August 21, 2019

The short-term trend turned upward on Monday when the Nasdaq put in its second impressive advance in a row. This was also the second close above the key 20-day line since the recent 8.1% correction began.

Of import has been the up-and-tight action of the Nasdaq over the past four sessions. This reflects a lack of sellers after the substantial gains of Friday and Monday.

Notwithstanding the Watch List's expansion from 47 names to 56, there are not many actionable stocks. This is a function of numerous leading stocks being extended coming into the correction, and then holding up during the brief downdraft. Should the averages continue to firm, the number of pattern setups is expected to increase.

The market remains subject to short-term whipsaws as the Administration and China make various statements about the progress of the trade talks. Of course, this is out of a trader's hands, though one can compensate by reducing risk exposure.

Among the names, Adaptive Biotechnologies (ADPT) is a recent new issue that is forecast to post losses for this year and next. During the last four quarters, revenue has risen 79%, 79%, 30%, and 91%. A 90 RS stock in a 79 RS group.

ADPT forms its first base since going public seven weeks ago. The pattern is a cup-with-handle with a 33% depth and a handle depth of 9%. The stock is buyable on a takeout of the handle high of 48.50. Earnings expected Nov. 12 (unconfirmed).

Anaplan (PLAN) is an enterprise software developer that Wall Street expects will post losses in the January ‘20/’21 fiscal years. Revenue growth was 49% and 47% in the two recent quarters. A 99 RS stock in a 97 RS group with a B+ acc/dist rating.

The stock forms a three-and-a-half week shelf. It is buyable above the 60.36 pattern high. Earnings expected Aug. 27 before the open (confirmed).

Atlassian (TEAM) is an Australian software interest that Wall Street predicts will grow earnings by 19%/27% in the June ‘20/’21 fiscal years. Revenue growth has been rock-steady at 37%, 39%, 38%, and 36% in the last four quarters. A 97 RS stock in a 77 RS group with a B- acc/dist rating.

The stock forms a three-and-a-half week shelf with a 12% depth. It is buyable above the 147.59 high of 8/9 as a cheater entrance. Alternatively, the 149.80 high of the pattern can be used as a pivot. Earnings expected Oct. 24 (unconfirmed).

Coupa Software (COUP) shows earnings growth estimates of -39%/273% for the January ‘20/’21 fiscal years. Sales growth has been solid at 39% and 44% in the last two quarters. A 98 RS stock in a 97 RS group with a B- acc/dist rating.

The enterprise software specialist builds a four-and-a-half week cup pattern. Price has seen support at the 50-day line on three days, a plus. The stock can be taken above the 148.00 high of the pattern. Earnings expected Sept. 3 (confirmed).

Epam Systems (EPAM) is expected to record earnings growth of 21%/22% for ‘19/’20. Revenue has increased 23% and 24% in the last two quarters. A 95 RS stock in an 85 RS group with a B- acc/dist rating.

The provider of outsourced IT and software development services forms a three-and-a-half week cup. It can be taken above the pattern high of 201.00. Earnings expected Nov. 7 (unconfirmed).

Inspire Medical Systems (INSP) will show net losses this year and next, per most Wall Street analysts. Revenue growth has sizzled, with rates of 62% and 65% in the last two quarters. A 94 RS stock in a 79 RS group with a B+ acc/dist rating.

The stock forms a six-week consolidation punctuated by a shakeout and upside reversal in reaction to its earnings report two weeks ago. It can be taken above the 69.71 pattern high, 3% away. Earnings expected Nov. 5 (unconfirmed).

Okta (OKTA) is a software security specialist with losses foreseen for the January ‘20/’21 fiscal years. Revenue growth, however, has been stellar, at rates of 57%, 58%, 50%, and 50% in recent quarters. A 99 RS stock in an 84 RS group with a C acc/dist rating.

Price forms a three-and-a-half week shelf with a 12% depth. It can be taken above the pattern high of 141.85. Earnings expected Aug. 28 (confirmed).

In sum, the Nasdaq's up-and-tight behavior over the past four sessions is encouraging, as is its close above the 20-day line and the better action in the growth sector. Accordingly, the speculator in aggressive growth titles can stick a toe or two into the water with some long exposure. The risks remain the U.S.-China trade talks and the Persian Gulf situation.


Q: Hi Kevin, I enjoy your insights and approach to extracting money from the market. There has been soo much attention to the 10/2 Y-Curve that the crowd is obsessed in trying to pick a top. On a secondary level, there is extreme bearish sentiment, especially at the retail level......the market works to fool the majority. Isn't it true that 10/2 YC inverted intraday and not on a closing basis? ....and all historical YC studies are based off closing prices, not intraday? Taking it day by day but the bias is still we are in a bull until evidence shows otherwise. Your thoughts appreciated.

A: For 29 years, I have only paid attention to two things: the price/volume behavior of the major averages and the action of the leading stocks. In addition, two things I look at as long-term signposts are breadth and financial groups (brokers, banks), but these have no bearing on the message provided by the averages and leaders since they are long-term and not suitable for intermediate-term speculation.

Posting the yield curve statistic on Twitter was a mistake, as I don't use it for anything. I have watched it for 30 years since when I was in b-school and respect its long-term message, but it cannot be used for the here-and-now which is what is needed for life as a trader.

Based on experience, I ignore all sentiment indicators because the averages and leaders will contain any and all opinions. I used to use three sentiment indicators: put/call ratio, Investor's Intelligence survey, and the VIX. I lost confidence in the put/call ratio during the 1998 bear market when roughly six or seven times it closed above the 1.0 level that was supposed to produce a turning point, but didn't.

I lost confidence in the Investor's Intelligence survey in 1993 when it showed a level of 55% or 60% bullish (a supposedly bearish reading) and I moved to cash despite my positions' acting well up to that point. Three weeks later, the market topped for the intermediate term, but that was three weeks during which my positions continued to advance.

The VIX tends to be correlated with the averages, so it holds no advantage.

I hope this clarifies my avoidance of using anything besides the averages and leaders in general market analysis.

Kevin Marder

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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.