July 09, 2018

Stocks remain in the driver’s seat, with Friday’s wide-range bar and good close of particular note. Volume has been well below average on this rally, part of which may be due to caution ahead of earnings season.

Leadership in the Nasdaq is coming together gradually as patterns are repaired and in some cases completely rebuilt following the 5% June reaction.

Within the list, technology and consumer discretionary, two risk-on sectors, maintain their leadership role.

The backdrop has added an interesting wrinkle. The price of crude oil has appreciated briskly, up from 64 to 75 over a recent 10-day span. Bull markets have ended due to spiking oil, but the price does not currently appear to be close to problematic levels. Another issue for another day.

Among the names, Amazon.com (AMZN) appears set to come out of a little, 7% deep, two-week cup. The stock can be taken above the 1763.10 high of this pattern. Earnings are expected on 7/25.

Crispr Therapeutics (CRSP) is forming a seven-week, 28% deep consolidation which appears to be a double-bottom base. While it is helpful to have the second leg of a double-bottom slightly undercut the first low, it is not believed to be essential.

This is a development stage company with considerable risk. The potential of its gene-editing platform that edits defective genes is major. Whether it will be able to jump through the necessary hoops that the FDA places in front of it is another question. One of those hoops caused a 28% selloff in the shares in May-June.

A 99 RS stock in a 95 RS group. Very aggressive players can consider taking a starter position in it above Monday’s high of 63.43. Monday, the stock bounced off the 50-day moving average.

Gds Holdings (GDS) is a big winner, up fivefold in 10 months beginning last summer. Losses are expected this year and next, but revenue growth has been 73%-76% in the last two quarters. Price touched the 50-day line recently and is closing in on its prior high. While attractive entry is not present, GDS can be watched for either a breakout or a pullback entrance. A 99 RS stock.

Karyopharm Therapeutics (KPTI) is a development-stage biotech concern with no earnings that is building a seven-week, 19% deep, base-on-top-of-a-base. KPTI has proven it has what it takes, doubling in just 11 weeks early this year. More recently, it moved up 71% in only six weeks.

A 97 RS stock in a 95 RS group. The stock can be taken above the 20.39 high of its current base. Alternatively, the 19.68 high of 6/21 can be used as a cheater entrance.

Loxo Oncology (LOXO) is another development-stage biotech with no earnings. It has a 98 RS rank in a 95 RS group and is under moderate accumulation. Price forms a five-week flat base with a shakeout and reversal on 6/28. Worth waiting to see if a handle or sideways drift can occur which would provide a cheater entrance.

New Relic (NEWR) is a software database developer with earnings-growth estimates of 999%/92% during the March ‘19/’20 fiscal years. Revenue growth has been rock-solid in the 33%-37% range over the past four quarters. A 97 RS stock in a 96 RS group.

Price ran up about 60% in seven weeks and is three weeks into a v-shaped consolidation phase. While it does not offer attractive entry, it should be monitored for either a breakout entrance or perhaps some sideways movement or pullback that would allow for an opportunistic entry.

Netflix (NFLX) stands just a percent away from the top of a two-week, 10.5% deep consolidation. It is under solid accumulation and is a 98 RS stock in a 99 RS group. The stock can be taken around Monday’s closing level of 418.92 with the understanding that earnings are expected on 7/16.

Thus, any position should be calibrated to taken into account a potential negative earnings surprise that would force price lower. Still the premier growth stock.

RingCentral (RNG) is an enterprise software maker with earnings estimates of 138%/27% for ‘18/’19. Price forms an eight-week consolidation and can be taken above the 80.70 high of 6/18.

Roku (ROKU) was discussed in last week’s report, which noted more time needed to be put in before the 6/21 high of 47.64 could be used as a cheater entrance. Monday price came out of the two-week cup and passed the 47.64 level but was turned back while volume was 17% below average.

To be fair, Monday, though higher, was the narrowest range day for the Nasdaq Composite in the last seven days (NR7), with the price action sluggish for many issues. At this juncture, a momentum player might consider taking ROKU above Monday’s high of 48.16. Alternatively, a pullback may be looked for.

Seattle Genetics (SGEN) has no earnings but good revenue growth of 29% in the latest quarter. It is forming a long, year-plus consolidation. It is an 89 RS stock in a 95 RS group, and can be taken above this base high of 71.32, set on 4/28/17. Part of the appeal of SGEN is the group relative strength.

Sientra (SIEN) is a medical products maker, a 97 RS stock in a 99 RS group, and under extreme accumulation. While losses are expected for this year and next, revenue growth has accelerated for the last three quarters to 96% for the current quarter.

SIEN has had an impressive recent past. Price doubled in seven weeks, moved sideways for two weeks in a tight range, then rose before beginning to digest its recent wins. At present, price forms a five-week base with 11% depth. It can be taken above the 21.06 high of 6/14.

Meanwhile, better action is seen in recent new issues that form their first bases like Eidos Therapeutics (EIDX) and Homology Medicines (FIXX), or their second bases like Goosehead Insurance (GSHD) and Zscaler (ZS).

In sum, the market is in good shape following its June reaction. Not enough time has passed to allow many issues to form 5-7 week basing patterns. In the meantime, some names are worth watching, and these have been discussed above.

The better behavior of some recent new issues, noted in the above paragraph, speaks to the presence of a certain amount of speculative sentiment, an ingredient of any bull market.