July 2, 2018

Stocks are in the second week of a well-deserved 5% reaction for the Nasdaq Composite. Most leading stocks, though lower, are in good shape, with about 44 of them trading within 10% of their 52-week high.

The fact that there is some semblance of order to many growth-stock charts leads one to expect continued outperformance by this sector once the averages find their sea legs.

With that said, nothing is to be taken for granted. The true health of a market is judged not by its action on a decline but rather by its action on the advance following a decline. It will be important, then, to monitor the next leg up for volume, breadth, and continued leadership.

The growth-stock glamours will need some time to repair the technical damage done to their charts. For some, this will involve forming new bases. For others, a quick momentum move up will take them to their previous high.

Within the list, the two sectors that have taken the market to where it is, technology (XLK) and consumer discretionary (XLY), are not showing anything worrisome.  

Due to the damage done to individual charts, there are few pattern setups of note for the breakout player. The momentum player must exercise patience until the market is ready to go again.

Despite the destruction of recent new issues, a few are holding up and basing, e.g. Autolus Therapy (AUTL), Xeris Pharmaceuticals (XERS), and Clps Incorporation (CLPS). These merit watching for very aggressive players.

Among the names, Axon Enterprise (AAXN) shows estimates of 55%/45% for ‘18/’19.  Price is currently in a three-week shelf pattern. Players should monitor this for a possible cheater entrance that might form between here and the pivot. Otherwise, the 6/6 high of 69.09 can be taken on a clearing thereof.

Endocyte (ECYT) is a development stage company with no earnings expected this year and next. A 99 RS stock in a 93 RS group. This has the feel of an ascending base, but isn’t exactly. An aggressive player could take ECYT above the 15.45 high of 6/12.

Evolus (EOLS) is another development stage company with no sales or earnings results. In contrast to other recent new issues, EOLS has been basing for three weeks. The 6/20 high of 34.49 could be used as a cheater entrance.

Paypal (PYPL) is a liquid glamour ($99B market cap) with less potential in the way of earnings growth estimates than, say, AMZN or NFLX. Price is 4% from the top of a six-month consolidation. The stock can be taken above the 87.55 high of 6/21.

Roku (ROKU) is forming a mid-level, six-month cup-with-handle. The price action as it comes up the right side of this base is among the steadiest and most constructive in the market. More time needs to be put in before the 6/21 high of 47.64 can be considered to be a cheater entrance. Worth watching.

Supernus Pharmaceuticals (SUPN) is under extreme accumulation and shows estimates of 50%/37% for this year and next. A plus is the recent higher volume occurring on up days. This is one to watch for a pullback.

Due to the corrective activity of the averages and individual leaders, this is an abbreviated report.

In sum, there is nothing sinister about the current reaction in the market. It is well-deserved and needed in order to remove the froth that had built up, mainly in the recent-new-issue sector. Participants will do well to maintain a watch list of better actors, some of which can be expected to move out should the Nasdaq tread water around its 50-day average.

Kevin Marder

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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 position, though positions are subject to change at any time and without notice.