The market remains beholden to the ups and downs of the U.S.-China trade talks, with Wednesday being the latest example of the volatility to which traders have become accustomed.
Beneath the surface of the averages, sector/group leadership continues to take a turn for the better. Specifically, the software and biotech groups show strong relative strength. These two segments are pivotal for the momentum player because this is where the disruptors live. Seeing them show such resolute price action is the best indication of a return of the risk-on mindset that is so necessary for the momentum player.
Someone has to take chances, which is what the term "speculative sentiment" is all about, and is what bull markets are made of. This rebirth of the speculative sentiment has caused our Watch List to expand above 50 issues.
Among the names, Agnico Eagle Mines (AEM) is a Canadian gold miner. Gold stocks may not have as much appeal as growth issues in the current market. However there will likely come a time when a speculator may appreciate owning one or more of them. Since the gold group is more dependent on the expected spot price for the metal than it is earnings expectations, the analysis here is on the technicals.
Agnico is a 94 RS stock in an 83 RS group with a C acc/dis rating. The stock sets up in a 12-week, cup-with-low-handle. It can be taken above the handle high of 61.67. Earnings expected Jan. 22 (unconfirmed).
Allakos (ALLK) is a development-stage biotech concern. As such, it has no earnings or revenue. A 98 RS stock in an 81 RS group with a B+ acc/dis rating.
In a single day in August, it soared 111% on gigantic volume of +1,528%. It then added 22% on +559% volume the next day. Over a three-day period, it nearly tripled. Since early August, it has been consolidating these tremendous gains. Over the past three days, it is +21.8%, with Tuesday and today occurring on volume of +90% and +81%.
Very aggressive players can take ALLK above the pattern high of 92.84.
Clarivate Analytics (CCC) shows earnings per share estimates as follows: -$1.56/$0.47E/$0.67E for ‘18/’19E/’20E. This equates to a 43% growth rate for ’20. Revenue growth has been flat for the two recent quarters. A 95 RS stock in a 33 RS group (computer software – specialty enterprises) with an A- acc/dis rating.
CCC builds an 11-week flat base with 13% depth. Tuesday’s +3.3% on +266% volume is notable. It can be taken above the pattern high of 17.80, a level it reached late in Wednesday’s session, going out at 17.79. Earnings expected Feb. 4 (unconfirmed).
Epizyme (EPZM) is essentially a development-stage biotech, with no earnings expected this year and next, though revenue in the last four quarters. A 97 RS stock in an 81 RS group with an A acc/dis rating.
The specialist in cancer treatments for patients with genetically-defined cancers formed a rising wedge over a two-week period. Note the volume dry-up as price inched higher. Tuesday it broke out of this wedge and followed through Wednesday. Then, it closed 7 cents above the high of its five-month consolidation after rising as much as 15 cents above it during the session.
EPZM can be taken by very aggressive operators above Wednesday’s high of 16.74. Earnings expected Jan. 29 (unconfirmed).
Franco Nevada (FNV) is a gold-oriented company centered on royalty streams. A 90 RS stock in an 83 RS group with a B- acc/dis rating.
FNV forms an 11-week cup-with-handle with a 12% depth and a tight 3% handle depth. The pattern high of 101.19 offers a suitable entry pivot, especially with earnings out of the way. Earnings expected Feb. 10 (unconfirmed).
GDS Holdings (GDS) is a Chinese operator of data centers catering to large Internet concerns and financial institutions. Losses are expected this year and next, though the expected deficit for ’20 is just 3 cents a share. Sales expanded 49% and 35% in the last two quarters. A 95 RS stock in a 49 RS group with an A- acc/dis rating.
Tuesday, GDS came out of an eight-week consolidation, +2.2% on +51% volume. Wednesday, it followed through, +1.7% on +117% volume. Price stands 2% above its pivot and can be taken around Wednesday’s close of 46.02. Earnings expected Feb. 13 (unconfirmed).
Kirkland Lake Gold (KL) is a Canadian gold miner. A 95 RS stock in an 83 RS group with B- acc/dis rating.
The stock forms a 10-week consolidation with 17% depth. It can be taken above the 51.08 high of its pattern. Earnings expected Feb. 5 (unconfirmed).
Natera (NTRA) is a medical research services provider with losses expected this year and next. Revenue growth was 18% and 19% in the two recent quarters. A 99 RS stock in a 61 RS group with a B acc/dis rating.
NTRA forms a four-week shelf after finding support at its 50-day line a week ago. It can be taken above the 40.92 pattern high. Earnings expected Feb. 5 (unconfirmed).
Paycom (PAYC) is an enterprise software outfit which the Street expects will grow earnings by 28%/25% for ‘19/’20. Revenue growth was 31% for each of the last two quarters. A 96 RS stock in a 53 RS group with a B+ acc/dis rating.
Wednesday, PAYC broke out of an 11-week cup, closing a minor fraction above the pattern high. Price was up 9.0% on +162% volume. While very aggressive speculators can take the stock above Wednesday’s high of 261.51, the preference here is to wait for a pullback due to its extended nature.
Sonos (SONO) shows earnings-per-share estimates of -$0.05/$0.18E/$0.29E for the September ‘19/’20E/’21E fiscal years. Sales increased 25% and 8% in the last two quarters. An 83 RS stock in a 92 RS group with a B- acc/dis rating.
SONO forms a 10-week cup-with-handle with a 19% depth and a 9% handle depth. Stock of the consumer electronic specialist can be taken above its 15.21 pattern high.
Stoneco (STNE) is a Brazilian payments processor with earnings expected to grow by 90%/42% in ‘19/’20. Sales have vaulted 59% and 69% in the last two quarters. A 93 RS stock in a 39 RS group with D- acc/dis rating.
Price forms an eight-week consolidation that is part of a larger, seven-month pattern with 49% depth. This is reasonable considering the stock’s 183% gain in three months during Q1. The stock can be taken above the 38.37 swing high of 11/4. Earnings expected Thursday, Nov. 21 (confirmed).
Switch (SWCH) operates data centers in Nevada. Earnings are predicted to grow 11%/150% in ‘19/’20. Revenue rose 9% and 14% in the last two quarters. A 96 RS stock in a 49 RS group.
The stock forms an 11-week cup with 18% depth. It can be taken above the 16.95 pattern high. Earnings expected Feb. 6 (unconfirmed).
In sum, the momentum player has the right groups beginning to work again, with bases and breakouts occurring in some software and biotech titles despite the on-again, off-again trade talks. This speaks louder than any indicator of sentiment.
Q: Thank you for your service and the diverse trade types you demonstrate. I really appreciate your discussions on money management techniques. I had a question on swing trades that hit the stop area before they go onto the entry trigger (like WLTW did today). Do you still consider those valid entries?
A: You are welcome and thank you for the feedback. Your question is excellent. In my forward test of System R, a trade was valid if it took out the stop and then took out the entry pivot. I would maintain the original 1R target (if you use one) and the original stop.
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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.