The Nasdaq and S&P did nothing last week, moving sideways due to a paucity of market drivers and amid caution due to earnings season.
The number of names on our Watch List has largely remained in the 50-60 range for some weeks as there are few titles worthy of our attention as risk managers of capital. The market is not the same animal as it was in January and February, when a growth sector that was broken and in need of repair came to life with dynamic names building and breaking out of bases.
While the Nasdaq is the best actor among major averages, the sub-surface look at the growth sector reveals a segment that simply needs time to build new bases with attractive pattern setups. Certainly, sector leadership remains stout: Defensive sectors like the consumer staples, healthcare, and utilities are not leading. This tells us participants are not concerned with economic growth slipping into recession.
And offensive areas like consumer discretionary and technology are leaders. While small stocks have underperformed, this is not considered detrimental.
Volatility and volume in the Nasdaq index have shrunk as the four-month rally moves on. Combine this with a slim menu of pattern setups among the speculative growth-stock glamours and one is being told to play light.
This does not mean to exit winning positions without a reason, the reason being that a stock violates your plan to exit a winning position.
It could mean long market exposure is reduced vs. what was appropriate for January and February, when stocks were coming out of first-stage bases of longer duration after being cleaned out during the October-December bear market. It could mean reduced position sizing vs. January and February. It could mean insisting on a breakout having confirming volume.
One sign of a mature trader is adjusting risk for changing market conditions. Like a professional blackjack player who will only bet big when he or she is dealt a high-probability hand, a mature trader will manage risk differently depending on what the market gives him.
Coupa Software (COUP) is penciled in to improve its earnings by an estimated 7 cents a share in the January ’20 fiscal year to 32 cents in the ’21 year. Sales stay vibrant at 43%/39% growth in the two recent quarters. A 96 RS stock in a 98 RS group with a C acc/dist rating.
Price forms a seven-week flat base. Given the stock’s inability to remain above the 50-day line for very long during the past three weeks, and given the two distribution days during this period, confirming volume should be insisted on should price clear the 100.00 pattern high. Earnings expected June 10 (unconfirmed by Earningswhispers.com).
Irobot (IRBT) shows earnings growth expected to be 4%/25% in ‘19/’20. Sales have risen 29% and 18% in the two recent quarters. A 98 RS stock in an 87 RS group with a B- acc/dist rating.
Price forms a six-week base with no major accumulation or distribution days on the pattern’s right side. It can be taken above the 132.88 pattern high. Earnings expected Apr. 23 (confirmed).
Mimecast (MIME) should grow earnings by 85% in the March ’20 fiscal year, per Wall Street analysts. Sales have risen 30% in each of the last two quarters. A 94 RS stock in a 94 RS group with a B acc/dist rating.
Technically, the stock traces a nine-week base that had a positive shakeout below its 50-day line two weeks ago. This was followed by two major accumulation days as it moved up the right side of its pattern. MIME can be taken above the 51.66 pattern high. Earnings expected May 13 (confirmed).
Sea Limited (SE) is a Singaporean Internet content provider. Losses are anticipated this year and next, though at an improved level vs. the ’18 result. This is a very fast-growing company as evidenced by its triple-digit sales growth in the two recent quarters.
As well, sequential revenue growth of 38% in the recent quarter is considered to be “off the charts.” The fact that this occurred off a high base of $205MM – as opposed to $10MM – makes it that much more meaningful.
SE builds an attractive six-week, flat base with a 13% depth. It can be taken above its pattern high of 25.14. Earnings expected May 28 (unconfirmed).
Svmk (SVMK) shows a per-share loss of $1.37 for ’18, followed by estimates of a $0.07 loss this year and a profit of $0.06 for ’20. Revenue growth of 18% and 19% in the two recent quarters is a weak link here, as it is below the preferred 30%+ level. A 90 RS stock in a 98 RS group with an A acc/dist rating.
A plus is the stock’s performance of 61% since the Dec. 24 market low. This compares with the Nasdaq’s 29% showing. Price forms a seven-month, cup-with-handle base. It can be taken above the 18.48 handle high. Earnings expected May 8 (confirmed).
Twilio (TWLO) is expected to show a jump in earnings from 10 cents a share this year to 27 cents next year. Sales growth has been beefy at 68% and 77% in the two recent quarters. A 99 RS stock in a 98 RS group with C+ acc/dist rating.
The stock has been basing for four weeks. It sits right at its 50-day line, where it found support Thursday. TWLO can be taken above its 136.00 pattern high. Earnings expected Apr. 30 (confirmed).
Workday (WDAY) is predicted to post earnings growth of 22%/33% for the January ‘20/’21 fiscal years. A 95 RS stock in a 98 RS group with an acc/dist rating of D+.
WDAY has two distribution weeks in the last three. This may be a symptom of the rotation out of some growth stocks as participants temper their risk-on posture. Price forms a seven-week flat base with an encouraging 12% depth. The stock can be taken on a breakout of the 200.00 pattern high with confirming volume. Earnings expected May 30 (unconfirmed).
World Wrestling Entertainment (WWE) is forecast by Wall Street to show a jump in earnings per share from $1.21 in ’19 to $3.14 in ’20. Revenue grew 0%, 31%, 1%, and 29% in the recent four quarters. A 97 RS stock with an A- acc/dist rating.
Technically, the stock builds a six-month consolidation ahead of its earnings report expected Apr. 25 (confirmed). Several major accumulation days have been printed in the last few weeks vs. one major distribution day. Price did come out of its pattern a week ago on +27% volume, but there was no follow-through, likely due to caution ahead of earnings.
WWE can be monitored for its reaction to its earnings report. It is 2.6% below its 52-week high.
In sum, the growth sector is not behaving with the same abandon as it did in January and February. While there is nothing overly negative about the price action, subscribers should be cognizant of the changed reward-to-risk dynamic in this market.
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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. Relative strength (RS) rank and accumulation/distribution ratings provided by MarketSmith.