December 15, 2019

The averages emerged from a few days of reduced intraday range as range expansion kicked in on Thursday. Volume was impressive. The market continues to discount a positive conclusion to the U.S.-China trade talks, as well as the easier monetary policy indicated by the Fed.

 

Beyond the initial expansion of the number of pattern setups, things have tapered off. This is best seen in the Watch List, which, at 61 names, has shrank over the past few weeks. Some of our breakout candidates have met with resistance after rising 5%-10% or so. In part, this is a function of a rotation out of software issues which constituted a good portion of the Watch List. We can see that some software issues have 3+ distribution days in recent weeks.

A few semiconductor issues are discussed in this report. They are in the 99 RS rank of groups by O'Neil. Another area that holds technical promise is the gold miners, though at the moment there is only one name that is actionable. The GDX ETF of mining issues has now printed two higher lows and two higher highs after its Sept-Oct correction.

Among the names, Amarin (AMRN) is a biotech expecting its first profit in ’20. Sales growth has accelerated from 44% to 67% to 91% to 103% in the most recent quarters. A 95 RS stock with a 99 RS group and a B acc/dis rating.

After a 781% surge in just six weeks during September and October of ’18, price has been consolidating. In Wednesday’s report, it was noted that “It can be taken using the 23.91 high of July 5.” This entry pivot was cleared Friday on +23% volume, with price closing 1% above the level. Thus, it is within the 5% buy zone and can be taken above Friday’s high of 24.17.

On or before Dec. 28, the FDA is scheduled to make a decision on AMRN’s drug for high-triglyceride patients. This is part of the stock’s risk, as is takeover speculation. Earnings expected Feb. 4 (unconfirmed).

Entegris (ENTG) is expected to show 2%/22% earnings growth for ‘19/’20. Sales growth has declined 1% in each of the past two quarters. A 94 RS stock in a 99 RS group, the semiconductor equipment segment, with a B+ acc/dis rating.

Price builds a six-week flat base with an attractive 8% depth. The stock was on the Friday Focus List at an entry pivot of 50.15. Friday, it cleared this level by 0.4% on +6% volume, then closed at 50.01. It can be taken above Friday’s high of 50.35. Earnings expected Jan. 23 (unconfirmed).

New Oriental Education (EDU) is a Chinese provider of language training and courses to prepare students for exams. Earnings growth is expected to be 36%/32% for the May ‘20/’21 fiscal years. Sales rose 20% and 25% in the two recent quarters. A 96 RS stock with a B+ acc/dis rating.

The stock forms a five-week, base-on-base pattern with a tight, 6.9% depth. It can be taken above the 124.78 pattern high. Earnings expected Jan. 21 (unconfirmed).

KLA (KLAC) is forecast to post earnings growth of 18%/11% in the June ‘20/’21 fiscal years. Sales increased 18% and 29% in the last two quarters. A 96 RS stock in a 99 RS group with a D+ acc/dis rating.

The stock forms a four-week shelf with some pronounced distribution on the left side of this pattern. This has yielded to accumulation-only days on the right side of the formation. Since the Dec. 3 reversal day in the averages, KLAC is up 9.5% vs. 2.5% for the Nasdaq and 2.4% for the S&P. Of the three semi equipment makers discussed in this report, KLAC has performed the best since the Dec. 3 session.

Price is 4.8% from the 179.95 high of its shelf and is buyable on a takeout of this level. Earnings expected Jan. 29 (unconfirmed).

MKS Instruments (MKSI) is predicted to record earnings growth of -44%/42% for this year and next. Sales shrank 17% and 5% in the two recent quarters. A 94 RS stock in a 99 RS group with a B+ acc/dis rating.

Price forms a seven-week flat base with an attractive 12% depth. It is buyable on a takeout of the 115.12 pattern high. Earnings expected Jan. 22 (unconfirmed).

SSR Mining (SSRM) is a Canadian gold and silver explorer with interests in the U.S. and Latin America. Earnings are expected to grow 58% in ’20, while sales rose 49% and 29% in the last two quarters. A 92 RS stock in an 85 RS group with B+ acc/dis rating.

SSRM forms a four-month cup-with-handle. It can be taken above the handle high of 17.25. Earnings expected Feb. 4 (unconfirmed).

Shopify (SHOP) is a unique growth stock due to its unusual combination of very large size (market cap: $50B) and rapid earnings growth. There are only so many stocks in the market with this combination. Institutions with a growth mandate only wish there were more names like SHOP they could place money with.

Earnings are expected to go from an estimated 50% decline this year to a 384% increase in ’20. Sales increased 48% and 45% in the last two quarters. A 98 RS stock with a B- acc/dis rating.

As noted in Wednesday’s report, “SHOP has now created a five-day handle. It can be taken above Monday’s high of 381.11.” Friday’s action took out the 381.11 high as price rose 3.6% on +42% volume. I added to my position on Friday. Price is now 6% away from the next entry pivot, the 409.61 pattern high. Earnings expected Jan. 28 (unconfirmed).

Q&A

Q: Can you discuss the eight week rule at some point and how you apply it? It seems like there is a fine line between keeping your equity near its highs and at the same time being patient with potential monster winners. As always thanks for all your hard workIt’s been a great year thanks to what I’ve learned in your service. 

A: Thank you for your question. The eight-week rule states that if a stock rises 20% or more in the first three weeks after purchase, it should be held for eight weeks to see if it has the potential to become a big winner.

I think this is a sound rule, though I stopped following it in such a mechanical way many years ago after I had established myself with the strategy. Like most traders of breakouts, I seek to play a stock that performs well right out of the gate for a larger move.

Regarding your comment about keeping an account near its equity peak: If you are able to buy at the right time without chasing a stock, it makes the job of sitting through a correction or short-term pullback in a stock easier. A fact of trading is that our accounts will fluctuate: Today's equity peak may not last long. For this reason, we shouldn't become "attached" to a new equity peak, but just realize it is part of the fluctuation process. If it really bothers you, perhaps you might reduce the amount of funds exposed to the stock market. I hope this is helpful.

Kevin Marder

For intraday ideas and analysis: https://twitter.com/mardermarket

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 SHOP, 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.