The averages showed some subtle churning Tuesday and Wednesday, though any softness in this market should not be a surprise after the unbridled show of strength off the Dec. 24 low. As the Nasdaq chart shows, Tuesday volume increased on a reversal day, whereby a pattern of closes being higher than opens changes to one where an open is higher than the close. Wednesday then printed an outside bar with a trivial gain on the day amid higher volume.
Taken together, these days do not mean much to us, beyond serving as a reminder that a rising stock index will always at some point return to its moving averages. Otherwise, the leaders do not show much selling pressure, as institutions are content to stay invested in this market.
Alteryx (AYX) posted a 2-cent-a-share loss in ’18, and is expected to earn 40 cents this year and 73 cents next. Revenue growth swelled by 59% and 57% in the two recent quarters. So this name has a lot going for it fundamentally. A 98 RS stock in a 98 RS group, computer database software. However, it has a C- acc/dist rating.
The stock cleared a three-week consolidation Wednesday, +4.0% on +49% volume. It stands 1.3% above the pattern high, and can be taken above Wednesday’s high of 81.77.
Coupa Software (COUP) was noted in Sunday’s report in some detail. It is logical to expect some basing to happen after COUP’s 86% run-up over eight weeks. This has been occurring over the past five weeks or so.
The recent high of 99.64 of Mar. 4 can be used as an entrance pivot.
Huya (HUYA) is a Chinese name, along with Iqiyi (IQ), that exploded after it went public last spring. In HUYA’s case, it was up over fourfold within five weeks of its IPO. I was watching these names as their rush higher unfolded. However, the China-U.S. trade war dented most all Chinese issues, including these two.
HUYA is the leader in live-streaming gaming, which is becoming an emerging sport, sometimes referred to as “e-sports.” Fans watch their favorite gamers compete via streaming.
After a large drop, HUYA stock bottomed in December. Earnings growth is expected to be blistering at 50%/71% in ‘19/’20. Revenue growth has hovered in or near triple-digits in the last several quarters.
This stock is not for everyone, mainly because many of us do not like buying a stock like HUYA that is 45% off its high. Personally, I will make exceptions to this. Usually, I prefer entries in stocks that are within 15% or 20% of their high. This reduces the overhead supply of shares that causes friction, or resistance, as a stock moves higher.
However, I imagine there are some subscribers that are attracted to issues well off their high, as long as there is a potential driver to usher the price higher. HUYA can be entered on a pullback entry above Wednesday’s high of 27.94, with a suggested stop placed below Wednesday’s low of 26.41. This equates to 5.5% risk, or 2.8% de facto risk when a junior starter position is used (half-normal). This is a one-day setup. If it does not trigger Thursday, it is negated.
Note that stocks that have significant resistance cannot be expected to charge higher as a breakout setup to a new high might. Hence, patience should be exercised on this type of play.
Merati Therapeutics (MRTX) was discussed in the Mar. 13 report (“It can be taken above the 79.31 high of its pattern. Again, this is a higher-risk issue”).
As mentioned in Sunday’s report, “There were two major accumulation days, one on Wednesday and one of Friday. Each day, the gain and volume % increase were of consequence. The comment of Wednesday stands: The stock can be taken above the 79.31 high of its three-week pattern.”
The stock can be taken above Monday’s high of 80. MRTX is a higher-risk issue because it is a developmental-stage biotech company. Therefore, it has no earnings or revenue.
RingCentral (RNG) is an enterprise software company with negative earnings growth forecast for ’19 and 31% growth for ’20. Sales are rock-solid, with the last four quarters being 34%, 34%, 33%, and 34%. A 95 RS stock in a 99 RS group with an A acc/dist rating.
RNG forms a five-week flat base with a constructive depth of 11%. It can be taken above the pattern high of 109.84.
Sea Limited (SE) is a Singapore-headquartered Web platform combining e-commerce and entertainment. Losses are expected for ‘19/’20. Sales growth is giant, with triple-digits in the last two quarters plus a roughly 40% sequential increase in the recent quarter. A 99 RS stock with an A+ acc/dist rating.
Three weeks ago, SE jumped out of a six-month cup after earnings came out. In the earnings season that is largely over, for the better performers we saw price increases of 12%-20% and volume of +300% to +500% on the day following the release. SE surpassed nearly all, if not all, by surging 35% on +1,016% volume.
Another plus is its ability to easily absorb a primary offering of new stock that hit the market two weeks ago. Price forms an ascending triangle with a 12% depth, which is considered reasonable. It can be taken above the 25.14 pattern high.
Yext (YEXT). From Sunday’s report: “A very aggressive player can consider taking this above the pattern high of 23.28.” On Monday, price eclipsed the 23.28 pivot by four cents before reversing and returning to its consolidation area.
(It is to be remembered that numerous stocks do not automatically follow through after moving through their pivot. Sometimes, a second or even a third attempt are required before price finally breaks clear of its pivot and moves out. Each speculator must make a decision whether to take second or third attempts. There is no right or wrong decision here.)
The stock can now be taken above Monday’s high of 23.32. A risk is that a primary offering of shares was announced. This is expected to consummate on Tuesday, Mar. 21.
In sum, beneath the surface of the averages, not much of note has changed. Pattern setups remain few as the market deals with impressive strength in the Nasdaq. Let's stay patient and know that the market rarely stays in one mode forever.
Change is the only constant.
Q: I am new to after hours trading in stocks. I have watched it for years but not traded. I am curious if there is a specific logic to determine the limit price you enter for an after hours trade? Does the number of shares traded determine the limit price you set to get a fill on your order? Are there rules that are unique to after hours?
After watching your videos, I now see the advantage to this style of trading especially after earnings. Any insight offered would be helpful. I understand if you do not care to comment about this. If so, could you direct me to another resource that discusses this type of trading. Thanks.
A: These are all questions that are better-suited for your brokerage firm. I will say that if I enter afterhours, and the bid is 34.00 and the ask is 34.15, I will place a limit order to buy at 34.20. This increases the chances of getting filled right then and there, as long as there is liquidity. Emotions can run high afterhours and if a stock rises initially after the report, it can just as easily reverse and head lower. So it is definitely a risky proposition that you should be aware of.
Q: Hello Kevin, I was wondering if you could look at the Shopify chart, ticker SHOP. I have bought and sold it multiple times since mid 2017. I'm currently long and positive 89%. As you may know it has been a volatile stock. What are your thoughts when you see a chart like this, or and what would Bill say and do? With current price @$206, the white space is growing above the 20 and 50 day moving averages. It is a good thing…but curious as to your thoughts.. If this is too much to deal with please disregard and delete. Thanks.
A: After looking at the chart and considering your circumstances, there is nothing of value I can add to this. I encourage you to listen to your own drumbeat when it comes to when to exit a winning position. Everyone does it a little differently and, this is important: No one does it perfectly. Props to your success with the name. You might know that it is a favorite of mine, though I don't own it at present.
Q: First, thank you for your great service! I am a new subscriber, I should have subscribed earlier so that I could have got some of the big winners like TTD, TNDM, MDB. I have noticed that in your service you primarily mention about the entry point, rarely talk about the exit or stop place; I understand that different people might have different risk tolerance, but could it be asked that you share your exit or stop points more often in your service? Again thanks very much and you have a nice day!
A: Thank you for your support of the service. Have you read HTMMIS yet? In it, Bill O’Neil discusses stops. I suggest you choose a level no more than 7-8% from entry. I often use 5%, and 3% on some higher-risk positions.
To provide a “signal service,” which is what you are asking for, with entry, stop, and exits, would necessitate a price increase, as the going rate for these services is $99-$119 per month. There are no plans to change the Marder service price.
I have explained the two techniques for exiting a winning trade that are my preferred methods: moving averages and pivot low breaks. You should try using moving averages to start off with and then make revisions as time goes on.
If price rises 8%, move stop to break even or small profit. If price rises 15% from entry, move stop to 5% gain. (Bill discusses this.) When price rises 20%, sell half or all of position. Trail a stop behind a moving average (like 9 and 20) if you retain part of the position after being up 20%+.
If price rises 20% in the first three weeks, hold the position for at least eight weeks in order to see if this might become an outstanding actor.
This is one way to learn how to manage a position.
Q: Kevin, why do you prefer to trade based on Daily chart, instead of Weekly chart? I am considering incorporating the Daily timeframe to my trading.
A: Bill O'Neil operated a service called Daily Graphs in the 70s, 80s, 90s, and 00s. It was a chart book filled with daily charts and it was published each Friday. This is what everyone into O'Neil used to get their ideas for the coming week. This was before charting software became popular in mid-'90s. Most of us preferred the higher level of detail in the daily charts than the weekly charts. However, Bill himself prefers the weekly though he does consult the daily for a name he is interested in. Sometimes I will consult the weekly to look at distribution days and accumulation days in a base for a stock I am analyzing. But for me, I prefer the higher level of detail on the daily timeframe.
I hope this is helpful.
Q: Hello Kevin! I’m a new subscriber and learning your method. In the 3/14 video as it related to Coupa Software, you mentioned you did not like the latest consolidation too much because of a number of distribution days. Could you kindly specify what you term a “distribution day” and how many of such days during a set number of weeks would tend to raise a red flag for you? Also, i note you use a MA on volume, what period is it, please?
A: Please refer to the Glossary within the site’s Education section for a definition of distribution. A flag goes up when I see a stock with three major distribution days over the past several weeks. Most of the time, I ignore minor distribution days.
In COUP’s case, the stock printed seven major distribution days in its base, which I felt was excessive, and noted as much in the 3/14 video. However, it was not until the sixth major d-day when price finally caved in, coming off as much as about 17% from its high.
A 50-sma is used for the average of volume. This is considered the standard.
There are other subscriber questions that will be answered in future Marder reports.
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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.