January 29, 2020

Market participants are coming to grips with the coronavirus and the potential for damage to the global economy. This is obviously an unknown that was not discounted a week ago.

While the number of people worldwide who carry the virus is increasing, it would be unwise to pay more attention to the headlines than to what the market is telling us. The market has an unbelievable way of seeing through the fog of uncertainty in a way that us mere mortals cannot.

Semiconductors, which are economically sensitive, lost a market-leading 4% on average in Monday's downdraft. Triggered trades in semis such as Lattice Semiconductor (LSCC), MKS Instruments (MKSI), and Skyworks Solutions (SWKS) were some of the victims of worries over an economic slowdown.

Selling in the group picked up again today as the chart below shows. This occurred on a day in which the Nasdaq and S&P were essentially flat. Subscribers holding semi positions that are in the red should consider exiting these prior to stops getting hit.

A plus is the continued firming of the enterprise software group, which is currently showing a 90 RS rank from O'Neil.

Otherwise, with the averages still extended amid a scarcity of actionable issues, it is logical to tread lightly when it comes to fresh-money buys.

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 93 RS stock in a 90 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).

Atlassian (TEAM) is in the specialty enterprise software group. The Australian concern is predicted by Wall Street to record earnings growth of 26%/28% in the June ‘20/’21 fiscal years. Sales growth has been solid and steady at 36% and 37% in the last two quarters. A 91 RS stock with a B+ acc/dis rating.

TEAM forms a six-month consolidation from which it marginally cleared on Friday and again today. It is buyable above today’s high of 151.52, which would be 1.1% above the 149.80 pattern high. Earnings expected Apr. 23 (unconfirmed).

Barrick Gold (GOLD) is a Canadian gold producer with operations in Canada, U.S., and 11 other countries. The Street predicts earnings growth of 37%/27% for ‘19/’20. An 88 RS stock in an 81 RS group with a B- acc/dis rating.

The stock forms a five-month, cup-with-handle base with 20% depth and an attractive 9% handle. Price poked its head above the handle high on Monday, but reversed to close below the lip. The entry pivot is Monday’s 19.17 high. Earnings expected Feb. 12 (confirmed).

Mercadolibre (MELI) operates an online marketplace in Latin America. Losses are forecast for ’20. Revenue growth has accelerated from 17% to 20% to 48% to 63% to 70% in the past five quarters. A 93 RS stock with a B acc/dis rating.

Price forms a six-month, cup-with-handle base with a 33% depth and a constructive 9% handle depth. It can be taken above the 697.22 handle high. Earnings expected Feb. 25 (unconfirmed).

Palomar Holdings (PLMR) is a diversified insurer showing expected earnings growth of 121%/22% for ‘19/’20. Sales have grown by 30% and 61% in the two recent quarters. A 98 RS stock with a B- acc/dis rating.

PLMR forms a five-week mini-cup and can be taken above the 56.75 pattern high. Earnings expected Feb. 10 (unconfirmed).

Wheaton Precious Metals (WPM) is a precious metals streaming company, which is similar to a royalty company in that it does not own or operate mines themselves. Instead, it takes positions in miners. Earnings are forecast to grow 19%/56% this year and next. Sales grew -11% and 20% in the last two quarters. An 86 RS stock in an 81 RS group with a B- acc/dis rating.

Price forms a five-month cup-with-handle with 19% depth and 10% handle depth. It is buyable above the handle high of 30.31. Earnings expected Feb. 13 (unconfirmed).

In sum, while things can change at any time, the combination of 1) an extended market that has shown a change in character, plus 2) very few pattern setups, augurs for caution as to fresh-money buys. Let's allow the market to tip its hand before becoming aggressive.

Q&A

Q: I just wanted to echo your subscriber’s email about your great SEDG video. I was in the stock myself and sold it on Monday with a loss of 0.4%. I was not up 16%, but almost 14% on an intraday basis, so it did hurt. However, as I cannot follow the market most of the time in real-time, I am mostly taking end of day prices for my trading decision, also based on the simulation I did of my past 100 trades. 

Nevertheless I really liked the video as this really provides the quality I like to pay for. So as the other subscriber suggested, I would also highly appreciate if you included more advices & examples on selling decisions (which is the harder part compared to the buying decision). 

And just another suggestion: It would be super helpful if you started bookmarking your videos with some buzz words (e.g. "selling“) and included some kind of search function for those specific "trade management“ / rules related topics so that one could search for specific videos from your archive. Just a thought…Many thanks again and keep up the great work!

A: You are welcome and thanks for checking in and for your feedback. When the learning center for premium subscribers is complete, it will consist of video lessons on various topics. So finding something should be easy since the videos will be grouped according to topic.  

Comment: Thanks for the insight on the stock SEDG. Great lesson. This has been something I’ve been focusing on as I’ve had my share of letting a great gain turn into a breakeven trade or worse a loser. Really enjoy those mini lessons when going over the watchlist. Thanks.

Q: I appreciated this video a great deal. I have a history of picking good stocks, but giving back way too much and treading water. I should be making way more profit than I do. I've been meaning to write to ask for this type of education, but never got to it. Everyone (web sites in general), wants to talk about getting into a stock, but frankly, that is the easy part for me. Getting out is way more difficult, less glamorous, but way more important. I think Van Tharp said an investor could throw a dart at a stock list and make money if he/she had proper money management and exit strategies. I tend to think this is closer to the truth than not. Perhaps you could incorporate a small portion of videos each day to an example or two of getting out of a stock, it would be greatly appreciated.

A: Thank you for your feedback. I absolutely agree that it is a good idea for everyone. I will endeavor to have more of these in the videos of the future.

Comment: Just wanted to thank you for the great explanation in your last video on how you would handle GSX being in the parabolic run. This education is exactly the reason why I love your service so much! Unfortunately I am not in the stock but nevertheless for training purposes I asked myself how I would have managed it with such an extraordinary run as I have been following this stock for quite some time. I really like the idea to only take some off with the one bar trailing stop. This really keeps emotions and guess-work out of the game.
Especially after the rather weak close on Thursday on high volume I probably would have taken off a good amount if I had been in the stock, missing the great move on Friday. Your rule would have kept me in the stock. Please keep on adding these educational / rules-based features in your videos from time to time.
:-)

Q: You mentioned CyberArk in your latest report. The handle looks like it is "wedging up", of which Bill O'Neil has said many times, that this is a bad sign, as the weak holders have not gotten shaken out yet. What is your opinion of faulty handles like this?

A: I assume you are referring to the way it looked as of the close of 1/21/20. It cleared the handle high on 1/22/20 and for those who missed it we are now using the high of 1/22/20 as a revised pivot. I have seen a lot of ascending triangles work, which this is a variant of. While I agree that the handle is not perfect, I also wouldn't disqualify it. This is an example of how I believe being overly critical of the way a pattern is shaped may not be the optimal approach. If the volume is there, showing large investors are interested, I think that takes precedence. Thank you for the question. 

Q: Are you concerned with the IRS wash sale rule?  How do you avoid it?  Do you trade with the rule in mind?  Over a year, it can have a significant impact. Thanks.

A: Thank you for your email. I have never concerned myself with the IRS wash sale rule and have never known anyone using this type of strategy to concern themselves with it.

Comment: Excellent analysis on GSX.  I myself have a position on GSX from that big  bar in Nov.  I dumped 50% of my position today and decided to treat the rest as a core position.  But i like your nuanced approach. I will definitely add this to my trading arsenal. Once again, thank you for sharing that, enjoyed it.

Q: Thank you for the excellent ideas and for explaining your trading methods.  You are making a big difference in my trading! I'm wondering how you would handle GSX.  My cost average is around $19 and it just keeps going up?  How would you decide when to take profits? We're way past the 25% rule. Thank you!

A: You are welcome. Glad to hear you are receiving value from the service. Because GSX is parabolic, I would mentally split the position into three tranches:

1) Sell a small piece into strength using the one-bar trailing stop technique, perhaps 10%-15%
2) Sell a piece on an intraday or closing violation of the 9 ema, perhaps 20%
3) Sell a piece on a closing violation of the 20 ema. If price moves right back above the 20, you can consider buying that piece back

Depending on PA, the remainder would be a core position that you might hold until a closing violation of the 50 ma (day 1), followed by an intraday break of day 1's low. The idea is not to make an all-or-nothing decision, but to let the market take you out in pieces. Regardless of what you do, this is an xlnt learning experience for everyone.

Kevin Marder

For intraday ideas and analysis: https://twitter.com/mardermarket

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.