May 5, 2019

Stocks snapped back from a mild three-day pullback Friday that saw the Nasdaq Composite give back just 2.4%.

Any market comment is likely to be out of date given the substantial Sunday evening sell-off in the June Nasdaq future, off 2.4% as of this writing. The S&P future was down 2.1%. The weakness is due to news that the president was considering another steep tariff on China.

Otherwise, most Focus List names that crossed buy points in the last 1-2 weeks have shown nice follow-through. Let's use any weakness this coming week to observe which titles are holding up and not giving ground. These are the types that are likely to spring back once any market softness lifts.

Among the names, Canopy Growth (CGC) was mentioned in Wednesday’s report (“CGC can be taken above the Tuesday high of 52.74, or 1.8% above the 51.81 pivot”). The comment stands. If anything, the pullback of last week is a plus, as it likely removes some of the attention from the stock. Earnings expected May 16 (unconfirmed).

Chegg (CHGG) was discussed in the April 28 report (“It can be taken above the pattern high of 41.69”). The comment stands. Tuesday’s earnings release resulted in a 10% drop which the stock will obviously need to recover from. Before the report came out, earnings estimates were 24%/24% vs. the current 11%/28%. Earnings expected July 29 (unconfirmed).

Chipotle Mexican Grill (CMG) should put up earnings growth of 47%/29% this year and next, according to most Wall Street analysts who cover the company. Revenue growth was 10% and 14% in the two recent quarters. A 97 RS stock in an 83 RS group with a B+ acc/dist rating.

CMG was discussed here in January before it came out of a first-stage base. It was discussed again in February before it emerged from a three-week shelf (mini-base) pattern. It is pausing again to form a three-and-a-half week consolidation which found support at its 50-day line. It can be taken above the 721.21 high of this pattern. Earnings expected July 24 (unconfirmed).

Docusign (DOCU) shows some of the best two-year earnings growth estimates in the $13+ market for stocks, 82%/85% for the January ‘20/’21 fiscal years. Revenue has grown by a respectable 37% and 34% in the two recent quarters. An 89 RS stock in a 98 RS group with a C+ acc/dist rating.

The stock builds an eight-month base. It can be taken above the 59.62 high of its seven-week pattern-within-a-pattern. Earnings expected June 13 (unconfirmed).

Etsy (ETSY) was discussed in the Apr. 28 report (“It can be taken above the 73.34 pattern high”). The comment stands. Earnings expected May 8 (confirmed).

Ollie’s Bargain Outlet (OLLI) was noted in Wednesday’s report (“…can be taken above the 97.98 high of its breakout attempt”). The comment stands. Earnings expected June 25 (unconfirmed).

Splunk (SPLK) was mentioned in Wednesday’s report (“Price is pulling back so as to create a handle. The stock can be taken above the handle high of 140.75”). The comment stands. Earnings expected May 23 (confirmed).

Twilio (TWLO) is expected to record earnings growth of 0%/155% for ‘19/’20. Sales growth has exploded, up 54%, 68%, 77%, and 81% in the four recent quarters. A 98 RS stock in a 98 RS group with a B acc/dist rating.

Twilio forms a six-week flat base with a constructive 13% depth. On four different days, it found support at its 50-day moving average line. The stock released earnings this past week which caused price to clear the base, however sellers emerged to push the stock back below the lip.

The stock can be taken if it clears the 137.19 high of Apr. 30. Earnings expected July 30 (unconfirmed).

Workday (WDAY) is predicted to log earnings growth of 22%/33% in the January ‘20/’21 fiscal years. Sales increased by 34% and 35% in the two recent quarters. A 95 RS stock in a 98 RS group with a C acc/dist rating.

The stock was on the Focus List recently prior to its week-ago takeout of the eight-week base high of 200.00. On the breakout day, volume was -15%. As a pullback setup, WDAY can be taken above Friday’s high of 203.79. Earnings expected May 30 (unconfirmed).

Zendesk (ZEN) should put up earnings growth of 17%/122% for ‘19/’20. Revenue growth has been rock-solid at 41% and 40% in the recent two quarters. A 96 RS stock in a 98 RS group with a B- acc/dist rating.

ZEN, a favored name during the January/February market advance, cleared a five-week flat base last Monday on +25% volume. It then pulled back 6% below the base high. This may have triggered stops for some subscribers, depending upon whether they use a stop < 6% or > 6% from entry. In any case, price found support at its 50-day line Thursday, then turned in a 4% advance Friday.

The stock can be taken above Friday’s high of 87.09, a shade higher than the initial pivot price of 86.85. Earnings expected July 30 (unconfirmed).

In sum, Sunday evening's sell-off has added a wrinkle to what appeared to be a promising recovery from the averages' three-day pullback. While futures action overnight often does not correlate with what transpires during the next trading session, the extent of this bout of selling is notable. Let's use any further market softness as an opportunity to better sort out the leadership, i.e. the contenders from the pretenders.

Questions

Q: Based on your experience trading break outs, and always from a point of view of a trader that can't operate online, do you recommend using automatic stop loss or use end of day data to see if the day’s closing price is below some mental stop loss, and if broken, exit at next day open? Thanks for the help. Great service!

A: Thank you for your question and comment. I would place a stop loss order with your broker so that you are honoring an intraday violation of your stop, not end of day. I do not know what it is like in your country, but ideally you want to place a buy stop order that, when executed, will place a sell stop order which will execute upon an intraday violation of your stop.

Q: Besides your initial pilot buy positions at the beginning of the bull market or correction, do you recommend to be fully invested as soon as possible or sense the first positions and if these go ok augment the exposure gradually?

A: If the first positions begin to show a profit and the averages and leading stocks continue to act well, I would suggest adding exposure gradually. Once you gain experience with the method, you will have a better feel for what your comfort level is in terms of how quickly to add exposure post-correction or post-bear market.

Q: Do you have any recommendations regarding how or why to close a position before the initial stop loss?

A: If a stock is not following through post-breakout despite continued good behavior in the averages and other leading stocks, that would be one reason to close a position before price drops to hit the stop loss. Another reason would be if the desired amount of volume does not enter the stock in the first few days following entry. In essence, if the stock is not doing what you expected it to, the stock should be sold.

There is a fine line between being patient and allowing a stock to find its footing post-breakout and selling the position in order to invest the money in another promising actor. You might wish to review charts of past big market winners to see how much stalling action there was immediately after breakout, but before it began rising in earnest.

Q: Can you check and provide your expert commentary on CCMP?

A: Earnings are expected Wednesday, May 8. I would wait to see the market’s reaction to the report prior to entering.

Q: Do you recommend any constraints regarding the number of positions in one sector or industry? For example, not more than 50% of positions in one Sector or Industry?

A: I have never operated with specific, black and white maximums regarding exposure to one sector or industry. I think this is something you will need to answer for yourself and your unique makeup regarding risk tolerance.

Q: Do you think it's feasible to use two orders to pyramid a position? For example, 1st position 60% (at Pivot) and 2nd position of 40% at 3% from pivot (instead of 3 positions at pivot, 2/3% & 4/5%).

A: Yes, 60%/40% for pyramiding will work. There are other ways to add to a position besides the ones I have discussed.

Kevin Marder

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.