February 10, 2019

The averages show good health on this pullback, as volatility stays nicely muted. A plus would be for the Nasdaq to hold up above the 20 ema, which has contained the average for the past five weeks.

Leading growth stocks continue to act well. Only a few have come under notable distribution. This general market pullback was welcomed as an opportunity for individual issues to form handles for either pullback or breakout setups. It has not disappointed thus far. A few offer the prospect of both a pullback entry and a breakout entry, as seen below.

As for the backdrop, the difference between two-year Treasury yields and 10-year Treasury yields, known as the 2s10s spread, at 16 basis points, is being watched to see if it flattens, or decreases, further. This would be a sign the markets are discounting further weakening in the economy, and may be a negative for equities. As usual, though, only the averages and leaders will dictate our long posture.

Bilibili (BILI) was discussed in the Jan. 16 report (“Price forms a low level cup-with-handle base, and could be taken above the 16.74 pattern high”). The next day price broke out, but on sub-par volume, and reversed two days later to fall as much as 6% from entry.

Price is in a five-day pullback. Friday saw price reverse around the area of the prior base high, a constructive development, to close in the upper quartile of the day’s range. A pullback entry could be had above Friday’s high of 17.65. Alternatively, the 18.61 high of this current handle could be used for another entry pivot.

Cornerstone Ondemand (CSOD) has a 47% earnings estimate for ’19, but disappointing sales growth of 14% and 10% in the recent two quarters. A 95 RS stock in a 95 RS group.

The stock can be taken above its three-day handle high of 59.48. Earnings expected Feb. 12 post-close.

Inspire Medical Systems (INSP) has been discussed in a number of recent reports, most recently in the Feb. 6 report (“It can be taken above its 56.80 handle high”). Friday, price crossed the 56.80 level. It can now be taken either as an add-on position or a starter position using the pattern high of 57.87, less than 1% away, as an entrance pivot.

To review, while a loss is expected this year, the stock doubled in its first nine days after coming public last May. It ended up rising as much as 261% in its opening four months. Too, revenue growth has been a blistering 91%, 89%, 81%, and 80% in the most recent quarters. This is the type of new issue worth paying attention to.

A 98 RS stock in a 92 RS group with an A- acc/dist rating. Earnings expected Feb. 26.

New Relic (NEWR) shows a 46% earnings estimate for the March ’20 fiscal year, with steady-eddy sales growth of 34%, 35%, 36%, and 35% in recent quarters. A 94 RS stock in a 98 RS group.

Price forms a four-day handle characterized by a wide-range bar Thursday in response to its earnings report. Then, price closed slightly above the mid-point of its daily range, showing supportive action after it found demand just above its 200-day line.

NEWR can be taken as a pullback entrance above Friday’s high of 103.29. Alternatively, the handle high of 107.36 can be used as an entry pivot.

Salesforce.com (CRM) can be taken above the three-day handle high of 159.88.

Servicenow (NOW) has estimates of 24%/38% for ‘19/’20. Sales expanded 30% in the recent quarter. A 96 RS stock in a 99 RS group.

Its recent earnings report sent price up 13% on +389% volume to clear a four-month consolidation pattern. This type of power speaks. Since then, price has formed a flag pattern as volume dried up in bullish fashion.

As an aggressive entry, price can be taken above the 229.50 high of this flag.

Splunk (SPLK) shows an estimate of 38% for the January ’20 fiscal year. Sales growth has been steady at 37%-40% over the past four quarters. A 96 RS stock in a 98 RS group.

Price forms a three-day handle to go with its five-month base. It can be taken above 131.43, the handle high. Given the lighter volume of the past five weeks, this breakout should coincide with confirming volume of at least 40%-50% above the average daily volume. Earnings expected Feb. 28.

Sunrun (RUN) is expected to notch 39% earnings growth in ’19, while booking 42% sales growth in its recent quarter. A 98 RS stock. It can be taken above the 15.00 high of its seven-month, double-bottom pattern. This 15.00 level represents the midpoint of this base and can be expected to bring in volume. This is considered a very aggressive setup due to the stock coming straight up the right side of its base, more or less. Less-aggressive players will wait for a pullback or handle to form. Earnings expected Feb. 28.

Wix.com (WIX) is expected by the Street to record 64% earnings growth this year and sales growth of 40% in the recent quarter. A 96 RS stock in a 99 RS group, the enterprise softwares. Earnings expected Feb. 20.

Price can be taken above the three-day handle high of 112.67.

World Wrestling Entertainment (WWE) was discussed as buyable above the 84.52 high of its three-week range. This was taken out on Friday. The stock is buyable around Friday’s close of 85.82. Of note was Thursday’s wide-range, earnings-related shakeout with excellent close.

In sum, both averages and leaders continue to show good health. Volume has been somewhat stunted in leading growth titles, which has muted post-breakout gains.

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