The unidirectional move by the averages since the Christmas Eve lows is a distinct plus, as it shows a market stubbornly unwilling to cede ground. The price/volume behavior of Thursday and Friday was classic in its dryup in volume and good close. The percent of NYSE issues above their 10-day moving average remains close to a nine-year high.
The number of growth issues making good progress up the right sides of their bases is perhaps the brightest feather in the market's cap. Mimicking the behavior of the averages, many growth glamours are also forming short, two-day handles. These do not offer attractive entrance, but we watch to see if another couple of days' worth of sideways movement can be tacked on to these patterns. If so, a number of entries will present themselves.
In terms of the backdrop, the risk would be a flattening of the 2s10s yield curve slope which would be an expectation of recession if it dropped from the current 16 bps to zero.
Because earnings season is getting under way, it is recommended that the earnings date be checked prior to taking a position in a stock. One site I have found to be reliable is www.earningswhispers.com .
If you look up a ticker on the site, it will show a check mark if the date/time has been confirmed with the company. This normally occurs 7-10 days prior to the release. Before then, an estimate is made but is not confirmed. MarketSmith is sometimes inaccurate, as great as their charting product is, so I do not rely on it for earnings dates.
Chegg (CHGG) was mentioned in Wednesday’s report (“My preference would be to wait for a pullback or handle to form prior to entry or just after entry”). A 98 RS stock with A- acc/dist rating.
Friday formed an inside day with good close. At least a couple of more days of easing/sideways action would at least rid this name of some of the attention placed on it. This would then set it up for a possible entrance.
Cronos Group (CRON) is a cannabis stock expected to turn a profit this year. Revenue growth is big in this emerging industry. Price came out of a five-week cup on Friday, gaining 4.7% on +9% volume. This looked good on a day in which the averages idled. By the close, CRON dipped back into the base but closed well (“closed well” means in the upper quartile of the day’s range).
This is a more-speculative issue by virtue of its teen price and volatile industry group. One can see it is on the cusp of completing a head-and-shoulders bottom pattern. It is preferred that price put in some sideways or pullback behavior prior to entry. In the event this moves past the 13.95 swing high of 12/7, the pattern high of 15.30 can be used as a potential entry pivot.
Guardant (GH) is a riskier medical stock in the cancer segment, a very hot part of the market for some time. A loss is anticipated for both last year and this year. However, revenue growth is scorching, up 90% and 95% in the most recent quarters. A 97 RS stock with a D- acc/dist rating.
GH does not offer attractive entrance. It was added to the Watch List due to its relative strength and its ability to double in its opening nine days as a public company. Let’s keep an eye on this and see if it offers a setup in coming days/weeks.
(For newcomers, IPOs that rise 50% or more in their first two months are favored due to their appreciation potential.)
Hubspot (HUBS) is in the leading computer software segment of the market. The Street eyes 38% earnings growth this year and sales grew quite steadily in the past few quarters, up 39%, 39%, 38%, and 35% in this time.
There is not enough accumulation in the base to suggest a cheater entrance above the 143.00 high of 12/3. This is one I’d prefer to let prove itself some before nailing down a target for entry. Certainly worth watching.
Pinduoduo (PDD) is a Chinese provider of a mobile e-commerce platform. Sales growth has been phenomenal, with sequential growth of 20% in the recent quarter and 670% year-over-year in the latest quarter. An 88 RS stock with an acc/dist rating of B+.
The stock needs to settle down for at least a few days to rid itself of some of the hot-money attention that was foisted on it. Friday’s reduced-range day was a step in the right direction. Worth monitoring. Lots of potential here.
RingCentral (RNG) is curious because earnings are estimated to jump 112% last year but then show a penny per share less in 2019 – yet the market treats it well via its 96 RS rank and B+ acc/dist. Once earnings come out in February the ’20 earnings estimate will be published in MarketSmith and we can see perhaps what the market sees.
In the meantime, sales are rock-steady at 33%-34% over each of the past four quarters. A couple of more backing-and-filling days and it would complete a cup-with-handle pattern. I would wait for this to occur before getting aggressive with an entry.
Tableau Software (DATA) was brought to my attention from a subscriber. I welcome emails about individual names, but cannot respond directly except through the site. Thus, I am responding here. After an encouraging 8% lift on Jan. 4, price saw three major distribution days in four days. This is not something I would be hanging on to when there is better-acting merchandise out there.
Tandem Diabetes Care (TNDM) was the best performer of 2018, per a study I did late in the year. It moved up about 2,500% in seven months. Like many other growth titles on our Watch List, it is just starting to tread water after a swift move up (38% in five days). Thus, we should allow it to form more of a ledge in here before thinking about entrance.
Vanda Pharmaceuticals (VNDA) may have some cost-cutting occurring by virtue of its 129% expected earnings growth this year but only 19% revenue growth in the recent quarter. Nevertheless, it is a 99 RS stock with B acc/dist rating.
This is worth watching. But because of the lack of accumulation in its base, taking it above its current four-day ledge following a v-shaped bottom might be a bit risky.
Veracyte (VCYT) was noted in Wednesday’s report (“This is a high-risk issue, as ADDV is just $7.3MM. The stock can be taken above the 15.50 high of its eight-week cup).” The next day, price cleared the 15.50 pivot and moved up as much as 7.1% before tightening up in Friday’s session by printing an inside bar with a good close.
An aggressive entrance would be on a takeout of Friday’s high of 16.30, using Thursday’s low of 14.94 as a stop. This represents 8% risk, but with a half-sized starter position would equate to de facto risk of about 4%. A 99 RS stock with B+ acc/dist rating.
(The O’Neil accumulation/distribution rating from A+ to E is based on the intermediate term, not the short term. The calculation is believed to be based on a 65-day lookback period, or 13 weeks. Thus, it is natural that most emerging leaders do not have more than a C rating, since many names are coming from an E rating during the recent bear phase that ended Dec. 24.)
Zendesk (ZEN) is a name I am partial to due to its whopping 88% earnings growth estimate for ’19. This degree of expected earnings growth is rare. Sales have grown in a very steady manner, up 39%, 38%, 39%, and 38% in the recent four quarters.
With a three-day handle, it is preferable to wait for further sideways movement before entering. A plus is that price last week held above the recent support area. A 95 RS stock with an A- acc/dist rating.
In sum, the averages' price/volume behavior and the action of leading growth glamours are enough for the momentum player to commit some capital to one or more pilot, or test, buys. A pullback would be welcomed as it would allow some patterns to form handles, and better entry points.
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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.