The VoSI VooDoo Report
Offbeat Ideas and Commentary from the Depths of Gil's Trading Notes
The market is looking somewhat dicey here as leading stocks reach "points of no return" at major support areas, such as AAOI, AMZN, ANET, FB, LITE, JD, NFLX, and others on our focus list reach their 50-dmas or the tops of prior bases. If we see these all start to break these "last stand" areas of support, we may have a full-blown correction on our hands.
On Wednesday I put out a short pair of VooDoo Reports discussing oil names as a potential area of rotation. These included Keane Group (FRAC), Jagged Peak Energy (JAG), and SmartSand (SND), all of which are bottom-fishing/roundabout situations. Some hold out hope that if we see the big-stock NASDAQ and other tech leaders of the 2017 bull market come apart, then we will see rotation into other, neglected areas of the market as a way of sustaining the general market uptrend.
My initial reaction to such sentiments is to think out loud, "Yeah, well good luck with that." But let's take a courageous leap off the market cliff and consider the action in these three oil names I became fixated upon on Wednesday. All three of these names have continued higher over the past two trading days, even in the midst of Thursday's roughing up of the big-stock NASDAQ and other tech leaders for the second time in one week.
First, we see Keane Grooup (FRAC) pushing higher over the past two trading days after I first discussed it when it pushed up through its 50-day moving average. Notice that the justification for buying this move was found in the fact that it was posting an undercut & rally (U&R) move as it moved back above the prior 14.31 lows in the pattern from June 8th and 9th. The stock is now approaching the highs of the six-week range it began forming in late May as it attempts to build the right side of what would be its first IPO base. This is one to keep an eye on if the "healthy rotation fantasy," as I like to call it, does takes place and helps drive further upside in the general market.
Jagged Peak Energy (JAG), which in addition to having a "cool" name, is also trying to come up the right side of what would be its first IPO base. This thing was IPO's at $15 a share, and for one brief shining moment in early February it traded at an intraday peak of 15.08. It then immediately rolled over and went on a steady decline, sinking into the oil patch quicksand that has plagued the entire oil sector amidst a sustained six-month decline in crude oil prices.
JAG posted a bottom-fishing pocket pivot six days ago on the daily chart below, and has since moved higher. It too is now approaching the highs of a six-week range as it attempts to build the right side of its first potential base.
Both JAG and FRAC have a couple of things going for them. The first is that, as relatively new recent IPOs (FRAC is a reincarnation of the old Keane Group, symbol KEA, I remember trading during the oil stock move in 1996-1997), both might represent "new-merchandise," which could have a role in helping to lead the oil sector back to life. This is definitely stuff of the Ugly Duckling variety, but stuff to keep an eye on in my view since this market likes to find its feet and turn back to the upside in the most unexpected ways. Usually the leaders of such turnarounds are Ugly Ducklings, whether of the newer variety or of existing leaders that have gone into deep corrections and base-building phases and then start working their way up the right sides of new bases.
SmartSand (SND) is a name I've been discussing all he way down on various undercut & raly attempts, and it hasn't held up on a single one. But that's of little concern, since the beauty of a U&R long set-up is that it offers a very tight entry and a very tight stop that keeps risk to a minimum. As most members should know, once we identify a prior low in the pattern, then any move by the stock back above that low triggers the U&R set-up with the idea of entering as close to the prior low as possible. The prior low then becomes our squeaky tight stop. Much better than buying base breakouts and using a moronic 6-7% or more "auto-stop" based on some specious "study" of prior winning stocks.
After finally going through three clear selling waves within its pattern, and probably by the time that anyone and everyone who was ever interested in the stock has given up on it, the stock is again attempting to turn back to the upside. This could be viewed as an undercut and rally back above some low in the prior pattern, I'm sure, but I mostly look at this as a "Three Waves Down" sort of set-up where the moving averages are all inverted.
That is to say, the 10-dma is below the 20-dema which is below the 50-dma. Once the stock moves above the 10-dma it becomes buyable at that point using the 10-dma as a tight selling guide. SND did that on Wednesday, which was evident on the chart I sent out with my brief VooDoo Report covering the stock on that day. Now I'd like to see the stock post some kind of roundabout pocket pivot off the 20-dema and then push up through the 50-dma as a much better confirmation of a Three Waves Down (we'll shorten this to the acronym "TWD") Ugly Duckling long set-up. At the same time, I'd like to see all three moving averages turn to the upside.
Okay, so on the off chance that the market stabilizes and begins yet another glorious new up leg in a continued 2017 and post-Presidential Election rally, what else might be worth looking at? Well, again, I would refer to this idea of going after things that haven't had big moves already, and which aren't so obvious to the crowd and the media as the stocks to own. Like the analyst I saw on CNBC this past week telling investors that they all "need to have a relationship with Amazon.com (AMZN)."
A relationship with AMZN? Now??? Really? Below is the weekly chart of AMZN, and it seems to me that any analyst who wasn't adept at a) stating the obvious and b) being wildly late would have told us to "have a relationship" with AMZN back in late 2009 when the stock was under 100. At the very least, a more astute analyst could have advised engaging in intimate acts with the stock back in early 2015 when it was trading under 300.
So, anyway, getting back to this idea of focusing on things that haven't had big moves in 2017 and thereby haven't become painfully obvious to the crowd and Financial Cable TV talking heads, I would also be looking at relatively new-merchandise situations in this market. Last year we saw how a plethora of new-merchandise names like ACIA, PI, TWLO, LN, TTD, and others have big post-IPO moves. If the market goes higher than my guess is that we'll similar new-merchandise names pop up and drive to the upside.
MuleSoft (MULE) is one such recent new-merchandise IPO in the cloud sector, not unlike our recent addition to the VoSo Focus List, Appian (APPN) (which, by the way, was added after I first discussed it in a VooDoo Report last week). MULE was first discussed in the VooDoo Report when it was sitting around the lows of it first IPO base back in early May around the 22-23 price level. It has since had one major jack to the upside after setting up in voodoo fashion along the lows of the prior base.
Now the stock is pulling back and correcting as it consolidates the prior sharp upside move it had in late May. And here it is pulling down into the 50-dma with volume drying up to -50.6% below average on Friday. This looks like it might be good for at least a trade here using the 50-dma as a tight stop based on the voodoo pullback to the line on Friday. Study TTD as another recent IPO that set up in a second base after a huge price move from its first IPO base.
Another recent iPO that currently might be considered more of an "Ugly Gosling" than an "Ugly Duckling" is Canada Goose Holdings (GOOS). This was discussed in a VooDoo Report back on June 20th, nine trading days ago on the daily chart below, as a voodoo set-up along the 20-dema, and the stock then immediately followed through on the upside with a strong-volume pocket pivot that carried back above the 10-dma.
The company then shot itself in the foot by announcing a 12.5 million share secondary offering on Monday morning of this past week, sending the stock lower. With an existing float of 4 million shares at that time, the new offering of stock would more or less quadruple the float. On Wednesday the secondary was priced well at 20.75 a share. It looked at the time like it was absorbing the additional supply quite well as the stock tried to pull off a U&R coming up through the prior 20.50 low in the pattern 11 trading days ago on the chart.
But that failed in short order as the stock sold off on Thursday with the rest of the market. But remember that the Ugly Duckling does not give up easily, and when one Ugly Duckling set-up fails there always the chance that another one shows up lower in the pattern. So in GOOS' case we can see that on Friday the stock came within two cents of filling its prior gap from early June. That set up an alternative entry at that point using the 19.43 price level as a tight selling guide.
We were actually discussing the stock in real-time during our "Live Action" market webinar Friday morning when the stock hit that 19.46 low on the day, and it then rallied to close the day at 19.75. This gap-fill entry point remains in force. I see the Ugly Duckling characteristic here that is not obvious to the crowd as a positive. In addition, a stock with a 4 million share float may not be attractive to institutional investors due to it being too thin, but a 16.5 million share float might make it more so. That's something to think about, so keep the GOOS on your IPO watch list, along with APPN and MULE.
The VoSI VooDoo Report is published at undefined intervals without a set publication schedule. In general, Gil Morales will publish a VooDoo Report when the "Voodoo Mood" moves him to spew his alleged investment wisdom at members. Charts used in today's report are (C)2017 Worden Brothers. We think they have a very nice, clean look to them, and so will use them from time to time, in addition to eSignal and HGS Investor Software charts.