Market participants continue to exhibit a wariness regarding risk. This is manifested by few breakouts that follow through in a meaningful way. As well, Nasdaq volume has been relatively dry as price approached and then exceeded its record high over the past week. In Monday's video, I pondered whether this lack of demand when the averages break out might lead to weakness, as Bill O'Neil says.
The decision to tread lightly as to breakout buys over the past month has largely been the correct one. With that said, I thought I detected a change for the better in Monday's session. This spurred the addition of a couple of recent new issues to the Focus List. These triggered breakout entries within the opening five minutes of Tuesday, before abruptly reversing and being stopped out. As mentioned in Tuesday's video, we make adjustments based on concrete, black and white evidence and then proceed accordingly.
Meanwhile, the swing setups that provided entry at advantageous levels following the May correction and the three-day, late-June pullback continue to provide the gift that keeps on giving. The most recent one, Tradeweb Markets (TW), was mentioned in Tuesday's video and Focus List. It triggered Wednesday and is up 0.7R so far.
My account is about 90% long and in three positions: BYND, CYBR, and SHOP. This degree of concentration only occurs when I have a high level of conviction in three names. Otherwise, I tend to be in five to seven stocks.
The approach to earnings season should be to only carry a position into an earnings report in which one holds a profit cushion. Even then, it is important that one calibrate a position size based on a worst-case scenario of what might occur post-report. I like to use a 25%-33% worst case, which I then use to calculate my position size so that my account is not meaningfully dented.
Otherwise, Wednesday, with 18 minutes left in the futures session, I took a 1R scalp on the short side as seen below. Price then went 12R. Some would have a sense of regret about missing the 12R profit. I didn't, because I made 1R in under two minutes, and more important, it allowed me to make my daily profit goal. At the end of the day (literally), this is all that matters.
As most of you know by now, there is no wrong way to trade. There are only results. And how each trader goes about this is going to be a little different. I would not necessarily always scalp for 1R when day trading the future, but this time it made sense given the lateness of the session.
Among the names, Beyond Meat (BYND) shows per-share earnings estimates of -0.27/0.05 for this year and next. Sales growth has been giant in recent quarters, and in triple-digit territory. A 99 RS stock in a 99 RS group with an A+ acc/dist rating.
Price builds a mini cup-with-low-handle. It is buyable on a takeout of the handle high of 174.67. Earnings expected July 29 (confirmed).
Crowdstrike Holding (CRWD) is a recent new issue with losses expected in the January ‘20/’21 fiscal years. The stock sets up as a swing entry above Wednesday’s high. However, with earnings expected Thursday, July 18, there is nothing to do until after the report.
Dexcom (DXCM) shows hefty earnings growth estimates of 138%/58% for ‘19/’20. Revenue growth has been big, at 53% and 52% in the recent two quarters. A 92 RS stock in an 89 RS group with a B acc/dist rating.
Price forms a five-month cup-with-handle. The key day was 6/10, when price jumped 9.9% on +257% volume to clear a bottoming formation. DXCM can be taken above the 157.50 high of June 20. Earnings expected July 31 (confirmed).
Shake Shack (SHAK) shows earnings estimates of -18%/28% for ‘19/’20. Sales increased 29% and 34% in the two recent quarters. A 93 RS stock in a 75 RS group with a B acc/dist rating.
The stock can be taken as a swing entry above Wednesday’s high of 74.13 with a suggested stop pivot of Wednesday’s low of 72.80. This equates to 1.9% risk. Earnings expected Aug. 5 (confirmed).
Square (SQ) is expected to record earnings growth of 62%/47% in ‘19/’20. Sales expanded 51% and 43% in the two recent quarters. An 84 RS stock in a 96 RS group with a B+ acc/dist rating.
Price forms a four-month cup that is part of a larger, nine-month consolidation. It can be taken above the 82.78 high of the cup. Earnings expected Aug. 1 (confirmed).
Workday (WDAY) is expected to post earnings growth of 24%/34% in the January ‘20/’21 fiscal years. Sales growth was 35% and 33% in the last two quarters. A 95 RS stock in a 98 RS group with a D- acc/dist rating.
WDAY sets up in a swing entry above Wednesday’s high of 218.79 with a suggested stop loss pivot of Wednesday’s low of 213.66. This equates to 2.4% risk. Earnings expected Aug. 27 (unconfirmed).
In sum, market participants show a fair degree of tentativeness, as they have since these reports began talking about it several weeks ago. This shows up in muted Nasdaq and NYSE volume and unimpressive breakout action. It is unclear whether this is due to caution ahead of Q2 earnings season or something else. Let's continue to tread lightly with fresh-money buys when it comes to breakouts.
Q: Thank you for the service. I find it extremely informative and am appreciative of all your time and dedication to it. I am reviewing some ideas for the coming week and noticed that GH has IPO lockup expiration on 8/6. What is your view on how this may (or may not) impact a stock? Do you change your rules for these situations? Thanks!
A: You are welcome. I have learned over the years that the more simplistic one’s approach, the more money one will make. Hence, for position trading, I only pay attention to ERT: Earnings estimates for next fiscal year w/ recent sales, Relative strength line slope, and Technical chart pattern. I believe that since every fact and opinion is discounted by price, there is no advantage in consulting any other info. So I would ignore the lockup expiration of which you refer.
Regardless of my approach, each of us must, over time, come up with our own set of guidelines and rules. This is because each of us is wired differently. We each have our own unique makeup consisting of temperament, risk tolerance, and experience, among others.
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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 positions in BYND, CYBR, and SHOP, 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.