May 1, 2019

From small to large, stocks sold off Wednesday following the Federal Reserve's afternoon announcement on interest-rate policy, which was less dovish than market participants would have liked. The S&P 500 put in its worst day in nearly six weeks.

The speculative sentiment did not appear to be dented by Wednesday's activity. The best-acting recent new issues, for example, do not show the worse for wear. These names are often the best canary in the coal mine for determining when the growth sector might be in for a soft spell.

Financial shares, the banks especially, have now outperformed the S&P over the last five weeks. This leading indicator has served as an effective long-term signpost of market direction.

Recent breakouts by Focus List names have for the most part stalled post-breakout. At this juncture, it is premature to know whether they are sending any type of message regarding the need for the growth sector, particularly technology, to pull back. Let's continue to take things one day at a time as we look to market action, and only market action, for our cues.

Among the names, Canopy Growth (CGC) is the prominent cannabis producer. While earnings are expected to be in the red for the next fiscal year, the expected loss is expected to be substantially less than what is estimated for the most recent fiscal year. Revenue growth was triple-digit in the recent quarter. A 97 RS stock with an A acc/dist rating.

The stock has shown three major accumulation days in the last eight sessions. Price poked its head above the top of its 11-week consolidation on Monday, but retreated  below the lip on Tuesday. Wednesday’s action was constructive as volatility and volume both receded. CGC can be taken above the Tuesday high of 52.74, or 1.8% above the 51.81 pivot. Earnings expected May 16 (unconfirmed).

Etsy (ETSY) was discussed in the Sunday report (“It can be taken above the 73.34 pattern high”). Earnings expected May 8 (confirmed).

Innovative Industrial Properties (IIPR) is a REIT (real estate investment trust) that acquires cannabis-related properties. Earnings are set to grow 108%/41% in ‘19/’20, per most Wall Street analysts. Revenue has grown at triple-digit rates for the past five quarters. A 99 RS stock with a C+ acc/dist rating.

IIPR traces a five-and-a-half week base and can be taken above the 93.24 pattern high. Earnings expected June 12 (unconfirmed).

Mimecast (MIME) shows a beefy 85% estimated earnings growth rate for the March ’20 fiscal year. Revenue growth has been 30% in the last two quarters. A 96 RS stock in a 97 RS group with a B+ acc/dist rating.

Price forms a 10-week consolidation with a 16% depth. It can be taken as a pullback entry above the 52.21 high of Wednesday. Earnings expected May 13 (confirmed).

Ollie’s Bargain Outlet (OLLI) shows expected earnings growth of 17% in each of the January ‘20/’21 fiscal years. While this represents a slower estimated growth rate than the 20% minimum that is favored, the discount retailer represents diversification from the larger number of computer software names that dominate this cycle’s leading stocks and our Watch List.

Revenue rose by 19% and 10% in the two recent quarters. A 93 RS stock in a 74 RS group with an A- acc/dist rating.

OLLI’s strength is its seven-month consolidation, featuring several major accumulation days in the last five weeks. Longer bases produce bigger gains than smaller bases, hence the adage “The longer the base, the farther they race.”

With that said, OLLI should not be expected to put up gains on a par with a faster-growing growth issue in a more-dynamic industry group. A week ago, price briefly emerged from its price pattern before retreating to below the pivot. It is now five days into a handle and can be taken above the 97.98 high of its breakout attempt.

Earnings expected June 25 (unconfirmed).

Splunk (SPLK) looks set for earnings growth of 26%/34% in the January ‘20/’21 fiscal years, according to most analysts on the Street. Sales increased by 40% and 35% in the last two quarters. A 92 RS stock in a 93 RS group with a C- acc/dist rating.

Price builds an eight-week cup with constructive 17% depth. Price is pulling back so as to create a handle. The stock can be taken above the handle high of 140.75.

Svmk (SVMK) is predicted by Wall Street analysts to post this sequence of earnings per share: -1.37/-0.07E/0.06E for ‘18’/’19E/’20E. Sales increased 18% and 19% in the two recent quarters. A 94 RS stock in a 98 RS group with an A acc/dist rating.

Price forms a seven-month cup-with-handle base and can be taken above the 18.48 handle high. Earnings expected May 8 (confirmed).

In sum, little has changed in this technology-led bull market. The pattern setups are there, along with our close attention to both trade execution and risk management. Let's be patient and see what this market gives us in terms of post-breakout follow-through.

Kevin Marder

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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.