Institutions continue to show a reticence about taking on risk, and so should we when it comes to fresh-money buys.
The current market is not conducive to base breakouts. Whereas Wednesday's report urged us to "...continue to tread lightly with fresh-money buys when it comes to breakouts," the view here is that breakouts should no longer be bought at all.
There are two reasons why it does not pay to buy breakouts in growth stocks at this juncture. First, there are only a handful of constructive bases in the market. Historical precedent shows that it is best to avoid fresh-money buys in a market such as this. Second, recent growth-stock breakouts have not followed through in a meaningful way, with a number of them reversing and returning to their bases.
In the meantime, the following charts illustrate the dubious environment for recent breakouts, starting with two liquid glamours which break out, stall, and then reverse...
Among the speculative glamours:
The above are just a few examples of recent breakouts gone awry. For those who absolutely must put on some long exposure, a few names are mentioned below.
Among the names, 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 93 RS stock in an 87 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. A plus is the higher lows formed in the handle. DXCM can be taken above the 157.50 high of June 20. Earnings expected July 31 (confirmed).
Elastic (ESTC) is a recent new issue with losses foreseen in the April ‘20/’21 fiscal years. Sales have grown strongly, up 70% and 63% in the two recent quarters. A 95 RS stock in a 93 RS group with a B+ acc/dist rating.
The stock more than doubled in its debut as a public company in October. Since then, it has nearly tripled. Currently, it forms a five-month consolidation. While a pattern showing less time spent forming the right side of a base than the left is preferred, ESTC is up 15 of the last 16 days, and 26% in the last nine.
Given this unidirectional move up the right side, it is preferable to let the stock form a handle or pull back before buying any breakout of the 100.43 pattern high. Worth watching. Earnings expected Sept. 4 (unconfirmed).
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 five-month cup-with-handle that is part of a larger, nine-month consolidation. It can be taken above the 82.66 high of the handle. Earnings expected Aug. 1 (confirmed).
Wix.com (WIX) shows earnings growth estimates of -13%/73% for ‘19/’20. Sales have increased by 39% and 26% in the last two quarters. A 95 RS stock in a 98 RS group, with a B- acc/dist rating.
The stock forms a four-week flat shelf with a tight, 7.0% depth. It can be taken above the pattern high of 149.59. However, any entry should not be taken before the earnings report comes out this Wednesday, July 24 at 1:00 a.m. ET. This is according to EarningsWhispers.
In sum, the paucity of pattern setups and the disappointing action of numerous recent breakouts make the decision to suspend fresh-money buys an easy one for the breakout player. Some triggered trades from the June and July Focus Lists continue to act well and do not show worrisome action. They should be allowed to work.
Q: You have mentioned in a recent video about a blog named Earnings Whispers. I have been a briefing.com sub for a few years and it’s time to renew that service. At $685 per year there has to be something as good at a better price. I am looking into an alternate earnings source and would like to read more about your thoughts on their service. Could you advise of the date of that blog?
A: Thank you for your question. Earningswhispers.com is a Web site that has been 100% accurate as to expected earnings dates whenever I have used it over the past year or so. I use the free part of the service. One can go there after the close of trading and see which reports were released that day after the close, along with whether there was a beat on earnings, revenue, and any forward guidance given by the company. The forward guidance is compared to the market’s current expectation. I hope you find it helpful.
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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. Expected earnings release dates provided by EarningsWhispers.