The averages remain in the driver's seat, with favorable interest rates and positive news from the U.S.-China trade talks providing the needed octane. We are in the most favorable three-month stretch of the year.
Very little has changed from last week's reports. The growth sector remains soft due to institutions seeking out cyclical groups that represent value and eschewing growth areas that had reached richly-valued levels. The most telling sign of this is the emphasis on the builders, which have seven spots in the Top 20 industry group table. When you see large players rotate into dusty, late-cycle industrial names like Illinois Tool Works (ITW), Dover (DOV), Ingersoll-Rand (IR), Nordson (NDSN), and Parker-Hannifin (PH), you know it is a mature bull market.
Amid this environment, a few names set up technically for the breakout trader. However, this is not a market suitable for backing up the truck. Caution should be exercised with respect to a portfolio's degree of long exposure. We will continue to see what pullback entries present themselves, with a goal of three per week or 12 per month. Whether this goal is attainable remains to be seen.
Among the names, Acadia Pharmaceuticals (ACAD) is a biotech which has lost money in recent years and is expected to do so this year and next. Sales have increased 46% and 62% in the two recent quarters. A 99 RS stock in a 80 RS group with a B+ acc/dis rating from MarketSmith.
Nine weeks ago, the stock soared 63% on +1,172% volume. It has been consolidating ever since. It is 13 days into forming a handle. The entrance pivot is the handle high of 44.10.
This is a very aggressive stock due to its history of losses, expectations for more of the same, and its biotech industry group. The bull thesis here rests on its 99 RS and impressive revenue growth. For aggressive players only. Earnings expected Jan. 29 (unconfirmed).
Crispr Therapeutics (CRSP) is a biotech on the cutting-edge of research. It was on a lot of aggressive traders’ radar screens in early ’18 before correcting in a major way. Losses are expected in ‘19/’20.
Price is working on a three-month consolidation, moving up 31% in just three days the week before last on a positive earnings report plus speculation of a potential takeover by Vertex Pharmaceuticals (VRTX). The stock is now seven days into handle formation.
This is something that is only for very aggressive speculators to consider above either 1) the pattern high of 53.90, or 2) a cheater entrance via the handle high of 52.28. There is a 3% difference between the two entries.
The takeover speculation adds to the elevated risk with this name. Earnings expected Jan. 27 (unconfirmed).
Franco Nevada (FNV) is a gold-oriented company centered on royalty streams. For gold-related issues, the fundamentals such as earnings and sales are less important than is the spot price of gold.
FNV forms a nine-week flat base with a reasonable 12% depth. The pattern high of 101.19 offers a suitable entry pivot pending the release of earnings. Earnings expected Nov. 11 (confirmed).
Global Payments (GPN) sets up as a buyable pullback in an uptrend (System R). Entry pivot is 170.33, suggested stop pivot is 166.55, and 1R target is 174.11. Trade risk is about 2.3%. Earnings expected Jan. 30 (unconfirmed).
Model N (MODN) is an enterprise software company that has bucked the bearish trend for software stocks. Earnings estimates are 27%/29% for the September fiscal year. Revenue growth has been 12% and 0% in the last two quarters with an A acc/dis rating.
The stock recently completed an eight-week flat base with attractive 8% depth. Volume on the breakout day was +114%. Last Wednesday, earnings came out and caused high volatility. Two days later, price appears to have calmed down and can be taken above Friday’s high of 30.18.
A suggested stop pivot is Wednesday’s low of 28.42 which equates to about 5.9% trade risk. A less-aggressive entry pivot would be the 11/4 high of 30.68. Earnings expected Feb. 4 (unconfirmed).
Qualcomm (QCOM) is no longer a growth stock, but is expected to record earnings growth of 17%/42% for the September ‘20/’21 fiscal years. Sales have been uneven recently, with 73% growth and a 17% decline occurring in the two recent quarters. A 97 RS stock in a 75 RS group with a B+ acc/dis rating.
In Wednesday’s report, it was noted that “Given the extended nature of the semiconductor group, let’s allow it to form a handle/pullback/sideways drift before considering entry should it break out in the next day or two.”
On Thursday, price blasted out of a six-month cup in response to Wednesday’s earnings release. It then followed through Friday, +4.5% on +129%. Price is 4% above the pattern high. This will be monitored for a pullback entry should it continue to advance. Earnings expected Feb. 5 (unconfirmed).
In sum, let's continue to play things close to the vest. While some long exposure is okay, it should be sparing. Our time to become more aggressive will come when the market is ready. In the meantime, let's see what develops with our pullback strategies.
Subscriber: Hi Kevin. I feel compelled to respond to the subscriber's comment of last night expressing disappointment over the service's recent use of System R. I won't reiterate the excellent arguments you made in support of System R to the effect that “we can't manufacture breakouts that aren't there, so System R makes us some money while we wait.” I have nothing to add to your comments and agree fully.
I would take it an additional step. System R has been a great tool for me personally to avoid FOMO while sitting out recent markets that offer a poor risk/reward ratio for breakouts. My impulsiveness now has an outlet in System R (which tightly constrains my risk), leading me to be far more patient with respect to larger breakout trades. And, even better, I can make a little money while waiting.
This has been a nice bonus for me as I don't much like shorting (bear market volatility is just too stressful for me) and so in the past I just waited out bad markets. I recall going more than a year without making a single trade many times, such as in ~2002, ~2008, and ~2015. Your System R has the potential to turn these doldrum periods into useful periods and also permit me to keep my trading edge, which dulls when I'm out of the market too long.
So I vote for System R and am very glad it is part of the service.
KM: Appreciate your taking so much time out of your day to respond in such detail! You sound like an experienced trader who knows himself well. Still very early days with System R, but let's see what it looks like after 60 trades. I shall share this in the Sunday report. Thank you for sending it and taking the time.
Subscriber: Kevin, I have been receiving your free reports for probably over a decade and appreciate the education on breakout trading. Do you have a tutorial on placing stops upon entering a trade for various strategies? System R you show stops but pullback and breakout you don't. Also, I must have missed the introduction to system R. What are the criteria or signals to finding stocks setting up?
KM: Thank you for your subscription to the service. I use three swing trader (pullback) entries: System R, System B, and my bread and butter setup. The bread and butter setup seeks to enter on a pullback in a solid trend as soon as a sign emerges, or is ready to emerge, that the pullback is over. Sometimes a volatility contraction is present. Examples are COUP which was a Focus List idea on June 12, and PAYC on June 12, which was not a Focus List idea.
These are the only details I can discuss, however based on subscriber feedback, once one sees some of these over time it becomes apparent what they look like.
From 1990-2009, I traded nothing but breakouts. Beginning in 2009, I spent over 5,000 hours on research of over 100 short-term trading systems during a several-year period. This is discussed on the home page. When it was over, I had developed a body of IP. I decided to keep it to myself for use in my own trading. I had no idea I would be operating a service someday.
This is after I had spent 25 years freely sharing with the general public every microscopic speck of information on position trading growth breakouts. All for free.
Someday I hope to write a book or course detailing everything. There is a learning center that is being built for the site which will discuss things like money management, exits, pyramiding and others so that a new subscriber can be brought to speed rapidly.
Subscriber: “The service cannot decide to add more ideas when they do not exist in the current environment. System R ideas were introduced to complement the service. Removing them does not mean more coverage of growth stock breakouts. The two are mutually exclusive: One does not affect the other.” – The Marder Report (subscriber Q&A) Nov 7, 2019
KM: Thank you for the vote of confidence. As my mother used to say: “To each his own, said the lady as she kissed the cow.”
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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.