June 23, 2019

The major averages have shown near-ideal price/volume correlation on this three-week rally, with the Nasdaq Composite printing a single minor distribution day.

Friday’s quarterly quad-witching session, which appears to be major distribution on a chart, can be ignored due to the artificial effect that expiring options and futures contracts have on price and volume.

A number of growth-stock leaders were sold in a buy-the-rumor, sell-the-news reaction to the Fed’s Wednesday announcement that it would be willing to cut its overnight rate if need be.

This selling began Thursday and continued into Friday. It impacted a few of our Focus List names which saw recent breakouts reverse, sending price back into their bases. These include Zscaler (ZS), Smartsheet (SMAR), Twilio (TWLO), and Planet Fitness (PLNT). Non-Focus List names that were affected include Funko (FNKO), Freshpet (FRPT), and Ceridian HCM Holding (CDAY).

This selling was orderly in most cases and is not considered abnormal. While some of this may be due to the noise surrounding quad-witching, it is nevertheless a concern.

With that said, I remain pleased with our buy ideas’ progress over the past fortnight, including Sea Limited (SE), Goosehead Insurance (GSHD), Kirkland Lake Gold (KL), Appfolio (APPF), Coupa Software (COUP), Novocure (NVCR), and Everbridge (EVBG). Others are up lesser amounts.

Innovative Industrial Properties (IIPR), which rose as much as 48% in 11 days following its breakout from our Focus list entry, tumbled 12.8% Friday on +302% volume. This can be sold, in my view.

Besides NeoGenomics (NEO), I am unaware of any swing trader setups (pullbacks) that were stopped out so far this month.

At present, there are very few pattern setups worthy of our attention. In this environment, breakout setups are less attractive than pullback setups. There are three of the latter among the following names.

Among the names, Caredx (CDNA) recorded a loss of 15 cents a share in ’18 and is expected to notch earnings per share of 8 cents and 59 cents in ‘19/’20. Sales growth is consistent and strong, at 88% and 85% in the two recent quarters. A 98 RS stock in a 78 RS group (medical products) with a B acc/dist rating.

Price forms a three-month cup. A plus is the 7.0% gain on +54% volume as price emerged from the handle on June 6. This was the last entry point for CDNA and its MFE was 10.6%. The s/l should have been moved to breakeven or breakeven + 1%.

The stock sets up in a pullback and is buyable on a takeout of the Friday high of 38.35 with a suggested stop pivot of Friday’s low of 36.55. This equates to about 4.8% risk, or 2.4% risk if a junior starter position is used. Earnings expected Aug. 7 (unconfirmed).

Chipotle Mexican Grill (CMG) is expected to log earnings growth of 47%/28% in ‘19/’20. Revenue growth is somewhat disappointing at 10% and 14% in the two recent quarters. A 96 RS stock in a 76 RS group with a B- acc/dist rating.

Price forms a six-day range with a tight 3.5% depth just above the top of its prior consolidation area. It can be taken above the June 13 range high of 749.25. Earnings expected July 23 (confirmed).

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 86 RS group with a B+ acc/dist rating.

Price forms a four-month cup and was up 10 days straight. This is a sign of price persistency and accumulation. The key day was 6/10, when price jumped 9.9% on +257% volume to clear a bottoming formation.

DXCM barely triggered an entry above our entry pivot of 154.88 on Thursday, before reversing on Friday. It can be taken above the 157.50 high of Thursday. Earnings expected July 31 (unconfirmed).

Lyft (LYFT) shows red ink for both ’19 and ’20. The on-demand ride-sharing entity has explosive sales growth of 94% and 95% in the two recent quarters. A 15 RS stock in a 64 RS group with a D- acc/dist rating.

The stock has worked its way up the right side of its first base since its IPO three months ago. It can be taken above the Friday high of 64.30 using a suggested stop pivot of Friday’s low of 62.52. This equates to about 2.9% risk, or about 1.5% risk for a junior starter position. This is considered a quasi-pullback setup. Earnings expected Aug. 6 (unconfirmed).

Pinterest (PINS) is expected to record an 18-cent-a-share loss in ’19 followed by a 2-cent profit in ’20. The Internet content platform has increased sales a robust 58% and 54% in the recent two quarters. A 90 RS stock in a 73 RS group with a B- acc/dist rating.

Price sets up in a pullback and can be taken above Friday’s high of 27.98 with a suggested stop pivot of Friday’s low of 27.22. This works out to about 2.8% risk, or 1.4% risk for a junior starter position. Given the amount of overhead supply (resistance), I would not expect this to explode higher as a base breakout into new-high ground might. Pullback setups do not require an increase in volume as a breakout setup might. Earnings expected Aug. 15 (unconfirmed).

In sum, the averages have the wind at their backs as they emerge from May’s correction. Speculators might do well to exercise restraint with breakout entries until we begin to see some of them come out on volume and follow through. For the moment, pullback setups are favored.

Kevin Marder

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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 a position in COUP, 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.