February 17, 2019

The Nasdaq remains buoyant, though on sub-par volume for 10 days' running. The initial outperformance vs. the S&P seen coming off the Christmas Eve low has dissipated, as it now runs neck and neck with the blue-chip indicator.

Very few pattern setups are present, as dozens have cleared basing patterns and are somewhat extended. The general market could use a good pullback in order to keep everyone honest. This would cause some discomfort, but might lead to another round of setups for the position trader.

Premium subscribers will have noticed that the Watch List has remained roughly the same in terms of number of names, in the low-60s area. This is a function of a lack of newer names setting up.

Evolus (EOLS) is a higher-risk medical name given its status as a development-stage outfit with a loss anticipated for ’19 and no revenue. A 99 RS stock with an A- acc/dist rating.

The intriguing element here is the double in two weeks and the triple in seven. Following that, volume has shrunk, but remains not far from average levels. For very aggressive operators only, EOLS could be taken above the handle high of 30.25.

With that said, it would be preferable to see price do nothing for another week at least, as a means of bringing volume down to dimmer levels. Earnings expected Feb. 25.

Freshpet (FRPT) was mentioned here in the Feb. 6 report (“The stock could be taken above the 40.21 handle high”). The comment stands. Earnings expected Feb. 26.

Irhythm Technologies (IRTC) was noted here in the Jan. 30 report (“Price forms a cup-with-low-handle, and can be taken above Wednesday’s high of 86.03”). The stock broke out the next day on -2% volume. It then pulled back to about 7% below the pivot, likely stopping out those who had entered.

While a loss is expected in both ’19 and ’20, revenue is quite bulky, growing 52% and 53% in the recent two quarters. Last week after releasing earnings, price rose 7% on +245% volume. It is now two days into a handle formation and can be monitored for some more backing and filling prior to considering an entrance. Worth watching.

Planet Fitness (PLNT) shows an 18% estimate for ’19. Sales expanded 40% in the recent quarter. A 96 RS stock with a B+ acc/dist rating.

The thesis revolves around the tightness of the pattern, a flat base of five weeks with 5.7% depth. The recent volume dry-up is encouraging. The stock can be taken above the 2/5 high of 59.91. Earnings expected Feb. 26.

RingCentral (RNG) has moved up from the two entry points discussed in prior reports. A 97 RS stock in a 99 RS group with an A acc/dist rating.

Last week’s earnings report produced a 6% rise on +222% volume. It is now three days into a handle. As a pullback entry, it can be taken above Friday’s high of 104.90 with a possible stop below Thursday’s low of 101.10. This equates to 3.6% position risk, or 1.8% de facto risk if a half-sized starter position is used.

Shopify (SHOP) shows big estimates of 32%/84% for ‘19/’20 while posting sales growth of 58% and 54% in the most recent quarters. A 93 RS stock in a 99 RS group (enterprise software). A concern is the lack of accumulation in the stock’s base. However, Tuesday’s reversal and good close in reaction to the earnings report is a plus.

The stock can be taken above the 180.00 high of its four-day handle.

The Trade Desk (TTD) was discussed in Wednesday’s report (“It can be taken either above its 157.50 handle high or the 161.50 high of its four-month consolidation”). Friday, price cleared the handle high of 157.50. The 161.50 high of its four-month pattern can now be contemplated as an entry pivot.

Earnings expected Feb. 21, so please plan accordingly. This means either doing nothing before the report or taking a measured position before the report that would not overly dent your account should there be a major selloff post-report.

In sum, market health is not to be questioned, though additional volume would reflect another step or two into the risk-on camp by institutions. The backdrop is sound, what with lower bond yields and a market discounting an end to Fed tightening. Secondary entry points may begin to materialize in some of the emerging glamours.

The following are questions from subscribers.

Q: Hi Kevin — I realize you have enough going on but was curious if you could give your thoughts on INSP if you find yourself with time or room in another video coming up. I'm in it currently with stops set but was interested in your opinion of the stock's pattern and how it was acting. Love the service and the last few weeks have been very fruitful. Have a good week.

A: INSP acts fine. Its recent breakout attempt did not follow through and may be due to caution ahead of its expected Feb. 26 earnings release. There was an attempt to sell it off on Wednesday. Instead, the stock found demand intraday and went out in the upper quartile of the day’s range. Wash-and-rinse days like this one are viewed as positive when they occur in an uptrend. Too, price found support that day at its 9 ma, a sign of a strong title.

Q: I am wondering what time frame you use on your chart(s)? Many traders use 5 minute, 30 minute, 60 minute, etc. What do you prefer and is there a specific reason for your choice?

Also, do you have any suggestion/formula concerning the number of positions to hold in a portfolio based on the dollar value of portfolio. For instance, $500,000, $5 million, or $10 million as the total dollars to invest? How are the number of positions managed as the value of the portfolio grows? More positions for larger dollar portfolio or same number of positions and more dollars per position?

Also, I wanted to thank you for all you do. I know it is a lot of work and I really appreciate your efforts. The new format with the videos is especially instructive. It has made a big difference for me. Thanks!

A: Thank you for these excellent questions. I use 5-min and daily TFs (timeframes). In the next video, I will show some of the TradeStation workspaces I use. The main TF is the daily since we are position traders taking our cue from what happens on the daily chart. I will also consult the 5-min TF from time to time during the trading day. However, I would caution about using the 5-min because it can cause one to worry when a stock gaps down at the open or otherwise weakens during the trading session. Years ago, I found myself being forced out of positions because of the 5-min. It took a while to train my mind to show greater respect for the higher TF (daily).

Position sizing is such a personal decision. The only time I believe the number of positions should change is if it becomes difficult to get the type of fills one needs to execute one’s plan. To answer your question: Same number of positions and more dollars per position.

In terms of number of positions, I believe Bill O’Neil has said 8-10 maximum. With that said, his explanation of how to pyramid into a position uses a 12% starter position, followed by an 8% add-on position if price moves up 2% from entry, and another 4% add-on position if price moves up some more. This equals 24% and implies four positions are optimal.

As an educated guess, Bill uses 1-3 positions. My preference is for 3-5. 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 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.