"The view here is that, for the time being, it is prudent to remain cautious about initiating fresh-money buys. The names mentioned below and on the Focus List are obviously actionable, but are best deployed after the market reacts in a positive way to some clarity on the trade talks."
The above was in the Wednesday report. Friday, the uncertainty lifted from the U.S.-China trade talks and the market responded accordingly by reversing a morning loss and rallying in the afternoon. This was what was necessary to see before moving off of our cautious stance referred to in Wednesday's report.
Growth stocks by and large act well, especially some of the recent new issues. The latter is important because their health gives us clues as to the speculative sentiment, and whether investors remain committed to taking risks.
However, at this writing Sunday, the Nasdaq future is down 1.19% on tensions with Iran and some fallout from the Chinese issue. Before issuing the coast-is-clear sign, let's see what happens Monday, specifically whether there will be some follow-through to Friday's substantial reversal.
Everbridge (EVBG) shows losses for ‘19/’20 but the trend is moving in the right direction. Sales grew 43% and 40% in the two recent quarters. A 97 RS stock in a 98 RS group with B- acc/dist rating.
As a pure momentum move, the stock can be taken above Friday’s high of 80.01, 4.3% above its prior six-week base high of 76.60. The strong RS line (not shown) is to be noted.
Frontdoor (FTDR) shows earnings growth estimated to be 1%/23% in ‘19/’20. Sales increased by 8% and 10% in the two recent quarters. A 94 RS stock in a 95 RS group with a B+ acc/dist rating.
Upon releasing earnings, price jumped 13% on +135% volume during Wednesday’s session. Price tightened Thursday and Friday while volume tapered off. The stock can be taken above the 40.00 high of its flag pattern.
This is an aggressive play seeing as how earnings growth and recent sales growth are not overly impressive. In other words, we are trading off the chart without much in the way of impressive fundamentals. It seeks to take advantage of a possible high-tight-flag pattern. These do not have a high degree of success, but when they work they can be quite profitable. For aggressive-to-highly-aggressive players.
Impinj (PI) shows earnings per share figures of -0.68/-0.24E/-0.01E for ’18/’19E/’20E. Revenue expanded 29% and 32% in the two recent quarters. A 98 RS stock in a 91 RS group with A- acc/dist rating.
In reaction to earnings, the stock soared 35% on +1,004% volume eight sessions ago. Compared with other reactions to Q1 earnings reports, this is one of the most impressive. Price forms a seven-day, high-tight-flag. It can be taken above 30.00.
Smartsheet (SMAR) shows losses for the January ‘20/’21 fiscal years. Sales growth has been rapid and steady, a desirable combination, with the figures at 59% and 58% in the two recent quarters. A 97 RS stock in a 98 RS group with B- acc/dist rating.
SMAR’s price action has been tightening over the past eight sessions on lighter volume. A cheater entrance presents itself above the 42.48 high of this mini-range.
Tufin Software Tech (TUFN) is a more-aggressive issue. It is a recent new issue that surged as much as 78% in its opening eight days. The security software title has been digesting this gain for three weeks. A 93 RS stock in a 96 RS group. There are no Street earnings estimates, perhaps due to it being so close to its IPO date.
As a cheater entrance, the stock can be taken above its 5/7 high of 23.67. An alternate entry would be above the 24.89 pattern high.
Tradeweb Markets (TW) is predicted to show earnings growth of -10%/12% for ‘19/’20. Sales have risen 56% and 17% in the two latest quarters. A 95 RS stock in an 85 RS group.
TW came public five weeks ago. By its eighth day of trading, it had risen as high as 64% from its offering price. Recent new issues that advance 50% in their first two months of trading are names worth paying attention to. The volume dry-up in the last three weeks is notable. It says that profit-taking following the big move has not been worrisome.
It is preferred that TW pull back or form a handle prior to entry. Very aggressive players may seek to buy the breakout above the 44.25 pattern high.
Q: Long time follower from late 90s, enjoy your work. Saw your video on exits. I have a question on using the 20-day moving average vs. the 50-day average. You almost never seem to discuss 50d as a selling guide or add/entry points like Bill. Is there a specific reason for that. Thanks and grateful as always.
A: Thank you for your question. I always enjoy hearing from folks who have followed me for such a long time. I think the 50-day line is a fine place to exit a holding and I sometimes use it to sell the last piece of a position. It can obviously keep you in a big winner longer than the 20.
Some people like the 65-day moving average, which they believe offers support, but I have never seen the advantage of that. The 50 has the advantage of being a known area where institutions will add to a position. If price pierces that line, no matter how light or heavy the volume, and does not reverse within two or three days, it speaks of weak large-investor interest at a point which you would normally see it materialize.
Q: Have been tracking the names on your Focus and Watch List since that is the style I am most comfortable with and really want to excel at that type of trading.
Was watching ZS on Friday, looked like a great setup, saw it break through $70 and was considering taking a cheater entry, also considered buying on the pullback and reversal on the 15 min chart, but passed on both because I was not sure if I should be taking new positions in this market since it is in a down trend for the last five days and because it is such a news driven and volatile market.
Wanted to find out your thoughts on taking new positions during this pullback?
A: Thank you for your question. As indicated in the report above, the uncertainty related to the China trade talks lifted on Friday, sparking an afternoon sell-the-rumor, buy-the-news reversal and rally. The ability of the glamours to hold up during the five-day pullback was telling.
My private blog post sent during the Friday afternoon rally was an indication that the coast was clear for fresh-money buys. However, we will need to see some follow-through in the Nasdaq on Monday to become more comfortable. This in light of a substantial sell-off in the futures market Sunday evening. ZS is buyable, as it rests 0.8% above its 72.94 pivot.
Q: So far since I’ve been a member, your watch and focus lists have been all long positions. Are you going to cover selling short?
A: Thank you for the question. I prefer not to short when the trend is up, which it has been since Dec. 24. When the trend changes, yes. Shorting can be tricky when the trend is up and you are trying to short pullbacks in the trend, which is what is occurring now.
Q: Can you talk about recent periods where the Indexes were outperforming CANSLIM stocks?
A: Thank you for your questions. The growth sector is largely comprised of, in order of importance, technology, healthcare, and retail. I might suggest you going back and looking at a technology index to see which bull-market periods showed a lagging RS line vs. the S&P. Going back to ’11, you will find a 6-8 month period in ’12-’13, depending on which index you use. I once saw (perhaps in his book) where Bill O’Neil wrote that growth will lead a bull about 40% of the time. Since ’11, it has been much more than 40%. I believe this is because of the lower interest-rate environment (growth stocks are sensitive to rates) and the sheer pace of technological innovation. Data from a broad technology index does not go back before ’11, unless one wants to use a semiconductor index which is not an accurate representation of the sector.
Q: Can you talk about CANSLIM stocks with excellent fundamentals not performing well?
A: Growth stock fundamentals can remain solid while price languishes. This is because valuations reach a certain richness where institutions draw the line and no longer add to positions or trim positions. I first learned this in ’93 with Home Depot (HD). I owned the stock in ‘91/’92 when earnings growth was roughly 30%. During ’93-’96, the stock lagged despite earnings growth maintaining at about 30% or perhaps 25%. This is an example of why a long-term, buy-and-hold strategy does not work well with growth stocks.
Q: Can you talk about periods where you went to cash or you substantially reduced exposure?
A: I moved to 100% cash either prior to or coincident with or just after every bull market top since ‘90 (’90, ’98, ’00, ’07, and the ones that preceded mild bears in ’11 and ‘18). Two of these (’98 and ’00) I wrote about in my Marder Reports at the time. In ’87, before I read Bill’s book, I was fortunate enough to exit everything except one issue prior to Black Monday, when the Dow dropped 22+%. I do not recall sitting through any 8%-12% intermediate-term corrections. Since we know that growth stocks tend to correct 1 ½- 2 ½ or even 3 times the averages in a correction, corrections can easily send a portfolio of leaders down a substantial amount.
Q: How did you handle the Q4 market decline?
A: I went to 100% cash just before the close on Oct. 2 by selling the two names I held, Square (SQ) and Amazon.com (AMZN). I tweeted this on Oct. 4.
I do not own a crystal ball. My entry and exit decisions are based on the price/volume behavior of the averages, the action of leading stocks, and, secondarily, divergences.
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.