January 27, 2019

Last week's takeaway was twofold. The emerging leadership accommodated the speculator by forming three- and four-day handles following straight-up moves in some cases, and the concern about lack of volume is no longer an issue, for now.

On the Twitter feed, I have discussed the relative strength shown by the computer software segment. This is especially bullish since it is a growth group considered more speculative than other areas of the market. Along these lines, if institutions are making this the lead group, it shows the degree of conviction they have in this market. While this conviction is not overwhelming -- given the respectable but not powerful volume in the indices -- it does show a certain risk-on sensibility that powers all bull markets.

The two software groups showing the best relative strength of any industry groups in the market are database software (RS 99) and enterprise software (RS 98). Premium subscribers will note that of the 65 names on the Watch List, five are database software issues and 15 are enterprise software titles. Please note that this concentration in software groups is unintentional -- it came about as a result of the bottoms-up approach used in constructing the Watch List -- not by viewing the components of these groups and choosing the most appealing.

In addition, there are five names on the Watch List from another software group ranked in the 96th percentile, specialty enterprise software.

Caredx (CDNA) was noted in the Jan. 9 report: “A cheater entrance would be above the 1/9 high of 27.71.” Price cleared that high on Friday, +5.5% on +18% volume. The 30.80 pattern high can be watched for another entrance pivot. A 99 RS stock. Earnings expected Mar. 7.

Dexcom (DXCM) was discussed in the Wednesday report (“There is now a two-day handle which would need to tack on two or more days to be able to be used as a pivot”). The stock is now four days into a handle. It can be taken above the 152.69 handle high. Earnings expected Feb. 21.

Domo (DOMO) was noted in the Jan. 20 report (“While 27.10, the pattern high, would be the correct entrance pivot to use, the fast move up the right side of its base should be respected. Thus, some handle or pullback action should be awaited before initiating entry)”.

DOMO is now three days into a handle after briefly breaching the 27.10 pivot last Tuesday. The handle has a 9.4% depth. The view here is that 10%-12% deep handles, or anything less, is optimal. The stock can be taken above the handle high of 27.53.

This is a powerful title: Price surged 69% in a little over three weeks. A 97 RS stock. Earnings expected Mar. 7. ADDV is $12.8MM, so less than preferred.

Everbridge (EVBG) has no earnings expected for this year, but showed 43% sales growth in the two most recent quarters. It is in the 98 RS computer software – enterprise group. A 98 RS stock.

Price crossed the 59.83 cheater entrance point on Friday, +5.9% on +43% volume. Price is currently 2.1% past the 59.83 point. This is not considered extended, and thus can still be bought here by aggressive players. Alternatively, the pattern high of 63.00, 3% from Friday’s close, can be used as an entrance pivot. Earnings expected Feb. 19.

Hubspot (HUBS) was noted in the Wednesday report (“Price is two days into a handle and can be watched for another couple of days of sideways action that might offer a cheater entrance above the 158.66 high of Friday. Earnings are expected Feb. 12”).

Price is now four days into a handle and can be taken above the Jan. 18 high of 158.66. A 96 RS stock in a 96 RS group.

Inspire Medical Systems (INSP) was noted in Wednesday’s report (“Price is worth monitoring for the completion of its handle, which would possibly provide attractive entrance”). Price is four days into a handle and can be taken on a break of the 56.80 handle high.

A 98 RS stock with a B+ acc/dist rating. Sales grew a muscular 81% and 80% in the two most recent quarters. Earnings expected Feb. 5.

Mirati Therapeutics (MRTX) is up 94% in under five weeks since the Christmas Eve low. A 99 RS stock with an A+ acc/dist rating. This is a highly speculative issue, what with it being a development-stage biotech with losses expected for ‘18/’19 and no sales.

A very aggressive entry for a very aggressive player in this highly speculative issue would be above Friday’s handle high of 67.26. Earnings expected Feb. 5. In this situation, any position taken in this stock should be pending the earnings release.

Paypal (PYPL) was discussed in the Jan. 20 report (“It is a slower grower, what with earnings forecast to grow 20% this year. It is a liquid glamour, and can be taken above the pattern high of 93.70”). Friday it cleared the 93.70 and went out at 94.28. It is, thus, less than 1% past the pivot and can be taken around Friday’s close.  Earnings expected Jan. 30 post-close.

Note that it is a liquid glamour which means among other things that it has deep liquidity. This is a plus, but makes it more difficult to move price compared with mid- or small-sized issues, especially when you have a 20% estimate for ’19, not the 50% figure of AMZN or NFLX in recent years.

Shopify (SHOP) is something I am watching. While its pattern is wide and loose, and not very appetizing, its estimate/sales combo is the best I have seen of any growth actor in this market. Since the Christmas Eve low, it is up 38% vs. the Nasdaq’s 16%.

Given its choppy pattern, a cheater entrance is not appropriate. A possible takeout of the 176.60 high is contemplated as an entry. This would require some tightening up of price action on the way up to this point, as well as open mind. There has not been much accumulation on the right side of its base (just one major accumulation day). Worth watching due to its fundamentals and past leadership. Earnings expected Feb. 12

Tableau Software (DATA) appears to have just closed the book on three years of declining earnings. This, then, is a turnaround play, and is a member of the market-leading database software group.

Price cleared a symmetrical triangle pattern Friday, +5.9% on +55% volume. The 131.82 high of 12/12 could be contemplated for an entrance pivot. Earnings expected Feb. 5. A 97 RS stock.

Vanda Pharmaceuticals (VNDA) is forecast to post 129% earnings growth this year with 19% sales growth occurring in the recent quarter. Being a biotech, it contains more risk than the average stock. A 98 RS stock.

Price forms an eight-week cup-with-handle and can be taken above the 31.30 handle high. Earnings expected Feb. 13.

In sum, there are a number of growth-stock leaders now forming three- and four-day handles for suitable entry. This is what we have been waiting for in some cases. The price/volume signature of the Nasdaq is quite good. Players should be expanding their long exposure to this market.

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 no positions, though positions are subject to change at any time and without notice. Estimate data provided by Thomson Reuters.