Stocks traded down Wednesday, with the speculative growth-stock glamours absorbing the biggest punch. Just eight of 57 names on the Watch List rose on the day.
While the healthcare sector was blamed for the market's malaise, the view here is that market participants are more comfortable with the economy avoiding a possible recession. This means they may be less inclined to pay a premium earnings multiple (P/E ratio) for companies with recession-resistant growth, such as the glamours.
We will see if this plays out. In a sense, this rotation out of growth did not begin on Wednesday, but has been evident in some of our Watch List stocks. Wednesday's decline just made the selling more apparent.
It should not be a surprise if stocks pull back next week. While that is not a forecast, it is logical for a market that has come this far from the Dec. 24 lows to take a break.
Subscribers should not be shy about moving out of positions if they hit predetermined exit points so as to protect gains in some of the leaders that broke out of bases during January and February.
Because we are now in earnings season, it is important to check a company’s earnings release date before taking a position. This info is provided on a best-efforts basis here and in the Focus List, but it is recommended that you verify the data on your own. Earningswhispers.com has been reliable, but unless there is a checkmark next to the date, EW has not confirmed it with the company.
You will see each stock below has the earnings date and whether EW has confirmed the date with the company.
Axsome Therapeutics (AXSM) is a higher-risk issue by virtue of the fact that it is a development company in the biotech group. This means no earnings estimates or revenue. In addition, it is a small-cap name with $18MM in ADDV, below the preferred range of $25MM-$30MM and higher. A 99 RS stock in an 87 RS group with an A+ acc/dist rating.
The big positive about this stock is its relative strength. It is up from 2.82 on Dec. 31 to a high of 16.80 recently. This qualifies it as one of the top performers, if not the top performer, of the year. Price forms a three-week, mini double-bottom pattern and found support three days ago at its 20 ema, a positive sign.
For very aggressive players only, AXSM can be taken on a breakout above the 16.80 pattern high on confirming volume. It is preferred that price put in another week or two of backing and filling prior to any breakout attempt. This would serve to take some of the hot-money’s attention away from the stock. Earnings expected June 13 (unconfirmed).
Coupa Software (COUP) was discussed in the April 10 report (“COUP can be taken above the 100.00 high of its consolidation pattern on confirming volume. Earnings expected June 10 post-close”). The comment stands. Its acc/dist rating is a C and its RS is a 97.
The stock has shown two distribution days in the last two weeks, while on Wednesday it sliced through its 50-day moving average. The latter is considered a warning sign. For now, it remains on the Focus List. Earnings expected June 10 (unconfirmed).
Irobot (IRBT) was noted in the Sunday report (“The stock can be taken above the 132.88 pattern high. Earnings expected Apr. 23 post-close”). The comment stands.
(If you hold a position going into an earnings report, be sure to calibrate your position size so that your account is not substantially dented in the event of a large earnings-related selloff. In the unlikely event that I hold something through earnings, I use a 25%-33% worst-case scenario when calibrating position size. But of course price has the potential to move down much more than that.) Earnings expected April 23 (confirmed).
Mimecast (MIME) was noted in the April 10 report (“The stock can be taken above the 51.66 high of its pattern”). A plus was the ability to put in two major accumulation days last week. Earnings expected May 13 post-close (confirmed).
Paylocity Holding (PCTY) was mentioned in the last four reports as being buyable above the 92.50 high of its seven-week base. Tuesday it cleared the base on +116% volume, only to reverse intraday and go out just below the pivot. Wednesday it bucked the negative growth sector to move up a fraction.
PCTY can be taken above Tuesday’s high of 93.62, which is 1.2% above the entry pivot. Earnings expected May 2 (confirmed).
Pluralsight (PS) is a developer of computer design software. Losses are expected in ‘19/’20, but revenue has grown at a brisk clip of 42% in the two recent quarters. A 94 RS stock in a 94 RS group with a B- acc/dist rating.
Price forms a 19% deep, six-week consolidation. This depth is acceptable for a six-week pattern. On a weekly chart, last week showed major accumulation. PS can be taken above the 34.47 high of its pattern. Earnings expected May 1 (confirmed).
Sea Limited (SE) was noted in the Sunday report (“It can be taken above the 25.14 pattern high”). Earnings expected May 28 post-close (unconfirmed). SE has had five distribution days in the last three weeks. This is not unexpected for a stock that moved up about 50% in five days before beginning its base. Still, distribution is distribution.
With that said, the weekly chart shows one accumulation week and just one distribution week that closed in the middle of its range, a sign of support. At this juncture, price may take out the 21.83 low of its range. Should SE recover and take out the 25.14 pattern high on confirming volume, it can be taken. This is an example of how insisting on confirming volume can help mitigate the higher risk of a particular name, in this case one with distribution days.
Svmk (SVMK) was analyzed in the April 7 report (“Very aggressive players could take this above the handle high of 18.48, assuming confirming volume”). The comment stands. Earnings expected May 8 (confirmed).
Workday (WDAY) was discussed in the April 7 report (“The stock can be taken above the pattern high of 200.00”). The comment stands. Earnings expected May 30 (unconfirmed).
In sum, subscribers should be careful to protect gains by honoring predetermined exit points for winning positions. While it is impossible to know whether the averages begin a 3%-5% reaction or something more sinister, what we do know is that a number of glamours have shown weakening signs in recent weeks. This, plus the reduced quantity and quality of pattern setups seen in the Focus List, should have us showing some caution as to fresh-money buys.
Let's examine the technical action of both Watch List and the averages on a daily basis to see if this weakness spreads or whether it provides some new opportunities.
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Unless otherwise noted, charts created using TradeStation. ©TradeStation Technologies, 2001-2019. All rights reserved.
The views contained herein represent those of Marder Investment Advisors Corp. At the time of this writing, of the stocks mentioned in this report, Marder Investment Advisors Corp., Kevin Marder, or an affiliate thereof held no positions, though positions are subject to change at any time and without notice. Estimate data provided by Thomson Reuters. Expected earnings release dates provided by EarningsWhispers.