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The Nasdaq had gotten a bit ahead of itself following four days of gains which left it stretched from its 9 ema. This resulted in some mild selling in Friday's half-day session. One of the only seasonal tendencies I pay attention to is the strength that tends to occur before a holiday. This obviously played itself out this past week.
There is nothing new on the leadership front. The two most important broad sectors for general market health -- technology and financial -- perform well. Among narrow groups, the biotechs continue to run away from the rest of the pack, and now have a 95 RS rank among the O'Neil 197 industry groups. Stocks are in the heart of their historically best period.
Our best performer in the current rally has been Crispr Therapeutics (CRSP), +37% and +42% on an MFE basis from the Nov. 12 starter entry. The add-on entry of last Monday took advantage of a bread and butter pullback setup. I took both entries and am seeking an additional add-on position if one presents itself.
Here is where an understanding of entries beyond the traditional breakout can be worth its weight in gold, in my opinion. Without a pullback entry, one must wait weeks to months for, according to the O'Neil strategy, either a) the next base to form, b) price to pull back and touch the 50-day moving average line, or c) price to form a three weeks tight pattern.
While I speak a lot of 1R scalps, e.g. with S&P 500 names, 1R scalps are for swing trading only (1-5 day timeframe, roughly). In position trading growth issues, pullbacks should be used as entries into leading stocks with the goal of holding them as one would a breakout: for the intermediate term (several weeks to several months).
Among the names, Coupa Software (COUP) has generated a buy idea more often than any other name since the service’s inception over a year ago – a total of eight times.
The Street looks for this enterprise software issue to show an earnings decline of 11% in the January ’20 fiscal year, followed by an estimated 138% growth rate in the January ’21 year. Sales have expanded 44% and 54% in the last two quarters. A 97 RS stock with a D- acc/dis rating.
The stock is not actionable at present since its earnings report is expected Monday, Dec. 2 (confirmed), but will be monitored for its post-report reaction. The high of its six-week pattern at 159.97 would be a suitable entry pivot.
Franco Nevada (FNV) is a gold-oriented company centered on royalty streams. An 88 RS stock with a B acc/dis rating.
FNV forms a 12-week cup-with-handle with a 12% depth and a tight 4% handle depth. The handle high of 100.70 offers a suitable entry pivot, especially with earnings out of the way. Earnings expected Feb. 10 (unconfirmed).
Servicenow (NOW) is a large, institutional quality stock with 30% earnings estimates for ‘19/’20. Revenue has risen 32% in each of the last two quarters. An 86 RS stock with a B acc/dis rating.
Price forms a four-month consolidation. A four-day handle with a high of 284.30 can be used as a cheater entrance pivot. Earnings expected Jan. 22 (unconfirmed).
Novocure (NVCR) was a significant winner for us, up as much as 74% in just over two months after it was put on the Focus List June 12. Earnings per share are expected to move from a 12-cent loss this year to a 38-cent profit next year. Sales have grown steadily at 41% and 42% in the last two quarters. A 98 RS stock with a B acc/dis rating.
NVCR is forming a beautiful three-month cup with avid institutional buying along with a wide-range bar last Monday which showed volume support. An entrance pivot of 98.70 (the pattern high) can be used, however price is now three days into handle formation and can be taken above the 96.14 handle high. Price is 7% from the pattern high. Earnings expected Jan. 30 (unconfirmed).
Okta (OKTA) shows losses for the January ‘20/’21 fiscal years. Sales have grown 50% and 49% in the last two quarters. A 94 RS stock with a B+ acc/dis rating.
The stock forms a four-month, double-bottom base and can be taken above the 141.85 pattern high. Please note that earnings are expected Thursday, Dec. 5 (confirmed).
RingCentral (RNG) is forecast by Wall Street to book profit growth of 5%/15% for ‘19/’20. Sales grew 34% in each of the last four quarters. A 97 RS stock with a B- acc/dis rating.
The stock forms a seven-week consolidation with 17% depth. It is 3% from its pattern high of 177.99, which can be used as an entrance pivot. Earnings expected Feb. 3 (unconfirmed).
RNG is not a favored name due to its less-than-desirable earnings growth estimates and its v-shaped pattern. However, revenue growth has been solid and steady + its powerful Oct. 4 gap-up gain of 28% on +839% volume overrides the muted estimates and chart pattern.
Tandem Diabetes Care (TNDM) was a burner in ’18, moving from 2 to 52 in about seven months. In Q1 of this year, we were able to take it for a profit of as much as 63% in about five weeks.
The company makes medical devices for diabetics who are insulin dependent. Estimates go from a 52-cent-a-share loss this year to a 3-cent profit in ’20. Sales leaped 173% and 105% in the last two quarters. An 83 RS stock with a B- acc/dis rating.
The stock has formed an eight-month consolidation. It can be taken above the pattern high of 74.81. Earnings expected Feb. 3 (unconfirmed).
Yandex (YNDX) is a provider of Internet search/content services to Russia and a few other countries. Most on Wall Street look for 24%/44% earnings growth for the ‘19/’20 period. Revenue grew 39% and 40% in the last two quarters. An 88 RS stock with a B acc/dis rating.
Price forms a four-month consolidation and can be taken above the 42.37 pattern high. While the pattern appears unorthodox, note the gap-up 12% gain on +338% volume two Mondays ago. Also note the lack of worrisome profit-taking in the wake of that outsized gain. Earnings expected Jan. 24 (unconfirmed).
In sum, the market acts quite well at both the level of the averages as well as with the sectors and groups. Growth-stock leadership continues apace. Let's continue to add long exposure while respecting the possibility of a pullback.
Q: I was taking a look at TDOC and noticed that it wasn't on your list. Growth has been pretty good, although is slowing a little bit. Technically the chart looked good to me. I wanted to run it by you and see if there was something you didn't like about it. Thank you.
A: I think that is a fine choice. Unless a stock has outstanding fundamentals, e.g. SHOP or TNDM, I prefer buying something with a shorter base or consolidation, something that has done more recently. Not five weeks in length necessarily, but also not a year in length. Again, fine choice and the weekly also looks good. Nice job!
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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 a position in CRSP, 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.