February 3, 2019

The averages continue to put the brief bear market behind them, with the price/volume behavior quite encouraging. The speculative growth-stock glamours build and break out of bases.

The momentum player is offered a menu flush with names from which to choose. This is best illustrated by the 62 names on the Watch List. As O’Neil has said, one can expect growth titles to break out of bases for roughly 13 weeks subsequent to a follow-through day.

Separating the outperformers from what might be the big winners is believed to be a matter of analyzing the degree of accumulation on the right side of a base plus the amount of raw relative price strength shown. Yet, according to O’Neil, in many cases, one will not know the identity of the big winners until they break out and begin their move.

The approach favored here for many years has been to use the earnings growth estimate as an initial primary filter. Even then, each cycle will see some names with a weak estimate proceed to tack up impressive gains.

Aurora Cannabis (ACB) is expected to post 80% earnings growth in the June ’20 fiscal year. Revenue growth has been triple-digit for the past seven quarters.

The stock can be taken above the cheater entrance pivot of 7.52.

Everbridge (EVBG) was discussed in the last two reports. In the last report, it was noted that the 59.83 cheater pivot was already cleared, but that the 63.00 pattern high could be taken. The comment stands. Earnings expected Feb. 19.

Five9 (FIVN) was noted in the Jan. 20 report (“This would be one to wait for the formal breakout above the 49.50 pattern high”). Thursday, price came out of the pattern, +3.5% on +119% volume. It now sits 4% above the entrance pivot of 49.50.

Because it is not more than 5% above its pivot, it is not considered extended and can be taken around Friday’s closing price of 51.57. A plus was Friday’s reduced range on diminished volume. Earnings expected Feb. 19 post-close.

Hubspot (HUBS) was noted in the Jan. 27 report (“Price is now four days into a handle and can be taken above the Jan. 18 high of 158.66”). Friday, price exceeded this level. It can be taken above the 162.20 pattern high. Earnings expected Feb. 12 post-close.

LHC Group (LHCG) is a recent addition to the Watch List. This year’s earnings growth estimate is 19%. Revenue growth soared in the last two quarters possibly due to an extraordinary item. Prior to that, sales grew 24% and 19% in two quarters. A 96 RS stock. Mutual funds that own the shares total 488, within the 400-1,100 range that is preferred for mid-sized growers.

A little over a week ago price cleared a constructive cup pattern, though volume was not impressive. Since then, the stock has formed a handle on a volume dry-up. Friday, volume surged as price reversed intraday after nearing the 20-day line and closed near the day’s high. It can be taken above its handle high of 109.33.

Mongodb (MDB) shows a loss expected in the January ’20 fiscal year, yet revenue grew at potent rates of 61% and 57% in the recent quarters. It can be taken at 93.25. Earnings are expected Mar. 5.

Netflix (NFLX) now shows expected earnings growth of 51%/59% for ‘19/’20. Liquid glamours like this one have not performed well relative to other Watch List names. An 88 RS stock with a B+ acc/dist rating.

While the Jan. 16 high of 358.85 makes for a reasonable cheater entrance for those itching to own the stock, the volume would need to be there on the breakout day. The stock can be given the benefit of the doubt based on the accumulation on the right side of the base – as long as volume kicks in on the breakout. Earnings are out of the way.

Rapid7 (RPD) was erroneously listed on the Focus List as having an entry of 45.52. This was discussed in the Thursday video as “40.52” just after breaking out that day, +4% on +101% volume. While it is 4% past the base high of 39.40, and thus could still be taken, earnings are expected Feb. 7 post-close. It may not make sense to do anything until after earnings.

Salesforce.com (CRM) has been on the Watch List for some time, but has not made any of the reports until now. The reason is the paltry 6% estimate for the January ’20 fiscal year. However, revenue growth has been rock-solid at 25%, 25%, 27%, and 26% in recent quarters.

And accumulation weeks have outnumbered distribution weeks by 3 to 1 on the right side of the constructive head-and-shoulders bottom pattern. Plus, the RS line hit a new high on Jan. 4, far ahead of price.

The view here is that the ’20 fiscal year will prove to be an anomaly for this liquid glamour. This may be known when CRM reports its Q4 earnings, expected Feb. 26 post-close. The MarketSmith data service that I use will then display the ’21 fiscal year estimate of earnings growth.

In the meantime, CRM can be taken above its pattern high of 161.19.

Splunk (SPLK) was recently added to the Watch List. The Street eyes 38% earnings growth in the January ’20 fiscal year. Sales grew by 37%, 37%, 39%, and 40% in the last four quarters. Mutual fund sponsors are 1,135. A 95 RS stock in a 99 RS group, database software.

The stock can be taken above the 130.00 pattern high of 9/4. Earnings expected Feb. 28.

Tableau Software (DATA) was noted in the Wednesday report (“The 131.82 high of 12/12 could be contemplated for an entrance pivot. Earnings expected Feb. 5”). The comment stands. However, earnings are expected on Tuesday, Feb 5 post-close. Thus, unless you have a measured position that accounts for the possibility of a 33% earnings-related price drop, it might be better to wait until after the report.

Zendesk (ZEN) was discussed in the Jan. 6 report (“The 12/12 high of 62.72 represents a cheater entrance pivot”) and then in the Wednesday report (“Since the earnings report is expected Feb. 5, let’s wait before taking an entry above its five-day handle. Its 88% estimate and 38% sales growth in the recent quarter are appetizing. A 96 RS stock with an A- acc/dist rating in a 98 RS group”).

This one has potential to be a big leader. Mainly because of its 88% estimate for ’19 and its rock-solid revenue growth of 39%, 38%, 39%, and 38% in recent quarters. In addition, it bottomed 11/20, well ahead of the 12/24 market bottom. And its RS line went into new-high ground last week.

A 97 RS stock in a 98 RS group with an A acc/dist rating. ZEN can be taken above the pattern high of 72.76. Earnings expected Tuesday, Feb. 5 post-close.

Otherwise, on a pilot test basis, a couple of new features have been added to a premium subscription. First, instead of a weekly video on Sunday evening, there are now four videos per week on Sunday, Monday, Tuesday, and Thursday. This was done to better convey what I see in the market and the thought process. This will help tighten things up during the three-day Monday-Wednesday period when there is no report.

During the videos, there will be less emphasis on fundamentals like the earnings estimate and revenue growth, so that there is more time spent on the technicals. Hopefully, this can reduce the video length to under 10 minutes to maximize everyone’s time.

Second, there is now a daily Focus List comprised of Watch List names with their suggested entry points. For premium subscribers, this is intended to facilitate the process of reading the reports and watching the videos such that it will no longer be necessary for you to take notes regarding entries. Those will be in the Focus List, which will be included in the same Excel file as the Watch List. Upon opening the Watch List file, you will notice the Focus List tab at bottom.

It is anticipated that the Focus List will be updated by the time you receive the notification email for the videos. The feedback received has been encouraging, as the following email from a premium subscriber indicates:

Kevin, I just want to say thanks for your efforts and communication – this is more than I expected when I signed up. I've tried other investment services and was always disappointed, but not with yours. The extra videos have been especially interesting and informative. I also appreciate the emails that you have responded to in the past – unexpected, but highly appreciated.

I don't need glitzy gimmicks or rah rah ‘be a champion trader’ or the such. I just need some guidance, insights, training, and a down to earth approach.

Also, thanks for the focus list you started today with tab 2. You were dead on…I'd take notes, and transfer them all to my charting software to track. You're saving me time.

Keep it coming.

In sum, with the backdrop, averages, and leading stocks all in gear, and with secondary indicators like breadth and interest-sensitive segments confirming, upward revaluation is anticipated. The momentum player should continue expanding long exposure to the growth-stock leadership.

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 a position in ACB, 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.