January 15, 2020

Stocks engaged in a mild buy-the-rumor, sell-the-news reaction to today's U.S.-China signing of Phase One of their trade deal. Otherwise, the market continues to act well, with spirited buying by participants helping Nasdaq volume exceed its average for 11 days running.

It is worth keeping an eye on recent IPOs. Their behavior often serves as a canary in the coalmine when it comes to the initial names that are sold by investors following an intermediate advance in the averages. Thus far, while a few Focus List buys in this segment have reversed following breakout, including Progyny (PGNY) and Bill.com (BILL), a widespread liquidation of recent IPOs has not occurred.

Beneath the surface of the averages, the computer software--enterprise group continued to firm, up from last week's 78th percentile RS rank to the current 83rd percentile.

As noted in Sunday's report, most of the better names have already broken out of basing patterns. This has left the cupboard rather barren when it comes to new ideas, not to mention their desirability. As well, short-term swing/pullback ideas have been hard to come by in light of the averages stubbornly refusing to pull back. All of this can change in a hurry, especially if the averages themselves come in.

Among the names, Anaplan (PLAN) is an enterprise software issue which came public 15 months ago at 17. It changed hands at a high of 60 last summer before consolidating since then. Most Wall Street analysts eye losses for the January ‘20/’21 fiscal years. Sales have grown strongly and steadily, up 46% and 44% in the last two quarters. A 94 RS stock in an 83 RS group with a B acc/dis rating.

The stock builds a six-month consolidation. It is buyable above the pattern high of 60.36. Earnings expected Feb. 20 (unconfirmed).

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 97 RS group with B+ acc/dis rating.

Tuesday, AMAT barely cleared an eight-week pattern, +0.9% on +14% volume, before closing below the pattern high. It stands 2% below the pivot and can be taken above Tuesday’s high of 63.55.

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 higher perceived safety and lower risk. Earnings expected Feb. 13 (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.

Today, price cleared a seven-week cup with an attractive 11% depth, +1.0% on +3% volume. It closed 0.1% below the pivot point. It can be taken above today’s high of 189.07. 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. A 91 RS stock in a 97 RS group with a B- acc/dis rating.

Price forms an 11-week flat base with an attractive 12% depth. Tuesday, it cleared its pattern high by 5 cents, +3.9% on +65% volume, before closing below the pivot. Currently, it stands about 2% below its pivot. It is buyable on a takeout of the 115.17 high of Tuesday. Earnings expected Jan. 28 (confirmed).

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 88 RS stock in a 78 RS group with a B+ acc/dis rating.

Monday, NOW cleared a six-month consolidation on subpar trade. This is likely due to investor caution ahead of its earnings report expected Jan. 29 (confirmed). It is presently 1% above its pivot and can be taken above the 307.73 pattern high.

XP (XP) is a highly speculative issue which came public five weeks ago at 27, before moving up 50% in its first eight days out of the chute. The Brazilian securities broker shows earnings growth estimates of 94%/44% for ‘19/’20. Sales rose 44% and 84% in the last two quarters.

Technically, price forms a 3.5-week shelf pattern with attractive 12% depth. Very aggressive players can take XP above the 40.50 pattern high. MarketSmith shows the expected earnings date of Jan. 28.

In sum, the market advance continues apace. The menu of available pattern setups has gotten thin. Let's stay patient to see how this develops, especially in conjunction with any pullback by the averages.

Q&A

Q: Hi Kevin, first of all thank you for your trader’s service. Your education on how to trade is invaluable to me. My question is: Do you prefer to use “good till close” or “good till cancelled” stop loss orders, and why? Thanks very much.

A: You are welcome. It is good to hear the service is a good fit for you.

I prefer to use Good Til Cancelled sell stop orders on certain positions b/c I am covered in the event my stock takes out my uncle point while I am away from my desk. These are usually the swing/pullback ideas b/c they have a tighter stop. The positions I don't use it on are those where I have a nice unrealized profit in the stock. For these, I rely upon a mental stop. I hope this is helpful and thank you for the question.

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.