February 19, 2020

The Nasdaq just went through a healthy four-day period where price was bound to a tight trading range on muted volume. This gave the index a chance to work off some of its strong momentum in a constructive manner. While this happened, leading stocks produced above-average gains amid a number of breakouts.

This is health.

This was followed by today's action, which lifted the Naz to a new high amid further markups in our triggered trades and Watch List stocks.

A plus is the broad leadership of the liquid glamours, with about a half-dozen participating. Contrast this to the 2018 market, when for a while it was just Amazon.com (AMZN) and Netflix (NFLX) that were leading. This is obviously a plus and illustrates the conviction of institutions in this market.

At present, the market is a victim of its own success: Not only is the Nasdaq well-extended, but since Sunday's report, our menu of pattern setups has again dwindled to just six as the actionable issues became actionable. We will be on the lookout for any secondary buy points in both newer names as well as previous buy ideas should they emerge.

Among the names, Coupa Software (COUP) is an enterprise software outfit with earnings growth forecast by the Street to be 100%/31% for the January ‘20/’21 fiscal years. Sales rose 54% and 51% in the last two quarters. A 92 RS stock in a 91 RS group with a C- acc/dis rating.

Technically, the stock forms a five-week flat base with an attractive 12% depth. It found support at its 50-day line and was a Focus Buy today above the 174.27 pattern high. While today’s volume was +26% and the stock was up 2.1%, price could not find follow-through, and COUP closed the day just below the 174.27 pivot. It can still be taken above today’s high of 175.00. Earnings expected Mar. 16 (confirmed).

Model N (MODN) is an enterprise software issue with earnings growth estimates of 36%/23% for the September ‘20/’21 fiscal years. Sales were flat and +9% in the two recent quarters. A 95 RS stock in a 91 RS group with a B+ acc/dis rating.

The stock forms a seven-week cup with 15% depth. It sits below the pattern high of 35.84 and can be taken above this level. Waiting for at least a few days of handle formation is preferred. This is a slightly thinner issue (ADDV $11.6MM), but passed the five-minute breakup test. Earnings expected May 5 (unconfirmed).

Okta (OKTA) is a security software firm with losses anticipated for this year and next. Revenue growth, however, has been 49% and 45% in the recent two quarters. An 85 RS stock with a B- acc/dis rating.

OKTA forms a seven-month cup pattern and cleared the entry pivot of 141.85 (the pattern high) today. It can still be taken above today’s high of 142.98. Earnings expected Mar. 5 (confirmed).

Pan American Silver (PAAS) is a Canadian silver miner with interests in Mexico. Earnings are expected to come in at 72%/12% for ‘19/’20, while sales increased 31% and 88% in the last two quarters. A 96 RS stock in a 72 RS group with an A- acc/dis rating.

Today, price cleared a six-week flat base with an attractive 13% depth, up 2.8% (the chart below incorrectly shows 1.8%) on +79% volume. It is 2.5% past its pivot and can be taken around today’s closing level of 24.63. Earnings came out today but no afterhours trading was reported.

SSR Mining (SSRM) is a Canadian gold and silver miner which was a Focus List buy idea for Dec. 24 as it broke out of a base. It then went on to form a base-on-base of 11% depth and six weeks’ duration. It can be taken above the pattern high of 19.42. Earnings expected Feb. 20 (confirmed).

Zendesk (ZEN) is an enterprise software name with notable earnings estimate acceleration of 45%/69% for ‘20/’21. Revenue rose 36% and 33% in the last two quarters. A 72 RS stock in a 91 RS group with a B acc/dis rating.

Price forms a seven-month cup. It can be taken above the 94.89 high of its pattern. Earnings expected May 7 (unconfirmed).

In sum, our triggered trades have largely lived up to expectations. At present, however, there are few names that have yet to be exploited. This was also the case a couple of weeks ago, before things opened up as the market snapped back from its coronavirus choppiness. Let's continue to stay open-minded as to what this market can do. The takeaway of the 'Nineties Bubble era was that the market can go a lot further than most can imagine.

Q&A

Q: I must have missed your explanation of it, but what is "the 5 minute breakup test"?

A: The test is to see if there is enough liquidity to trade a stock. If a stock has a 5-minute chart with some bars missing (indicating no trades took place during a 5-minute period) or some bars appearing as a horizontal hash mark (meaning any trades only took place at one price during a 5-minute period), then liquidity is insufficient for our purposes. Such stocks have wide bid-ask spreads of perhaps 1%. If I trade such a stock, I might pay 1% in the spread going in and 1% in the spread going out, which is expensive if I am using a 5% stop.

Most stocks with ADDV (average daily dollar volume) of $15MM or more have ample liquidity, but it is a good idea to apply the test and also to check the bid-ask spread. For example, I have seen stocks with around $23MM ADDV fail the test. I hope this helps.

Kevin Marder

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Unless otherwise noted, charts created using TradeStation. ©TradeStation Technologies, 2001-2020. 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.