November 13, 2019

The averages continue to respond to a backdrop of easier monetary policy and two-steps-forward-and-one-step-back progress on the U.S.-China trade talks. Accordingly, market participants have been loathe to sell this market.

The number of pattern setups has increased slowly. The difference with the current situation compared to earlier this year is that the better quality growth stocks remain well off their highs. Thus, the names setting up, and which are discussed in this report, are either more-speculative actors that are not institutionally backed or slower-growing titles like EPAM and GPN, whose valuation was not kited to premium levels.

What this means is that, for the most part, the real burners in the growth complex are nowhere to be found. This occurs as they make some progress at mending the damage done to their chart, though well off levels at which we would consider buyable or even stalkable.

It is important, then, to realize the difference in appreciation potential between names mentioned below and names mentioned prior to the late-summer sell-off in the growth sector. Value stocks are favored at this point in the cycle. The vogue for growth names remains tainted. Some are buyable, but the process of undoing the damage to the high-potential actors will take time and patience on the part of the position trader.

Among the names,10x Genomics (TXG) is a medical products developer which went public eight weeks ago. Losses are forecast by Wall Street for this year and next, though revenue jumped 76% and 67% in the last two quarters. A 91 RS stock in a 59 RS group.

The stock forms its first base and can be taken above the 61.28 high of its two-day mini-handle. This is a highly speculative name with an attendant higher risk level. Less-aggressive speculators might want to let a few more bars be added to the handle before considering entry.

Clarivate Analytics (CCC) shows earnings per share estimates as follows: -$1.56/$0.47E/$0.69E for ‘18/’19E/’20E. Revenue growth has been flat for the two recent quarters. A 93 RS stock in a 22 RS group (computer software – specialty enterprises) with a B- acc/dis rating.

CCC builds a 10-week flat base with 13% depth. It can be taken above the pattern high of 17.80. Earnings expected Feb. 4 (unconfirmed).

Datadog (DDOG) is an enterprise software company which came public eight weeks ago. Most Street analysts look for losses this year and next. Sales growth, however, has sizzled, with the last two quarters showing 82% and 88%.

Today, the stock leaped 16.8% on heavy volume after it released earnings. This allowed price to barely eclipse the high of its eight-week consolidation before easing to close 3% below this high.

DDOG does not present attractive entry at present, but should be monitored to see if it can consolidate its big gain constructively.

Epam Systems (EPAM) is in the computer – tech services group. Most analysts see earnings growth of 22%/20% for ‘19/’20. Sales have grown steadily at 24% and 26% in the two recent quarters. A 92 RS stock in a 70 RS group with a B+ acc/dis rating.

Today, the stock barely cleared its three-month, 16% deep consolidation before closing slightly below the pattern high. Rather than take a position up here, it is preferable to let price digest this gain for at least a few days.

After all, this is not a barn-burner of an aggressive growth stock, but a more-moderate grower with an extreme level of earnings-growth stability. Focusing on the earnings growth estimates provides us with this insight into its character. Earnings expected Feb. 6 (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 10-week flat base with a reasonable 12% depth. The pattern high of 101.19 offers a suitable entry pivot, especially with earnings out of the way. Earnings expected Feb. 10 (unconfirmed).

Global Payments (GPN) shows expected earnings growth of 19%/22% for ‘19/’20. Revenue growth has been 12% and 29% in the last two quarters. A 93 RS stock in a 40 RS group with a B- acc/dis rating.

GPN forms a 10-week, cup-with-handle with 13% depth and 5% handle depth. It can be taken above its 174.11 handle high. Earnings expected Jan. 30 (unconfirmed).

This setup is not to be confused with the System R pullback setup mentioned in Sunday’s report.

Sonos (SONO) shows earnings-per-share estimates of -$0.16/$0.01E/$0.19E for the September ‘18/’19E/’20E fiscal years. Sales increased 13% and 25% in the last two quarters. A 92 RS stock in a 94 RS group with an A- acc/dis rating.

SONO forms a nine-week, cup-with-handle with a 19% depth and a 4.9% handle depth. Stock of the consumer electronic specialist can be taken above its 15.41 pattern high, pending the expected Nov. 20 earnings release.

In sum, the averages are in uptrends and a slowly growing number of fundamentally sound issues set up. Due to the difference in quality vs. earlier this year, let's keep our expectations tempered as we participate in this rally.

Kevin Marder

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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.