June 17, 2020

The Nasdaq rallied back from a brief visit to the 20-day moving average, as its relative strength line returns to new-high ground. Value/cyclical stocks, after leading for two weeks, have in the past two weeks taken a back seat to growth as rising coronavirus infection rates have some rethinking their belief of a swift snap-back in the economy.

In Sunday's report, it was noted that "The game plan is to allow the averages to settle down long enough to see if there are hints from leading stocks that perhaps the worst may be behind us. This could take a day, a week, or perhaps longer. In the meantime, the Focus List does not have any ideas until the fog clears. Fresh-money buys are off the table for the time being. This makes all the more sense when we consider pattern setups to be scant in number. We will remain open-minded, flexible, and patient as to when our next cue will occur to begin buying."

Our next cue from leading stocks came Monday, and Monday evening's Focus List was back to a dozen names. Unfortunately, basic subscribers missed the shift, while premium subscribers were ready to go back to putting money to work. The difference between the two plans is just $18/month (with the quarterly discount).

Otherwise, some of the original leaders are now 3-4 weeks into building new bases. While 3-4 week patterns represent higher breakout risk, there is a time and a place for everything. Early in a new bull market is a time to consider these abbreviated patterns, just as it is a time to take on more risk than, say, in a mature bull.

In the late '90s, the Internet stocks led the bull market by posting the most unreal moves most had ever seen. Yet many had no earnings or estimates of earnings. I learned that institutions favored those with big sequential revenue rates (from one quarter to the next, not vs the year-ago quarter). In recent years, especially with the enterprise software group, the same tendency was evident.

The following table of a Morgan Stanley research study corroborated what I had learned empirically. Specifically, it is sales growth that best explains a stock's long-term price performance. While the table only goes as far as '09, the last few years have shown this effect to be alive and well. Preferably, a stock under consideration as a Focus List buy idea has 40%+ year-over-year revenue growth in the last two quarters. Some of the real burners show 60% growth, while a few are in the land of triple-digit sales growth.

To expand the following charts, please click on them.

Acm Research (ACMR)

Advanced Micro Devices (AMD)

Crowdstrike Holding (CRWD)

Dexcom (DXCM)

Horizon Therapeutics Public (HZNP)

Immunomedics (IMMU)

Novavax (NVAX)

Papa Johns International (PZZA)

Teladoc (TDOC)

Zillow (Z)

In sum, a good number of names are actionable and worthy of our attention. As always, a 3%-5% reaction could happen at anytime.

Q&A

Q: I know there are tons out there, but do you have any books that you can recommend as far as trading options? I've not done it before but have always had an interest and would like to take advantage of your recommendations once earning season rolls around. Thank you.

A: I have not read any. The strategy that will be deployed is a simple one that buys call options before earnings. There is not much to know about the mechanics of call options except that one option is related to 100 shares of the underlying stock. So when the option sells for 4, that stands for $400. The word premium means the option price, in this case 4. When the time comes, I will go over what is needed. This is the only strategy I intend to use with the Marder service. Options can get pretty complicated, and I intend to avoid the complicated strategies.

Kevin Marder

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

All stock charts created using MarketSmith unless otherwise noted. ©2020 MarketSmith, Incorporated. All other charts created using TradeStation. ©2001-2020 TradeStation Technologies. 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 no positions, though positions are subject to change at any time and without notice. Estimate data provided by FactSet. Expected earnings release dates provided by EarningsWhispers.