day moving average and bounced in oversold fashion. At this stage, rallies up into the 10-dma and/or 20-dema, which have both now crossed below the 50-dma, would bring NET back into short-sale range, so can be watched for.

Nutanix (NTNX) is like ANET in that it continues to buck the general market action and has in fact rallied since the start of August while the major market indexes have corrected. I view rallies up close to the left-side peak at 30.96 as being stalkable for possible short-sale entries double-top resistance, while any clean break below the 10-dma and 20-dema would trigger a fresh short-sale entry using the 20-dema as a covering guide. NTNX is expected to report earnings on August 30th.

Snowflake (SNOWcontinues to descend further below its 200-dma after triggering a short-sale entry at the line last week. At that point the stock was already way extended on the downside from the original short entry points up higher in the pattern.

It is a testament to how much of a dog this thing is when it triggers another deep short-sale entry at the 200-day and just slides lower. It finally bounced on Friday in a natural oversold reaction rally after an extended downside trend of four solid weeks. SNOW is expected to report earnings this Wednesday, August 23rd after the close.

C3.Ai (AI) last triggered a short-sale entry at the 50-day moving average and has trend straight down from there. On Friday it pulled a U&R along the 30.26 low of June 1st which is arguably not a base or range low, but more of a snapback low. The perhaps more reliable U&R low would be at the June 27th low at 31.57.

Either way, Friday’s action constitutes a cover point for any short taken at the 50-dma two weeks ago. Now rallies up into the 10-dma or 20-dema would bring the stock back into short-sale range so can be watched for.

IonQ (IONQtriggered another short-sale entry on Thursday, this time at its 50-day moving average. It continued lower early on Friday but rallied in an attempt to post a U&R along the lows of a short flag it built back between late June and mid-July. While that was a short-term cover signal, the lighter-volume rally took IONQ right back into short-sale range just below the 50-dma, using the 50-day as a covering guide.

Semiconductor equipment maker and AI meme stock Applied Materials (AMAT) reported earnings Thursday after the close and after some spinning around on Friday where it briefly traded in the red, it headed to the upside and by the close just cleared the 50-day moving average. AMAT’s semiconductor equipment maker cousins KLA Corp. (KLAC) and Lam Research (LRCX) rallied with it on Friday and also just past their 50-day moving averages.

That would make all three moving average undercut & rally (MAU&R) long entries at the 50-day line which then becomes a tight selling guide. Otherwise, any reversals back below the 50-dmas could bring the stocks back into play on the short side. Play ‘em as they lie.

Intel (INTCtriggered short entries at the 20-dema and then the 50-dma on Wednesday, as I noted in my report of that day. It has since continued lower and on Friday rallied small, perhaps in sympathy to AMAT’s earnings. It is extended on the downside, so only rallies up into the 50-dma from here would bring it back into short-sale range and can be watched for.

Big-stock credit card names MasterCard (MAand Visa (Vare now both stuck between their 20-demas on the upside and 50-dma support on the downside. Both have been short-sale entry triggers at the 20-dema, but so far have not broken below the 50-day line, which is what I want to see to make this trade worthwhile. These remains shorts here just below the 20-dema with the idea of quickly seeing breaks below the 50-dma that would trigger secondary short-sale entries.

The NASDAQ Composite ended Friday precisely 8% below its July 19th peak. That makes the current correction an official intermediate correction that the pundits and talking heads like to define at 7-10% off the highs. What is more important to me are the percentage gains in short-sale targets over the past 2-4 weeks as AI meme stocks have come undone.

By Friday, a reasonable short-seller would probably admit that things were getting a bit piggy, and indeed we saw some U&R short-covering signals in several of the busted AI meme names shown above in this report. Meanwhile, the financials remain troublesome, and we can wonder whether they are sniffing out a new set of cockroaches in the regional banking sector or elsewhere in the financial sector.

So, while oversold AI meme stocks may now be oversold enough to at least consolidate prior declines, the market may not be out of the woods just yet. This week we will be treated to a speech from Fed Chairman Jerome  Powell at the Fed’s Economic Policy Symposium in Jackson Hole, Wyoming. The event kicks off on Thursday the 24th with Powell’s speech scheduled for  Friday morning at 10:05 a.m. Easter, 7:05 a.m. Pacific. To quote Gordon Gekko from the iconic movie Wall Street yet again, with my addition in brackets, “Stick around, this could get [even more] fun.”

- Gil Morales

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