March 3, 2019

Stocks operate under near-ideal technical conditions underpinned by a favorable interest-rate backdrop. We are seeing plenty of fresh merchandise make its way into the leadership ranks. This is part and parcel of a very healthy bull market.

Due to their recovery from the prior bear market, some of these names are just beginning to find their way onto the Watch List and Focus List, and one (QTT) is mentioned below. Other than that, speculators should continue to stay disciplined and follow their plan, be it less-aggressive, aggressive, or very aggressive.

It is not obvious but the Nasdaq Composite just completed a four-day pullback of sorts last week. The fact that this easing was all the bears could muster speaks.

Amarin (AMRN) is a biotech with per-share net of -33 cents in ’18, -13 cents for ‘19E, and +25 cents for ‘20E. So the improvement is there. Sales increased 17% and 44% in the two recent quarters. A 99 RS stock with an A+ acc/dist rating.

The intriguing thing about AMRN is the 781% move in just six weeks late in ’18. The ensuing correction of 50% is not considered excessive given the mega-gain. In the last six sessions, there were three major accumulation days where price moved 14%, 6%, and 9%. The stock can be taken above the 23.34 pattern high.

Chart MarketSmith

Arcosa (ACA) shows estimates of 22%/42% for ‘19/’20. The weak link with this name is revenue growth, which was just 3% and 8% in the recent two quarters. This is a 93 RS stock with an A+ acc/dist rating.

It would be preferable for the stock to put in at least two more days of handle formation before attempting to come out above the 2/28 pivot high of 34.99. The weekly chart’s price/volume correlation is pristine (not shown).

Avalara (AVLR) was noted in Wednesday’s report (“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”).

The comment stands.

Canopy Growth (CGC) is a cannabis issue with per-share losses expected of -1.26/-0.16 for the March ‘19/’20 fiscal years. A 97 RS stock with an A- acc/dist rating.

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.

Cronos Group (CRON) was discussed in Wednesday’s report and can be taken above the 22.96 cheater entrance pivot. A 99 RS stock with an A- acc/dist rating. Earnings expected Mar. 26.

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.

Godaddy (GDDY) was covered in Wednesday’s report (“Technically, price has held its gap move of last week well. It has formed a cup-with-low-handle and sits 10% from its record high. It can be taken above the handle high of 77.40”). Volume has dried up nicely in the last three sessions, indicating holders are not eager to lock in profits from the move up.

The comment stands.

 

Mimecast (MIME) was discussed in Wednesday’s report (“The stock has formed a 9%-deep two-week ledge. An aggressive player would consider this above the pattern high of 51.66. A positive is the overwhelming power shown on the earnings-related breakout, +13.7% on +649% volume. Another plus is the support found at the top of its prior consolidation”).

It can be taken above the 51.66 pattern high.

Proofpoint (PFPT) was noted in Wednesday’s report (“An aggressive entry would be on a takeout of the handle high of 121.72. A less-aggressive entry would require waiting for a longer handle to be built, albeit with the risk that price moves out in the interim”).

The comment stands.

Qutoutiao (QTT) is a recent addition to the Watch List. This Chinese Internet content provider shows an estimated loss for ’19, though sales have ballooned by triple-digits over the past seven quarters.

(This is an example of where analyzing recent sales growth offers us color that no other metric can. The recent quarter’s sequential revenue growth was nearly 100%!)

After coming public in September, price nearly tripled during its opening day. IPOs that double in their first two months or so are often future market leaders. A 99 RS stock with an A acc/dist rating.

Price forms a cup-with-low-handle and can be taken above the handle high of 14.44.

Sunrun (RUN) is in the suddenly-hot solar group, with a group rank of 98. Earnings growth is estimated at 270%/55% for ‘19/’20. Revenue growth was 42% and 58% in the two recent quarters. A 96 RS stock with a B+ acc/dist rating

(Acc/dist ratings of B+, A-, A, A+ are favored, but in the early stages of a new bull market it can take six or more weeks for some of the leaders to reach those levels as they rebound from prior periods of distribution.)

RUN rose 2.9% on +98% volume. The stock can either be taken around Friday’s closing level or above Friday’s high of 16.25.

Subscriber questions

Q:  I notice you had AMRN on your watchlist a few weeks ago. Chart is very strong. Why did you remove it? Seems to be up on speculation of buyout, or sales growth.

A: Good question. Thank you for it.

First, a few weeks ago it was not as strong (hindsight is always 20/20). Second, there was an extended period where it did nothing; this colored my view. Third, it was > 20% off its high, which added to my caution. Fourth, I figured if it did make a move, it could still be taken above the 23.34 pattern high. Fifth, the estimate and sales growth were mediocre at that time. It will be added to the Focus List with an entrance pivot of 23.34. Net-net, this should have been handled differently.

Q: Enjoying your work so far, thanks. I was just curious if you place the same emphasis IBD does on distribution days. IBD is showing a current count of 4 distribution days on S&P 500, but I've got one day rolling off from the 1/14 distribution day as it's been 25 trading days since it occurred. I'm curious if you agree with the current count of 4 (any idea why didn't one roll off as it's been well over 25 trading days?), and what emphasis you place on having 4 distribution days assuming we are using that count?

Do you use it as a minor indicator and assess how current positions / leading names are holding up as a confirming indicator that distribution days might hold more weight?

A: Thank you for your question. I followed distribution days for some years but stopped using them as a sort of mechanical system. When the averages are printing lower lows and lower highs it is a sign of a short-term downtrend. I would key on this as well as the volume on this downtrend more than a certain number of distribution days.