Stocks remain in good shape, with the Nasdaq Composite up Friday on more volume than any day in the last three weeks. The negative is the scarcity of pattern setups. It is a case of the market being a victim of its own success.
As noted elsewhere, a few of the earnings-related surges are calming down post-breakout on dimming volume. These ledges can provide entries, albeit with higher risk, and thus far more of these entry types are working than not. Examples of these in this report are CMG and IRTC, especially the latter.
Otherwise, the original leaders are not being replaced by new pattern setups. Thus, patience is required until more patterns re-set themselves.
Caredx (CDNA) formed perhaps the best base in the market among liquid $13+ issues back during the bear market. It tried to come out twice and was repelled. It then formed an 11-week consolidation.
From a 69-cent-a-share loss in ’17 to an expected 17-cent loss in ’18 to a forecast profit of 15 cents this year, the trend toward profitability appears solid. Revenue growth was 48% and 74% in the recent two quarters. A 99 RS stock with an A- acc/dist rating.
The stock has a few major accumulation days under its belt since the Dec. 24 market low. It can be taken above the 30.80 pattern high. Earnings expected Mar. 6.
Chipotle Mexican Grill (CMG) was last spoken about in the Jan. 20 report (“…the stock is a buy above the 530.68 pattern high”). The stock broke out on +50% volume, then stayed in a tight range before surging on earnings two weeks ago, up 11% on +471% volume.
While the estimates are 38%/26% for ‘19/’20, sales growth was 9% and 10% in the two recent quarters – this is the negative for CMG. A 96 RS stock with a B acc/dist rating.
The stock can be taken above the 612.60 high of its two-week shelf. It is encouraging that volume has dimmed while price tightened up during this rest period. This objectively tells us that despite the earnings-related surge, profit-taking has been minimal.
Cronos (CRON) is a Canadian cannabis producer that nearly quadrupled in 14 weeks. Per-share net went from 2 cents in ’17 to -3 cents estimated in ’18 and 6 cents in ’19. Revenue has grown in the triple-digits. A 99 RS stock with an A- acc/dist rating.
Price forms a three-week shelf and pulled back Friday. With another day of handle formation, the stock could be taken above the 25.10 high of this pullback. That would be an aggressive entry for sure. Earnings expected Mar. 5.
Freshpet (FRPT) was mentioned here in the Feb. 6 report (“The stock could be taken above the 40.21 handle high”) and the Feb. 17 report (“The comment stands”). The comment stands. Earnings expected Feb. 26 post-close.
Godaddy (GDDY) is predicted to log earnings growth of 80%/72% for ‘19/’20. Sales grew 17% and 16% in the two recent quarters. An 89 RS stock with a B acc/dist rating.
Price has shown four major accumulation days in the last 15 sessions, a substantial plus. It reacted to its earnings release by rising 4.8% on +164% volume Thursday. While attractive entrance does not present itself, this is worth watching.
Irhythm Technologies (IRTC) was mentioned in Wednesday’s report (“The stock is now four days into a handle and can be taken above the 96.69 handle high”). The comment stands. Earnings expected May 14.
Tandem Diabetes Care (TNDM) has been on a steady road to profitability since ’16, when it lost $27.30 a share vs. the 75-cent loss forecast for ’19. Sales expanded 60% and 71% in the recent quarters. A 99 RS stock with a B+ acc/dist rating.
It was believed to be the biggest winner of ’18, at one point up 25-fold during the year. It has been forming a five-month cup-with-handle and was flagged as a buy idea using the handle high as the entrance. The breakout came on +145% volume.
The stock forms a four-day handle above the prior handle with a 52.03 pivot. Earnings expected Feb. 26 post-close.
This is an interesting name. History is replete with stocks showing a big run, then forming a multi-month base, only to have that base fall apart as price is between 50% and 100% of the way back to its high. Let’s look at TNDM with an unbiased view and be sure to analyze it on a day-to-day basis.
In sum, fewer setups are the market's being a victim of its own success. We will be on the lookout for pullback setups, though these have not been in abundance of late. Patience is a virtue in through here.
Q: Have you published the blog post about selling techniques?
A: I believe the best way for most people to exit a winning position is to use the 10 and 20 moving averages as guides. I prefer the 9 ema and 20 ema, but there is no magic number here, and sma is fine to use if that is what you are used to. Some use the 21 ma, either because it is a Fibonacci number or it represents the number of trading days in a month. The main thing is to use the same ma’s all the time so that you are consistent in your approach.
1). Exiting part of a position on an intraday break or close below the 10 is one idea and a break or close below the 20 on another part of the position is another option.
2). Exiting the whole position on a break or close below the 20 is another option.
3). Exiting the whole position on a break or close below the 10 is another option.
As one variable to consider in choosing which ma to use, it would depend upon how far away price is to the moving averages. E.g. when price is a good distance from the ma’s, it can tend to break the 10 and then the 20 in short order. In cases like that, a break of the 10 may be sufficient to trigger an exit. There are other combinations as well, including possible usage of the 50 ma when a position is held for a period of at least several months.
The main thing to remember is that this is not rocket science. There are no hidden exit methods that are secret and only known by a few. This is just common sense stuff. I hope this helps. This is essentially what I may write a blog post about. I may mention other methods, but the above options are, in my opinion, sound for most traders, as they signal trend weakness.
Q: Thank you for the great service you provide. I enjoy your reports and videos, and really appreciate your perspective on the market in general, as well as some of the stocks we are stalking, waiting for an opportunity to present itself. I have two questions about issues that I struggle with, and would appreciate your thoughts and best practices on how you deal with these.
Daily open: The daily opens are frequently volatile and with heavy volume. I often see price blow through a pivot that I am watching, then fade quickly. It is also hard to discern volume on the open, because the initial opening period has very high volume from all the overnight orders. Is there a period of time that you generally give the market to settle down before considering taking a trade on a stock you are watching as it crosses through your buy point?
Volume confirmation: I understand that PRICE is always first, and that we prefer to see heavy volume as we break through our buy point as a confirmation, enhancing the probability of a successful move in our direction. Sometimes this is very obvious, but often times the periodic bar won’t show the volume until the price has moved some distance from the buy point Sometimes, I will look at lower TF’s (30-min, 10-min) to try to gauge the volume expansion earlier. What are some of the best practices that you have found to help you be successful in this regard? With PRICE being most important, is it better to take the entry and wait for confirmation or follow-though soon thereafter, then be ready to cut fast if the move does not work out as expected? Would love to know your thoughts.
A: You are welcome. I am pleased you are gleaning something from the service, especially after seeing you support the Twitter feed as you have.
Regarding the question about the daily open: Regardless of the time of day, when I see price surpass the pivot by two cents, I want to be in that stock. I do not let the open cause a problem.
The problem with waiting for the open to calm down is that, during that period, a stock may take out the pivot and continue higher by x% -- without the fade that you refer to. I would prefer to be in the stock at the proper entry point and have to deal with any fade than I would paying up to buy something that is now 3%-5% past the pivot, for example.
Regarding the question about how to handle a breakout that does not show confirming volume: If volume on the breakout is about average but not totally limp, I will take the stock. If it does not respond in coming days with confirming volume, I may consider exiting.
It is to be noted that at one point during 2017, perhaps half of the market leaders came out of bases on volume less than the 40%-above-average that we look for. The current cycle also shows a number of leaders without confirming volume on the breakout day.
As you know, volume is important, but price is everything.
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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.