February 6, 2019

Stocks continue to act well, with the Nasdaq showing no distribution days in five weeks. However, the growth-stock barometer is nearing an area that stopped two previous bear rallies in their tracks. This zone, which corresponds with the 200-day moving average, is to be respected.

Meanwhile, leading growth stocks are somewhat extended after a number of them moved up the right side of their bases without much of a pause to rest. As a result, the Watch List contains fewer bona fide setups than it did a couple of weeks ago. It would actually be viewed as a plus if the averages were to pull back here. This might offer fresh entry points in Watch List names.

To be sure, some Watch List names are still moving up the right sides of their bases and have yet to offer attractive entrance, e.g. Shotspotter (SSTI) and Docusign (DOCU).

Chipotle Mexican Grill (CMG) was mentioned in the Jan. 20 report (“…the stock is a buy above the 530.68 pattern high. Earnings are expected Feb. 6”). Price broke out on Jan. 23 on +50% volume. Wednesday it moved out on its earnings report post-close and was last at 578.00. Hopefully, some of you were able to take advantage of the Jan. 23 breakout.

Codexis (CDXS) is a recent addition to the Watch List. It shows an expected loss for ’19, though revenue grew 70% in the recent quarter. The stock has benefited from heavy volume and two major accumulation days in the last week. It sits 7% from its pivot at the top of the pattern.

A 99 RS stock with an A acc/dist rating. Earnings expected Mar. 7. Worth watching.

Dexcom (DXCM) was discussed in the Jan. 27 report (“It can be taken above the 152.69 handle high. Earnings expected Feb. 21”). The comment stands.

Everbridge (EVBG) was discussed in the last three reports. In the Jan. 30 report, it was noted that the 59.83 cheater pivot was already cleared, but that the 63.00 pattern high could be taken. This level was surpassed on Monday, but on average volume. A 97 RS stock in a 98 RS group, the enterprise softwares.

Earnings expected Feb. 19. With earnings 13 days away, any position taken should be calibrated such that a 25%-33% earnings-related decline (to be conservative, one could use a larger figure) would not overly dent your portfolio. Of course, one could wait until after the earnings report.

EVBG could be taken above Wednesday’s high of 63.84.

Freshpet (FRPT) shows a healthy expected move from a 10-cent-a-share loss in ’18 to a 24-cent profit this year. Sales grew 27% in the recent quarter. A 97 RS stock.

Price forms a cup-with-handle. The handle is 15% deep, a bit more than the 10%-12% (or less) that is preferred, but not unreasonable. The stock could be taken above the 40.21 handle high. Earnings expected Feb. 26.

Guardant Health (GH) was noted here Jan. 23 (“The stock forms a cup-with-low-handle and can be entered on a takeout of the 43.48 high of 1/11”). The comment stands. Earnings expected Feb. 18.

The thesis for GH is centered on the very fast revenue growth of 96%, 90%, and 95% in the three recent quarters, plus its surging nearly 100% in its opening nine days post-IPO in October. IPOs that double in their opening couple of months often become market leaders.

Inspire Medical Systems (INSP) has been discussed in a number of recent reports. It can be taken above its 56.80 handle high. Earnings expected Feb. 26.

Proofpoint (PFPT) is a recent addition to the Watch List. Earnings are expected to increase 13%/36% in ‘19/’20, while revenue expanded 37% and 35% in the last two quarters. An 89 RS stock in a 96 RS group, security software.

Price jumped 12% last Friday on +305% volume due to its earnings release. It is currently extended, but should be monitored for at least a week’s worth of backing and filling before attractive entrance presents itself.

Tandem Diabetes Care (TNDM) was the biggest winner of ’18, at one point moving from 2 to 52 in about seven months. While I am skeptical as to whether a huge winner can come back in the next bull move and lead, there have been exceptions.

The stock can be taken above the handle high of 46.00 on volume at least 40%-50% above average volume. Earnings expected Feb. 26.

Wix.com (WIX) is a recent addition to the Watch List. Fundamentals are excellent, with 64% earnings growth expected this year and sales growth of 40% in the recent quarter. A 96 RS stock in a 98 RS group, the enterprise softwares.

Attractive entrance does not present itself currently. Worth watching. Earnings expected Feb. 20.

Zendesk (ZEN), discussed here Jan. 6 (“The 12/12 high of 62.72 represents a cheater entrance pivot”), and also Sunday (“ZEN can be taken above the pattern high of 72.76”), gapped open Wednesday and flew through the 72.76 pivot on Tuesday evening’s earnings release. It then reversed and went out at 72.40.

This will be watched closely for an entrance opportunity for those who did not enter on the cheater entry. Given Wednesday's major volatility and poor close in the lower quartile of the day's range, an entry right here at Wednesday's close of 72.40 is considered unattractive from a risk standpoint. Interestingly, the ‘19/’20 estimates are 30%/143%. The ’20 estimate is about the highest of any growth stock priced $13 and above.

In sum, the averages continue to plow ahead with no distribution. Ditto for the speculative growth-stock glamours, generally. A pullback would be welcomed, as it would offer fresh setups that are not apparent currently.

Kevin Marder

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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 a position in ZEN, 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.