December 29, 2019

Market participants continue to discount the favorable monetary policy telegraphed by the Fed. Trade talk news might steal the show for part of a day or part of an hour, but it is the added reserves to the money supply during Q1 that the Fed has promised that is keeping a firm underlying bid to the proceedings.

Obviously, at some point the market will come in. This may be a test of how disciplined a trader was with his or her entries being within range of the respective pivot vs. chasing something beyond the 5% buy zone.

Of the four investment styles (large growth, small growth, large value, small value), only large growth outperforms. In part, this explains why there are some liquid glamours on the Watch List, e.g. ADBE, ADSK, BABA, FB, and TSLA. While these may not be preferred vehicles, sometimes one has to take a portfolio approach, especially in a mature bull when growth overall is not setting the house on fire (see the IBD 50 index, FFTY ETF). The only thing standing at the end of some bull markets are these large, highly liquid names churning out above-average earnings growth.

On the bright side, the key computer software-enterprise group jumped from 77 to 45 this week on MarketSmith's RS ranking of 197 groups. This group has provided many opportunities over the past several years of leadership. As well, the biotechs remain atop the list at a 99 RS rank among industry groups. These should be respected in terms of their added risk. Please position size accordingly if you trade these.

Typical year-end cross currents, and the reduced volume that may occur, may make Monday, Tuesday, and Thursday trading somewhat unreliable due to the window-dressing that goes on with institutions. However, we should continue to follow the plan with respect to new commitments.

Applied Materials (AMAT) is a bellwether among the semiconductor crowd. Most Wall Street analysts look for earnings growth of 24%/17% in the October ‘20/’21 fiscal years. Revenue growth has been -14% and flat in the last two quarters. A 95 RS stock in a 98 RS group with B+ acc/dis rating.

AMAT forms a six-week pattern with a reasonable 13% depth. The stock can be taken above the 63.07 pattern high. This is considered a liquid glamour and may pursue a slower rate of appreciation than other names. With that said, there are times in any market cycle when the liquid glamours tend to outperform their smaller counterparts as large investors prefer perceived safety and lower risk. Earnings expected Feb. 13 (unconfirmed)

Coupa Software (COUP) is forecast by the Street to notch earnings growth of 100%/31% in the January ‘20/’21 fiscal years. Revenue growth has been a robust and steady 54% and 51% in the last two quarters. A 96 RS stock in a 77 RS group with a C- acc/dis rating.

Coupa performs better than most software, and especially enterprise software, titles. In the two months since the low of its consolidation pattern, it has scored one accumulation week and one distribution week. It can be taken as a cheater entrance above the 155.77 high of Nov. 27. Earnings expected Mar. 2 (unconfirmed).

Crispr Therapeutics (CRSP) is a development stage biotech company on the cutting edge of research. The two CRSP buy ideas mentioned in the Focus List, one a breakout from a cheater entry and the other a bread and butter pullback entry, were profitable.

No earnings are expected for ‘19/’20. Significant revenue materialized in the most recent quarter. A 98 RS stock in a 99 RS group with B+ acc/dis rating. Price builds a five-week flat base and can be taken above the 74.00 pattern high. For very aggressive players. Earnings expected Jan. 27 (unconfirmed).

Inphi (IPHI) is in the fabless semiconductor group. Most analysts eye earnings growth of 85%/31% for ‘19/’20. Sales rose 24% and 21% in the two recent quarters. A 97 RS stock in a 96 RS group with an A- acc/dis rating.

Price forms a six-week cup with 14% depth and can be taken above the 77.67 high of Nov. 12. Earnings expected Jan. 28 (unconfirmed).

KLA (KLAC) is forecast to post earnings growth of 18%/12% in the June ‘20/’21 fiscal years. Sales increased 18% and 29% in the last two quarters. A 95 RS stock in a 98 RS group with a B- acc/dis rating.

The stock forms a six-week cup with some pronounced distribution on the left side of this pattern. This has yielded to mostly accumulation days on the right side of the formation. Since the Dec. 3 reversal day in the averages, KLAC is up 14% vs. 6% for the Nasdaq and 5% for the S&P. Of the three semis discussed in this report, KLAC has performed the best since the Dec. 3 session.

Price is 1% from the 179.95 high of its base 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 92 RS stock in a 98 RS group with an A- acc/dis rating.

Price forms a nine-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).

RingCentral (RNG) is an enterprise software issue with estimates of 5%/15% for ‘19/’20. Sales have expanded steadily: 6 of the last 7 quarters have shown 34% growth. A 96 RS stock in a 77 RS group with a B+ acc/dis rating.

The stock forms an 11-week base with 17% depth. The weekly chart shows the current consolidation is normal within the bigger picture. It is buyable above the 177.99 pattern high. The ’20 estimate is unimpressive, admittedly. The robust and extremely steady revenue growth, the constructive chart pattern on both daily and weekly TFs, and the rapidly improving group RS rank comprise the thesis. Earnings expected Feb. 3 (unconfirmed).

Shopify (SHOP) is a unique growth stock due to its unusual combination of very large size (market cap: $44B) 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.

Technically, price cleared a four-month cup Thursday, but could not follow through. It can be taken above the 416.60 high of Dec. 26. This is 1.7% above the base high. Earnings expected Jan. 28 (unconfirmed).

Solaredge Technologies (SEDG) is an Israeli producer of solar hardware such as inverter systems. The bottom line is forecast to grow 26%/17% in ‘19/’20. A 98 RS stock with a B+ acc/dis rating.

SEDG forms a nine-week cup with 23% depth, which is considered reasonable. Price is four days into the formation of a handle. The entry pivot is the 96.69 pattern high. Earnings expected Feb. 5 (unconfirmed).

Zymeworks (ZYME) is a biotech in the field of cancer treatment. Losses are expected for ‘19/’20, while sales growth has been in the $8-$12MM range over the past three quarters. A 99 RS stock in a 99 RS group with an A+ acc/dis rating.

Price forms a five-week consolidation. It can be taken above the 45.83 high of its five-day handle. Earnings expected Feb. 4 (unconfirmed).

In sum, the uptrend continues apace. We should expect a pullback, though it is not the best idea to try to predict when this will occur.

Q&A

Q: I just wanted to let you know that I really appreciate the adaptability to current market conditions your service is providing. I was very pleased to see that you extended our watch list with some of the bigger names such as NVDA, FB, ADBE etc. If the large cap market is in a broader uptrend, these are mostly the names that move along smoothly with this uptrend and in these times I like to have one or two of these names in my portfolio. I am still super happy with your service, the “to the point” market analysis and your straight, patient and honest approach/reaction to what is happening in the market.

I wish you and your beloved ones a wonderful Christmas and all the best for 2020!

A: Thank you for your feedback and thoughtfulness. The market is always changing, and it is important for us to keep abreast of those changes, both in terms of risk and also opportunity. I like sharing my experience with subscribers as we move through the various twists and turns of the market cycle. Glad you are on board! Merry Christmas and best wishes for a special new year

Q: I am trying to get a grasp, being new to the room of your methodology, which is IBD style growth stocks, but was wondering about the base count of some of the equities in the Watch List. Do you try to limit stocks to certain base limits, say one or two counts only?   I have been trading for some time but new to CANSLIM methodology and just trying to understand more. Also not sure this is a proper question or not, but trying out your service i was wondering if trades are taken off your WL and how or do you inform your members ? Is it via a private twitter feed? I understand i have sent several emails but being new to your service i want to get all the info i can, i hope you can understand .

A: Thank you for your email. I have learned over the years, especially in a long bull market such as this one, that winning stocks do not pay much attention to base count. What is key is whether institutions are interested. That is the bottom line, imo. E.g. SHOP more than doubled after clearing its 5th stage base. 1st and 2nd stage bases are favored, obviously.

The Focus List and Watch List are part of the same Excel file. The Watch List contains issues that might become future buy ideas. They are removed from the Watch List if they no longer have the potential to become buy ideas. Stocks from the Watch List which are actionable, i.e. they have an entry price, are listed on the Focus List. Once a Focus List stock triggers an entry, it is removed from the Focus List, though sometimes if it is just 2% or 3% past the pivot, it might remain on the Focus List with a revised entry price. It is up to subscribers to determine which Focus List names they are interested in buying. Sometimes I may mention that I hold a position or that I am interested in taking a position. But there is no "model portfolio." A benefit of the videos is that one can better detect by the tone in my voice and my comments which I believe to be the more favorable issues.

There are many techniques to exit a winning trade. The one that makes the most sense for most traders is the use of moving averages. The ones I like are 9ema, 20ema, 50sma. This can be either an intraday break or an end of day close below an MA, depending on a trader's preference. I have discussed this in the past. If you use MAs, I might suggest looking at a number of charts of past winners to see how each fared when violating each of these MAs. Also, please see the attached file.

Because you are new, I will tell you that the service is all about transparency and realism with no sugarcoating. If attention is paid to winners, it should also be paid to stopouts. As for transparency, it is important that I always relay my thought process to subscribers so they know why something is being done, to the extent that I am able. In particular, this pertains to the general market analysis, e.g. why I believe cash should be raised, and what is the current game plan as far as groups/sectors, degree of long exposure, etc.

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.