What led me to become bullish in early January were the footprints of a market discounting the end of a Fed tightening cycle and the beginning of a rate-cutting cycle. From the bond market to the eurodollar futures market to the federal funds futures markets and to the stock market, the message was the same.
A backdrop of a regime change from rising rates to one of falling rates is the best of all possible backdrops. Wednesday's dovish comments by the Fed chair merely added fuel to the fire.
Technically, the averages act well, with reasonable price/volume signatures, if not powerful. This explains the paucity of 20%-25% post-breakout follow-throughs. The growth-stock leadership is also developing, and is centered on the software segments, especially the database software and enterprise software titles.
The momentum player in aggressive growth issues has an increasingly lush menu of setups from which to choose. Recent reports should be consulted for those names in play, in addition to those discussed herein.
Among the names, Aurora Cannabis (ACB) shows an 80% estimate for the June ’20 fiscal year, with triple-digit revenue growth over the past several quarters. The Canadian company is quite liquid at $111MM in ADDV. Earnings expected Feb. 11.
ACB can be taken above its 7.52 high of 1/15.
Coupa Software (COUP) was previously mentioned in either a report or a video as being buyable above the 69.77 cheater entrance pivot of 11/8. In Tuesday evening’s video for premium subscribers, it was noted as being buyable above Tuesday’s high of 79.75. I added to my position here on Wednesday.
For those seeking entry, either the handle high of 80.66 (just 26 cents from Wednesday’s close) or the pattern high of 84.53 can be used as a pivot. Earnings expected Mar. 4.
Cyberark Software (CYBR) is 3% past its pivot and can still be taken for those who missed the breakout. Earnings expected Feb. 14.
Everbridge (EVBG) was discussed in Sunday’s report (“Price is currently 2.1% past the 59.83 [cheater entrance] 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”). The comment stands.
Irhythm Technologies (IRTC) should show a loss in ’19 but has a muscular 52% sales growth rate in the recent quarter. Price forms a cup-with-low-handle, and can be taken above Wednesday’s high of 86.03. Earnings expected Feb. 12.
Pinduoduo (PDD) was noted in the Jan. 6 report (“An aggressive entrance in the cheater style would be above the 25.00 high of 12/3”) and also in the Jan. 20 report (“This can be taken above the 1/10 high of 26.70”). This level was taken out two sessions later. The day after that, price jumped 8% on +58% volume.
When one sees a handle forming after a leader makes a convincing run up the right side of its base, one considers it a gift of sorts. Wednesday’s pullback met this criterion. PDD can be taken above the 30.48 base high, even if this were to occur Thursday, meaning its handle would be just one-day in duration. Earnings expected Feb. 19.
(I believe I mentioned in one of the videos that, while a four- or five-day handle is preferred, I am comfortable taking price coming out of a three-day handle. I also said that two-day handles were not preferred.)
(Trading leadership names can be highly contextual. In the appropriate context, a one- or two-day handle can be taken. PDD is that sort of animal. It sets up in the early, rate-driven cycle of what is believed to be a bull market.)
(Our job is to establish positions in some of the leading issues. How nice it would be for them to form the picture-perfect cup-with-handles that come from a textbook. But trying to establish something with a leading stock in a bull market is sometimes like trying to establish something with that certain someone in high school. They often play hard-to-get.)
(Institutional traders may have mandates from their portfolio managers to get into a stock n-o-w. Enough of these types of players can mean a stock doesn’t have time for a five-day handle to form. It is too popular.)
(The decision I made in ‘93, after watching Qualcomm blast out of a base that appeared imperfect, was to be more forgiving of price patterns. Solid accumulation on the right side of a base and raw relative price strength should be the focus. Once a stock has shown its hand as something to be contended with, other constraints can be relaxed somewhat.)
Servicenow (NOW) was noted here Jan. 16 (“…can be taken on a takeout of the cheater entrance pivot at 194.04”). The stock crossed this level Wednesday just ahead of its earnings report on +95% volume, up 5.0% on the day. Post-close, price changed hands at 207.00 on the favorable reaction to the report. This is less than 1% above the 206.29 pattern high.
While a position can be entered around this level, and it is certainly valid, the day after an earnings release can sometimes invite profit-takers on the gap up.
Tableau Software (DATA) was noted in Sunday’s report (“The 131.82 high of 12/12 could be contemplated for an entrance pivot. Earnings expected Feb. 5”). The comment stands. In addition, the 129.88 high of its three-day handle may be used as a cheater pivot.
Tandem Diabetes Care (TNDM) can be taken above the Wednesday high of 43.40 using a swing trader pullback entry. The stop would be below Wednesday’s low of 41.21. A 99 RS stock. Earnings expected Feb. 26.
Zendesk (ZEN) was discussed in the Jan. 6 report (“The 12/12 high of 62.72 represents a cheater entrance pivot”). Since the earnings report is expected Feb. 5, let’s wait before taking an entry above its five-day handle. Its 88% estimate and 38% sales growth in the recent quarter are appetizing. A 96 RS stock with an A- acc/dist rating in a 98 RS group.
In sum, the backdrop, the averages, and the leaders are all in gear. Secondary indicators such as breadth and interest-sensitive sectors confirm. The momentum player should continue to expand long exposure.
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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 a position in COUP, 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.