Market participants await the outcome of the U.S.-China trade talks expected to culminate Friday. Since anything could happen, including another postponement of a U.S. threat to levy tariffs, the market is collectively holding its breath.
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. Just since the Sunday threat of increased tariffs was made known, some players have reduced long exposure as illustrated by the averages.
Just as important, leading stocks, especially Focus List names, appear transfixed by the caution hanging over this market.
On the bright side, most recent new issues are not falling apart, though there are exceptions such as JMIA. Thus, the speculative sentiment remains intact: People are not bailing out of the growth sector.
This type of market weakness can lead to a catapult-like effect, whereby the true leaders of this cycle spring back at the slightest sign of a recovering general market. This is when the Focus List and names listed in this report should be examined to see which ones most act like tennis balls as they bounce back quickly.
Among the names, Chipotle Mexican Grill (CMG) was discussed in Sunday’s report (“It can be taken above the 721.21 high of this pattern”). Tuesday, it took out this level, but made it just 21 cents higher to 721.42 before meeting up with sellers. The new entrance pivot is Tuesday’s high of 721.42. Earnings expected July 24 (unconfirmed by EarningsWhispers).
Ollie’s Bargain Outlet (OLLI) was noted in the May 1 report (“…can be taken above the 97.98 high of its breakout attempt”) and again in Sunday’s report. Wednesday, the discount retailer cleared the 97.98 pivot, +1.7% on -24% volume.
It can still be taken above Wednesday’s high of 99.11 for those who are looking to enter. This would be 1.2% past the pivot, and therefore, not extended. Earnings expected June 25 (unconfirmed).
Splunk (SPLK) was mentioned in the May 1 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).
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 19% and 17% in the two recent quarters. A 93 RS stock in a 98 RS group with an A acc/dist rating.
Price forms a seven-month cup-with-handle base with a constructive 10% deep handle. It can be taken above the 18.48 handle high. Earnings were released after the close Wednesday. At the time of this writing, price rose 2.5% to 18.18, or 30 cents shy of the pivot, in the afterhours session following the report.
Twilio (TWLO) was noted in Sunday’s report ("The stock can be taken if it clears the 137.19 high of Apr. 30"). The comment stands. Price has found support four times at the 50-day line over the past month. Earnings expected July 30 (unconfirmed).
Veracyte (VCYT) shows losses of $-0.32/$-0.22 expected in ‘19/’20, however these two years would represent the fifth and sixth consecutive years of shrinking red ink. Revenue swelled 31% and 47% in the two recent quarters. A 99 RS stock with a B acc/dist rating.
The medical research services provider has shown a bit more volatility over the past half-dozen sessions. This is due to a primary offering of shares and, more likely, the release of its earnings report.
(Using a semi-log price scale instead of an arithmetic, or linear, scale puts recent volatility in better perspective compared with volatility on the left side of the chart. This is especially true of a stock that has made a sizable move over the past year or more.)
VCYT traces a four-and-a-half-week consolidation with a 17% depth. It can be taken above the 26.75 pattern high of Apr. 8. Earnings expected July 30 (unconfirmed).
Workday (WDAY) was mentioned in Sunday’s report (“As a pullback setup, WDAY can be taken above Friday’s high of 203.79”). The comment stands. Earnings expected May 28 (confirmed).
Zendesk (ZEN) was discussed in Sunday’s report (“The stock can be taken above Friday’s high of 87.09, a shade higher than the initial pivot price of 86.85”). Monday, price barely cleared the 87.09 pivot and has idled since then. The new pivot is the Apr. 30 high of 87.92. Earnings expected July 30 (unconfirmed).
Zscaler (ZS) is expected to book a 42% profit increase in the July ’20 fiscal year. Sales have grown robustly, up 49%, 54%, 59%, and 65% in the four recent quarters. A 98 RS stock in a 97 RS group (security software) with a B acc/dist rating.
Price builds a five-week, head-and-shoulders continuation pattern with an 18% depth. It has found support at its 50-day line three times in recent weeks. It can be taken above the 72.94 pattern high. Earnings expected May 30 (unconfirmed).
In sum, we should be hesitant about fresh-money buys in light of the suspended animation shown by the above issues due to the uncertainty surrounding the U.S.-China trade talks.
Q: In your video today, you mentioned that the IPOs were not falling apart. What percent declines would we see in the recent IPOs like JMIA & ZM that would indicate to you that this may be a serious decline?
A: This is a good question. Seeing the biggest-gaining recent new issues come off 20% or more would be an indication that the speculative sentiment has been damaged. This could be expected to also impact some of the appetite for the speculative growth-stock glamours in which we prefer to traffic.
Many a market has this happen and is not adversely affected by it. Remember that the market does not absolutely need the growth sector to lead or even participate in a bull as long as money rotates into the other two prominent broad sectors: value/cyclical and defensive. Thank you for the question.
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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.