February 5, 2020

Today’s market action appeared to be a buy-the-rumor, sell-the-news reaction to a Sky News story that progress had been made to produce a vaccine for the coronavirus. An opening gap in the averages was immediately sold into.

More-speculative issues that had outperformed recently bore the brunt of the selling. While the S&P was up 1.13%, the Naz rose just 0.43%, the PSJ software index shed 0.86%, and the IBD 50 ETF (FFTY), an index of growth issues, lost 0.92%.

Meanwhile, inside our Watch List, the average software stock lost 2.9% while the average enterprise software name was off 3.8%. This is quite a wide dispersion among the various segments considering it was just one session.

Overall, our triggered trades have performed better recently after a period late last year where breakouts in growth stocks showed lukewarm follow-through. This is evidenced by the IBD 50 ETF's relative strength line (below). It shows growth stock outperformance since the start of the year following a lagging showing in the final six weeks of 2019.

With a number of recent breakouts of Focus List titles, there are just six actionable issues on deck. A plus is the continued firming by the software group, with a number still working on the right sides of bases. Hopefully, this will provide more fodder for our Focus List in the weeks to come.

Among the names, Alnylam Pharmaceuticals (ALNY) is a biotech issue with losses expected last year and this year. Sales rose from $33MM to $45MM to $70MM in the last few quarters. An 96 RS stock in a 98 RS group with an A- acc/dis rating.

Price forms a nine-week flat base with an attractive 11% depth. It is buyable above the pattern high of 125.72. Earnings expected Feb. 6 at 8:00 am ET (confirmed).

Alteryx (AYX) is a database software issue with earnings growth estimated to be 119%/39% for ‘19/’20. Sales grew 59% and 65% in the last two quarters. A 96 RS stock in a 50 RS group with a C+ acc/dis rating.

The stock forms a beautiful five-month cup which can be taken above the pattern high of 147.79. Earnings expected Feb. 13 (confirmed).

Barrick Gold (GOLD) is a Canadian gold producer with operations in Canada, U.S., and 11 other countries. The Street predicts earnings growth of 37%/31% for ‘19/’20. A 90 RS stock in an 84 RS group with a C+ acc/dis rating.

The stock forms a five-month, cup-with-handle base with 20% depth and an attractive 9% handle. Price poked its head above the handle high Monday of last week, but reversed to close below the lip. The entry pivot is the 19.01 handle high. Earnings expected Feb. 12 (confirmed).

Inmode (INMD) is an Israeli seller of devices used in cosmetic procedures. Earnings are expected to grow 124%/11% in ‘19/’20. Revenue grew 55% and 57% in the two recent quarters. A 99 RS stock in a 95 RS group with a B- acc/dis rating.

The stock forms a cup-with-low-handle and can be taken above the handle high of 53.20. Confirming volume of at least 40% of its average daily volume should be required on the breakout day. Earnings expected Feb. 18 (confirmed).

Mimecast (MIME) is a computer security software firm with estimates of 81%/45% for the March ‘20/’21 fiscal years. Sales rose 27% and 26% in the last two quarters. An 87 RS stock in a 42 RS group with an A acc/dis rating.

MIME forms a nine-month cup with 37% depth. It is buyable above the 54.57 high of the pattern. Earnings expected Feb. 10 (confirmed).

Wheaton Precious Metals (WPM) is a precious metals streaming company, which is similar to a royalty company in that it does not own or operate mines themselves. Instead, it takes positions in miners. Earnings are forecast to grow 19%/56% this year and next. Sales grew -11% and 20% in the last two quarters. An 83 RS stock in a 78 RS group with a C+ acc/dis rating.

Price forms a five-month cup-with-handle with 19% depth and 10% handle depth. It is buyable above the handle high of 30.31. Earnings expected Mar. 11 (confirmed).

In sum, speculative growth stocks showed prominent weakness today despite the positive showing by the averages. It is unclear whether this is a one-day affair or the start of a period of underperformance. Let's take things one day at a time as the market sorts itself out amid earnings season.

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.