Part II of this evening's report covers a name and some Q&A not included in Part I.
Guardant Health (GH) was one of the service's biggest winners, +71% in two weeks during February en route to a +145% move that took four weeks. Since then, the stock has been forming a three-month cup pattern with a 42% depth. The depth is considered reasonable in light of the outsized move.
GH is an example of how we attempt to play a first-stage base and then follow that up with playing a second-stage base. The first attempt at a cheater entrance in the current second-stage base was a stop-out. The second attempt was successful, with a 15.9% MFE in five days thus far. Note the positive volume dry-up thus far this week, as well as the support found at the 9 ema.
This week, the medical -- services company has eased in line with the averages and other glamours. It sets up in a volatility contraction setup with entry at 88.46 and possible s/l pivot of 85.28 for about 3.7% risk. Earnings expected Aug. 8.
Q: Hi Kevin, I am a new subscriber to your service and I really like it so far. So keep up the great work. Like another subscriber, I also found the educational part on position sizing in the last two videos super interesting.
Now to my question: I was quite surprised to see TNDM still on the focus list today. The stock went down yesterday quite significantly on strong volume despite most stocks and the general market being up yesterday. RS line falling the last couple of days. So I would love to understand what your thoughts are to still consider TNDM a focus list stock. Thanks a lot! Best regards from Germany
A: Thank you for the kind words and your question. First, the technicals: TNDM did not violate its 50-day line, has shown good relative strength line slope for nearly two months, and may have been the No. 1 performer of '18, up from 2.14 to 52.55 in just seven months, a 2,356% move. Names that have proven they have done it before are favored.
Second, the fundamentals. The company has made large strides in narrowing its annual deficits toward becoming profitable. Equally if not more important, revenue growth has accelerated from 60% to 71% to 89% to 142% in the most recent three quarters.
Third, stocks are like people. Very few if any are perfect. Nearly every one will show one or more blemishes. Yet if you have studied big-winning stocks, you realize this more than can be explained in an answer like this.
Finally, while we never want to allow a stock to overstay its welcome, TNDM has not reached that point yet. Thanks again for the good question.
Q: Hi Kevin – I enjoy the educational commentary that you take the time to provide. Speaking of which, when your column was up at MarketWatch, you had mentioned a potential set-up that you called a two or three-day rest/pause.
I have seen stocks that spike on huge volume, come in for a few days and then resume their climb but have yet to find a constructive way to take an entry, other than to take a small position upon a resumption of the uptrend, provided that price doesn't exceed the prior high by too much. In your reports you do discuss smaller shelves or ledges (not a proper handle).
I saw the two day pullback in CIEN and wondered if this might mean opportunity to you and how you would play it. Does your pull-back buying technique apply and do you ever buy a starter position on the 2nd or 3rd day down, with a tight stop? Thanks.
A: Thank you for the question. If you are referring to the "give-and-go" pattern which I first began discussing on CBS MarketWatch in the late 'Nineties, the entry is on a new price high following a sharp move higher and then precious little give-back -- perhaps just a week or so to regain its wind -- before moving out again. This is similar to the high, tight flag Bill O'Neil speaks of in his book but does not need to resemble the flag in shape.
In the example of CIEN, a 27% move in one day exceeds the give-and-go concept due to its sheer power. At this point, it may be better to allow it to form a handle and then trade the breakout. As well, the better give-and-go patterns over the years emanate from a flat base, not the consolidation pattern of CIEN that slants downward. I am a little skeptical on this one because of the fundamentals. The estimates are 50%/23% for the October '19/'20 fiscal years. This means the current fiscal year is over in 4 1/2 months which indicates institutions are not focusing on this but rather the October '20 year. The latter, at 23%, is good, but not great enough, imo, to justify something beyond what the price move CIEN has just put in.
Of course, we go off of PA (price action) first and foremost, and not personal opinion or prediction. So I am certainly open to whatever story the stock tells, skepticism aside.
Q: Hi Kevin, thanks for answering my question in today's video. I have got another one: I would be interested in your stock selection and screening criteria for your watchlist. Did you already produce a video on that? If so, it would be great if you could share the link with me. Many thanks.+
A: You are welcome. I prefer to manually inspect over 1,000 charts weekly vs. rely on a bunch of screens, though I do run a couple. This is the way we all did it before charting software was invented. Back then, we used the Daily Graphs printed books by O'Neil. The reason I have continued to do it is it gives me a good look at the broad mkt that using only screens could not provide. I don’t recommend most people do it due to the time involved.
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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.