June 12, 2019

The v-shaped recovery in the averages left the Nasdaq Composite in need of a rest. We are getting that now, which is viewed as natural and healthy.

With one exception (EVBG), I made a conscious decision not to suggest entering any of the software leaders as they came out of two-week, v-shaped patterns. This turned out to be the correct decision, as the averages come in along with these hot glamours.

The thought process: I felt that even if we missed a move in some of these due to the Naz extending its week-long advance longer than it did, we would be able to sooner or later enter using some swing trader tactics instead of waiting for new five-week-plus bases to form.

The upshot is that by waiting, we now have some better-quality entries that were not available before.

Glamours showing the best tone: SHOP MDB COUP OKTA AYX. These do not all offer attractive entrance, so it is not suggested that one simply go out and buy these without waiting for the r:r (reward-to-risk) to better skew in our favor.

Among the names, Coupa Software (COUP) is forecast to record earnings growth of -39%/255% for the January ‘20/’21 fiscal years. Sales expanded 39% and 44% in the two recent quarters. A 98 RS stock in a 98 RS group with B+ acc/dist rating from O'Neil.

Along with OKTA, the stock rebounded the quickest among glamours last week to form a v-shaped pattern which did not offer the best reward/risk ratio. However, it now forms a volatility contraction pattern after finding support at the 9 ema on Wednesday.

It can be taken above Wednesday’s high of 119.64 with a suggested stop pivot (s/l) of 116.22. This equates to 3.0% risk, which is typical of the lower risk seen in many of the service’s swing trader setups.

This has been a favored name, along with SHOP and ZEN, since the early days of the bull market which began with the Dec. 24 bear market low. We have been successful with four of five COUP buy ideas since. Earnings expected Sept. 2 (unconfirmed).

Etsy (ETSY) is expected to log earnings growth of 23%/44% for ‘19/’20. Revenue growth has been impressive at 47% and 40% in the two recent quarters. A 96 RS stock in a 79 RS stock with a B- acc/dist rating from O’Neil.

Price forms a three-month consolidation. The RS line is slightly leading price. The stock can be taken as a cheater entrance above the swing high of 70.09. Earnings expected Aug. 7 (unconfirmed).

Frontdoor (FTDR) shows earnings estimates of 1%/23% for ‘19/’20 with light sales growth of 8% and 10% in the two recent quarters. A 94 RS stock in a 98 RS group with a B+ acc/dist rating.

FTDR has been discussed in the last two evening videos as being a leader with unimpressive fundamentals (estimates and revenue). It may, however, hold interest for some subscribers as a diversification tool in a market dominated by software groups. For those who did not enter on the 5/15 breakout, or as an add-on position, it can be taken as a cheater entrance above the 42.09 high of Monday.

Note the volatility contraction of Tuesday and Wednesday which forms an ascending triangle. Earnings expected Aug. 7 (unconfirmed).

Novocure (NVCR) was noted in the June 5 report (“It can be taken above the 56.67 pattern high. Earnings expected Aug. 1 (unconfirmed)”). The comment stands.

Planet Fitness (PLNT) is in the leisure – services group and is an opportunity to diversify away from a pure concentration in computer software issues. Estimates call for 26%/23% in ‘19/’20 and sales have grown 30% and 23% in the last two quarters. A 97 RS group in a 53 RS group with a C- acc/dist rating.

The stock forms a three-and-a-week flat shelf with 9.8% depth. It can be taken above the 81.76 pattern high. Earnings expected Aug. 1 (unconfirmed).

Q2 Holdings (QTWO) is in the computer software – financial group and is predicted by most analysts to show earnings growth of -54%/267% for this year and next. Sales increased by 30% in each of the last two quarters. A 92 RS stock in a 92 RS group with a B acc/dist rating.

For those who missed the shakeout-and-reverse/Wyckoff spring buy idea of last week, or for those interested in an add-on position, QTWO can be taken above the 76.08 pattern high. Earnings expected Aug. 1 (unconfirmed).

Twilio (TWLO) has been, along with SHOP and COUP, a top performer in the computer software – enterprise group. Earnings are forecast by the Street at 9%/142% for ‘19/’20 and sales have expanded mightily at 77% and 81% in the two recent quarters. A 98 RS stock in a 98 RS group with a B acc/dist rating.

The stock has formed an ascending base pattern and sets up as a volatility contraction play with entrance above Wednesday’s high of 144.34. Suggested s/l (stop loss) pivot is Tuesday’s low of 138.03 which equates to about 4.5% risk. Earnings expected Jul. 30.

In sum, by waiting for some quality setups to materialize, we have avoided the pullbacks in some of the hotter names that accompanied the pullback in the averages. We are now in a position to take advantage of some fresh entrance opportunities. Let's continue to be mindful of the market being quite news-driven at the moment, which could result in further volatility. This means hewing to our day-by-day approach, which never changes.

Q&A

Q: Can you please share what is the constraints or condition for your watch list in MarketSmith? For example, is it by Comp Rating > 90 or RS > 90 or multiple condition. What you usually look for to get Watch list then again to filter out Focus list from the watch list. Just for educational purposes only!

A: Please see this post in the general public blog which can be accessed via the "Blog" link at bottom of any page once you are logged in.

Q: Sir, I have a request... when you do conviction buy i.e. MDB, is it possible to let members know? 

A: I am sorry that is not possible because then I am essentially showing the world everything I do in the market. In other words, I would no longer be trading a private account, something I enjoy immensely.

Second, if subscribers are paying close attention to the tone of my voice and what I say about the Focus List names in the videos, they already know which names are ones I believe to be favored names. And they also have the exact entry pivots.

I will continue informing subscribers of what I feel are the most interesting ones before they reach a pivot, e.g. SHOP COUP ZEN have been three of the four I noted 4-6 wks ago and for longer before that. And on occasion I will discuss names I hold. But not every single position as I am taking a position. That then becomes a higher-priced, real-time alert service which I believe is unnecessary due to the Focus List giving subscribers that info ahead of time. I hope you can understand.

Kevin Marder

For intraday ideas and analysis: https://twitter.com/mardermarket

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 COUP, MDB, 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.