March 31, 2019

Stocks remain in the driver's seat as the six-day consolidation has been orderly, healthy, and necessary. Volatility has only slightly picked up, while volume stays below average.

Leadership consists of the original names that came out in January and February, and which are now forming second-stage bases, for the most part. Some of these bases are just two and three weeks in length. This presents us with a bit of a lull in terms of attractive setups.

As noted previously, this will be remedied either by a larger pullback in the averages or by the glamours simply tacking on more time to their patterns in order to increase their attractiveness to the speculator in aggressive-growth titles.

Ehealth (EHTH) shows earnings growth of 27%/43% for ‘19/’20 with sales expanding by 29% and 62% in the two recent quarters. A 99 RS stock in a 98 RS group. It sports an A- acc/dist rating.

This is a name that came out of a base in early January on +2% volume. Confirming volume did not kick in until six sessions later, making it a challenge to enter if you insist on at least +40% volume on a breakout. Six weeks after breakout, it had moved up as much as 63%.

(This week, I will be researching all the big winners of this bull market to see what percentage of them came out of bases on confirming volume vs. non-confirming volume. I did this informally in ’17 and found that perhaps 40%-45% of breakouts that were successful had non-confirming volume.)

EHTH can be taken above the pattern high of 67.44. A cheater entrance pivot exists at 65.00, but is not preferred.

Hubspot (HUBS) has some sterling fundamentals. The software developer is expected to log earnings growth of 28%/45% for ‘19/’20. Sales have been rock-solid at 39%, 38%, 35%, and 35% in the four recent quarters. A 94 RS stock in a 93 RS group. The acc/dist rating is a mediocre C+.

Most of the stock’s six-week flat base shows a dry-up in volume, a plus. It can be taken above the 180.00 pattern high on confirming volume. A cheater entrance pivot at 176.52 can also be considered.

Mirati Therapeutics (MRTX) is a high-risk issue due to its being a biotech company in the development phase (no earnings or revenue to speak of). Despite this, the shares went from 2 to 65 in 14 months’ time during ’17 and ’18. A 98 RS stock in an 84 RS group with an A- acc/dist rating.

A plus is the seven-straight days of below-average volume through last Thursday as price backed and filled. The stock can be taken above the 80.00 pivot high on confirming volume.

Paylocity (PCTY) is expected to book earnings growth of 59%/28% in the June ‘19/’20 fiscal years. Sales growth has been steady at 26%, 27%, 23%, and 25% in the most recent quarters. A 96 RS stock in a 98 RS group, the enterprise softwares. PCTY has a B acc/dist rating.

Price forms a six-month, cup-with-handle base. The handle, at five weeks in length, is 15% deep, which is considered acceptable. Price has outperformed in four of the last five sessions. It can be taken above the handle high of 92.50.

Sea Limited (SE) is an Internet content provider with no earnings expected for this year and next. Revenue growth has been extreme, however, up 65%, 81%, 118%, and 127% in the recent four quarters. Sequential revenue growth, or growth from one quarter to the next (not vs. the year-ago quarter), catapulted 38% in the recent quarter.

Ten percent sequential growth is considered impressive, with 20% being extremely impressive. Thus, 38% is off the charts.

Volume has been below average for the past week and a half as price digests its prior 56% gain over five days. The three-and-a-half-week base that SE forms is tight. It found support at the 20 ema Friday, a plus. The stock can be taken above the 25.14 pattern high.

There is some risk here due to the relatively short period of its consolidation pattern in relation to the big prior gain. (WIX) was noted in the Mar. 24 report (“WIX forms a four-week cup and needs more work to be considered attractive”). Earnings growth is expected to jump from 4% this year to 52% in ’20. Sales expanded 40% and 39% in the two recent quarters. A 93 RS stock in a 98 RS group, the enterprise softwares. The acc/dist rating is B-.

This is a higher-risk stock due to the 17% drop in response to its mid-February earnings report. Since then, it surged 8.5% on +135% volume on Mar. 20 as it formalized its bottom and moved up the right side of its base.

Price forms a five-and-a-half-week, cup-with-handle. It can be taken above the handle high of 123.24 set on Mar. 22, but only on confirming volume.

Workday (WDAY) is expected to grow earnings 22%/33% in the January ‘20/’21 fiscal years. Sales rose 34% and 35% in the two recent quarters. A 95 RS stock in a 98 RS group, the enterprise softwares, with a mediocre C acc/dist rating.

A minus is a lack of accumulation in its four-week pattern. On the plus side, volatility and volume have dried up over the past week-plus. The stock is buyable above the 200.00 pattern high, but only with confirming volume. This means at the time of breakout the stock should be on pace to close the session with volume at least 40% above its average 50-day volume of 1.9MM shares.

(If one buys the stock, only to find out at the end of the day that volume does not confirm, the stock can either be exited or given another day or two to see if confirming volume materializes.)

In sum, the extended nature of the averages and the original bull market leaders leaves the speculator with precious few pattern setups worthy of attention. The reduced number of issues covered above testify to that. Time and patience will allow us to seize the next round of opportunities.

Patience takes patience.

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 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.