January 12, 2020

Stocks remain in a unidirectional up trend, with the Nasdaq closing above the 9 ema for six weeks' running. Despite the stand-down by the U.S. and Iran presently, the Mideast can be expected to be a wild card in the future.

Experienced speculators realize that an up trend does not necessarily result in lots of buyable issues. Rather, it is a function of what the subsurface looks like. And on that score, the bulk of ideas in these reports and on our Focus List have already triggered entries. For the moment, then, the menu is rather slim for the breakout player. We have recently seen how quickly this can change, though, so let's remain open and flexible to what is presented to us.

A plus last week was the continued rise up the relative strength table for the enterprise software group. It is now ranked in the 78th percentile among O'Neil industry groups, the highest it has been in months.

Among the names, Applied Materials (AMAT) is a bellwether among the semiconductor crowd. Most Wall Street analysts look for earnings growth of 22%/18% in the October ‘20/’21 fiscal years. Revenue growth has been -14% and flat in the last two quarters. A 93 RS stock in a 98 RS group with B+ acc/dis rating.

AMAT forms an eight-week pattern with a reasonable 13% depth. The stock can be taken above the 63.07 pattern high. This is considered a liquid glamour and may pursue a slower rate of appreciation than other names. With that said, there are times in any market cycle when the liquid glamours tend to outperform their smaller counterparts as large investors prefer perceived safety and lower risk. Earnings expected Feb. 13 (unconfirmed)

Datadog (DDOG) is a recent new issue that jumped as much as 50%+ in its debut session in September. The enterprise software outfit is forecast to show losses for ‘19/’20. Sales increased 82% and 88% in the last two quarters. A 64 RS stock in a 78 RS group with a B- acc/dis rating.

The stock forms a six-week cup-with-low-handle with 25% depth. Note the volume dry-up and volatility contraction of the three-day handle. It can be taken above the 41.54 high of the handle. This is a higher-risk issue with above-average volatility. Earnings expected Feb. 11 (unconfirmed).

Insulet (PODD) develops insulin infusion systems for diabetics. Earnings growth is forecast at 340%/227% for ‘19/’20. Revenue rose 43% and 27% in the two recent quarters. A 97 RS stock in a 79 RS group with an A- acc/dis rating.

After a 30%+ move, price settled into its current, six-week flat base with an attractive 11% depth. It can be taken above the 187.25 pattern high. Earnings expected Feb. 25 (confirmed).

MKS Instruments (MKSI) is predicted to record earnings growth of -44%/42% for this year and next. Sales shrank 17% and 5% in the two recent quarters. An 88 RS stock in a 98 RS group with a C+ acc/dis rating.

Price forms an 11-week flat base with an attractive 12% depth. It is buyable on a takeout of the 115.12 pattern high. Earnings expected Jan. 22 (unconfirmed).

Progyny (PGNY) is a recent new issue that provides fertility and family benefits solutions. The earnings-per-share figures: -0.06/0.10E/0.29E for ‘18/’19E/’20E. The ’20 figure amounts to a 190% increase. Sales have grown at triple-digit rates for six-straight quarters. A 98 RS stock with a B acc/dis rating.

After coming public at 13 in October, price more than doubled in the first 2.5 weeks. (IPOs that gain 50% or more in the first two months receive special attention.) Price forms a mini cup of five weeks’ length with a deep 28% depth and a two-day handle of sorts. It is buyable above Friday’s high of 29.55. Earnings expected Mar. 4 (unconfirmed).

Servicenow (NOW) is an enterprise software name with earnings estimates of 30%/30% for '19/'20. Sales rose 32% in each of the past two quarters. An 84 RS stock in a 78 RS group with a B+ acc/dis rating.

NOW forms a five-month consolidation. It can be taken above the 303.17 pattern high. Earnings expected Jan. 29 (confirmed).

In sum, this past week was the week that was. Monday through Thursday were positive for the growth sector, and a number of issues triggered entries. Things are somewhat slim on the actionable issue front. Let's remain open, flexible, and patient.

Q&A

Q: How does one set a sell stop and avoid getting stopped out on a sudden wild price swing, lasting only seconds. Thanks.

A: That is unavoidable, unfortunately. If one has the luxury of watching the market during the day, then one can re-enter the position. Otherwise, as some would say, 'Tis trading.

Q: Just wanted to let you know about the following as it goes hand in hand with what you wrote to me in the conversation below:

I finished my simulation on how my portfolio would have performed over the last 100 trades if I had only applied simple selling rules like to only sell if the EMA20 or SMA50 is undercut. And the result is really astonishing, my performance would have been so much better. This is also the reason why I stayed in the Luckin Coffee trade despite the three down days (2nd to 6th of Jan), quite significant volume and opening gaps as the EMA20 was not undercut on a closing price level. I am pretty sure that before gaining confidence from my simulation (further fueled by the statement in your mail below) I would have sold on the third down day and now missed a good profit. This brings me to another question that would be great to get answered by you: Do you also sell into strength and if so, what are your criteria here? E.g. would you have sold some of your position in $LK on the 31st of Dec as the stock had a nice up move in a short period of time? Thanks again!

A: You are quite welcome. That is v good to hear. I am pleased you took the time to research the application of MA violations to your exits.

As price hits new high ground, instead of selling on the way up at a new high, if anything I will wait for the first break to exit. I almost always want to see the market "tell" me a top has been made before I exit. This can be as simple as using the one-bar trailing stop technique. So exiting on the first bar that makes a lower price low, not a lower pivot/swing low necessarily. I combine a candlestick pattern (using OHLC bars) with any prior resistance levels, upper Keltner band, and an indicator (this is the only time I use an indicator when position trading breakouts). Combining these can improve the odds of being correct with a reversal, as I have shown previously in a couple of videos.

The 9 ema is also used for removing part of a position that goes parabolic, since many times a 9 ema violation will also lead to a 20 ema violation in a climax type of situation. In response to your question, I did not sell LK into the 12/31 high.

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.