Friday marked the third day up off the Christmas Eve low, making Monday the first day that could qualify as an O’Neil follow-through day. While an FTD would be welcomed, most do not work in a bear market at confirming a recent low as the end of a bear.
Thus, we will take an FTD into account, but we will tread cautiously unless an FTD materializes that is explosive and not just on the fence. Should one with this power occur, emerging leadership beyond what is currently on the Watch List should appear.
From what we can see, initial leadership might not come from the growth sector, since it was beaten to a pulp and needs more time to recover. But some growth titles should percolate to the surface, including some on the Watch List.
These reports will also cover more Watch List names - about twice as many as at present - as the next bull market comes into being.
It would be normal for the averages to return to their Christmas Eve lows in a testing sequence. This should occur on lower volume than the original descent that occurred just prior to, and including, the 12/24 low.
Meanwhile, there were a couple of subscriber questions related to the discussion in Wednesday’s report of a swing trader setup that I had modified over the holiday. The first question was whether the setups generated by this strategy will be shared with subscribers. Yes, absolutely. Apparently, I had not made this clear in the discussion.
Because it is a swing trader setup, i.e. a pullback or reversal type, it will be available along with other swing trader setups in the private blog for premium members. The question is how often this setup will present itself in the SPNDX universe (S&P + NDX [Nasdaq 100] stocks, about 522 in all due to most NDX stocks also being in the S&P).
The second subscriber question had to do with whether a chart highlighting each of the 2018 SPY setups for this strategy could be available. A video will be made for this.
As was the case in our last report, this is not an environment for long-side speculation. The names that follow should not be purchased if they cross suggested entry points. Rather, they are included to provide some vehicles to consider if the averages firm up and show better tone.
Among the names, Atlassian (TEAM) is one of the few bona fide growth stocks that starred in ’18 and which holds up well. Earnings are expected to expand 50%/24% in the June ‘19/’20 fiscal years, while sales increased 37% in the recent quarter. A 98 RS stock.
TEAM may have the most attractive base on the Watch List. The 89.82 high, just 2% away, serves as a cheater entrance pivot. For less-aggressive players, the base high of 98.21 is 11% away. The RS line is handily ahead of price as it hits a new high on almost a daily basis.
Cyberark Software (CYBR) is expected to see earnings growth slow to 10% in ’19 from 52% in ’18. Revenue growth was a respectable 31% in the recent quarter. A 97 RS stock.
This is a wide-and-loose pattern that has quite a bit of work ahead of it in terms of technical repair. A plus is that CYBR corrected “only” 23% during the market selloff. This is much better than most growth shares. The 12/11 high of 79.16 might tempt some to use as a cheater entrance.
But the view here is the pattern is in no shape for anything except further consolidation. If an entrance is considered at all, it should be connected with a formal base break above the 84.21 high 13% away. Should more sideways action take place in the meantime, our view might change. But as of this moment, considerably more work needs to be put in prior to any cheater entry.
CME Group (CME), like many others, is a bit rough around the edges. Earnings are expected to be 10% next year after an estimated 40% this year. But sales rose a disappointing 2% in the recent quarter. The only thing that could explain the popularity of CME is the very high earnings stability over the past several years.
Regardless, this is trading close to its prior high (5.6% away) and has been a steady outperformer for the entire Q4. In a normal bull market, this issue is not one that would be on the Watch List. The pattern high of 197.08 represents the entrance pivot.
Deckers Outdoor (DECK) is forecast by the Street to grow earnings by 20%/7% in the March ‘19/’20 fiscal years. Sales were a paltry 4% in the recent quarter. A 97 RS stock.
Price forms a base-on-top-of-a-base with a reasonable 14% depth. The base high of 137.49 offers an entrance pivot for a breakout trade.
Ra Pharmaceuticals (RARX) is a highly speculative issue due to its smaller size ($741MM market cap, $8.9MM ADDV), industry affiliation (biotech), and losses expected this year and next.
The stock happens to have one of the most attractive technical patterns in the market, a nine-week consolidation. The entrance pivot would be the pattern high of 19.80.
Servicenow (NOW), along with TEAM, discussed above, might be the cream of the Watch List. While it has more backing and filling to do before it can be taken seriously, and sits 12.6% from its high, its RS line has preceded price into new-high ground.
This could easily be seen in a leadership role if the averages were to have embarked on a new bull market last Wednesday. A suitable cheater entrance pivot could be the 192.16 high of 12/3. This would be 7.4% from the pattern high of 206.29.
In sum, stocks remain in a bear market. Long positions are out of the question. Short ideas will be relayed to premium subscribers via the private, members-only blog. Otherwise, a 100% cash position is appropriate.
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Unless otherwise noted, charts created using TradeStation. ©TradeStation Technologies, 2001-2018. 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.