The speculative growth stock glamours enjoyed a reprieve on Friday, bucking the 0.18% decline in the Nasdaq Composite by rising 0.4% on average. This represents a small change in character from the laggard performance of glamour issues on Monday and Wednesday.
Otherwise, no one should be surprised by the Naz coming off for five days in a row following a blistering 23.5% run-up over 10 weeks. This was the fastest rally since the financial crisis, per Goldman Sachs.
Beneath the surface, the growth group that perhaps counts the most, computer software-enterprise, actually strengthened last week, moving from the 98th percentile RS rank to 99, a mild plus.
There is no doubt that the market had gotten ahead of itself recently, with most glamours having already emerged from sound basing patterns. This predicament left most issues of interest extended from recent bases, which left our Focus List with just five names at one point.
The situation today is similar. The average growth-stock leader has been backing and filling for one week. With some exceptions, one-week patterns are not the type of attractive setup we like to exploit. Thus, the game at this point is one of having patience to wait for our setups to come to us. The stocks profiled below are of lesser quality than the ones that populated these reports in January and February. They are, for the most part, latecomers to the party.
While I have no problem buying names such as this, my preference, if I had to make a choice, would be to buy some of the original leaders as they offer secondary buy points. They were the first ones out, and by definition have more compelling stories than those yet to emerge from bases.
Among the names, Arcosa (ACA) is a recent new issue. Earnings for ‘19/’20 are expected to grow 36%/30%. However, revenue increased just 3% and 8% in the two recent quarters. A 94 RS stock with an A acc/dist rating from O’Neil.
This is not a growth stock, based on the earnings trend of the past five years. It is also a thinner stock, having an ADDV (average daily dollar volume) of $9.2MM. An ADDV of $25MM-$30MM is preferred as a minimum.
So the risks are there, but it forms a reasonable pattern with a three-day pullback. Very aggressive players might consider this above the 35.15 handle high, though at least a few more days of basing is preferred prior to entry.
Amarin (AMRN) is a biotech showing a per-share estimate of -0.15 for ’19 and +0.25 for ’20. Sales grew by 17% and 44% in the recent two quarters. A 99 RS stock with an A acc/dist rating.
The intriguing thing about AMRN is its move from 2 to 23 in six weeks’ time last autumn. The stock forms a four-month cup that is three days into a handle. An aggressive operator can take this on a break of the 23.34 pattern high.
Avalara (AVLR) shows a loss expected for ’20, but one that would be the smallest in its existence. The stock came public last June at 24 and ran up to nearly 60 in its first five days. (Recent new issues that advance 50% or more in their first two months are accorded attention since these often become future leaders.) Sales grew at 26% and 33% in the two recent quarters.
AVLR was mentioned in Wednesday’s report (“The heart of any momentum strategy is this: Relative strength begets relative strength. Thus, that AVLR doubled in seven weeks should be viewed as a distinct positive”). A 97 RS stock in a 94 RS group with an A acc/dist rating.
Price is closing in on the handle high of its eight-month, cup-with-handle pattern. The stock can be taken above the 53.88 handle high.
Canopy Growth (CGC) was discussed in the Mar. 3 report (“The intriguing thing here is the recent double in just six weeks. This was met with selling which took the stock back nearly 20%. Price can be taken above the 51.81 cheater entrance pivot”).
This is a cannabis issue with per-share losses anticipated for ‘19/’20. Sales are up 33% and 350% in the two recent quarters. A 96 RS stock with a B+ acc/dist rating.
Price can be taken above the 51.81 of its five-week pattern. This is considered a cheater entrance because it would occur prior to a completion of the basing pattern. An alternative, more-aggressive cheater entrance would be the 49.86 high.
Evolus (EOLS) was noted in the Feb. 17 report: “The intriguing element here is the double in two weeks and the triple in seven. For very aggressive operators only, EOLS could be taken above the handle high of 30.25.”
The comment stands. This is a higher-risk issue because there are no earnings expected for ’19 and no revenue yet. Thus, it is a development-stage company.
Roku (ROKU) was noted in Wednesday’s report “(ROKU can be watched, but will need to move sideways at some point before it can be considered actionable”). This is a company with losses expected in ‘19/’20 and sales growth of 39% and 46% in the two recent quarters. A 99 RS stock with a B+ acc/dist rating.
This one is worth watching. It has been contained by the 9 ema during its entire move up the right side of its base. I would not expect it to form a five-day handle, break out, and then follow through. It will need to put in more time than that, in my opinion.
In sum, the market alternates between periods of running and periods of resting. The growth-stock glamours that this strategy favors are largely extended from recent basing patterns and are in need of rest. We should respect the need for most Watch List names to rebuild bases which should, in time, offer us another round of opportunities. Until then, patience will pay.
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 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.